SET-listed motorcycle leasing firm Group Lease Public Company Limited today (Nov 14, 2013) reported a sizable drop in profits in the 3-month period ending September, but the company’s top management has expressed confidence that the worst is over and profitability will pick up significantly from now on.
Revenue in the third quarter jumped 48.69% to 389.9 million baht from the same period last year on the back of aggressive sales which has become GL’s corporate hallmark. However, net profits dropped 56.92% to 45.6 million baht from 105.9 million baht over the same period. For the nine-month period ending September, revenue jumped 57.49% to 1,080 million baht while net profits were 9.32% lower at 227 million baht.
GL chairman and chief executive Mitsuji Konoshita attributed the lower performance in the third quarter to high provisions for bad and doubtful debts that were necessitated by late payments by clients. There were also larger-than-expected losses from low resale value of re-possessed motorcycles. He said these were the results of the general economic slowdown, political uncertainty and flooding in several Central Plains provinces.
According to GL’s filing with the SET today (Nov 14, 2013), provisions for bad debts and doubtful accounts rose from 8.59 million baht in the third quarter last year to 96.20 million baht in the same period this year. The jump was in line with the company’s continuously aggressive expansion of its hire-purchase portfolio over the past year. The large increase in provisions was also made from a very low base last year and reflected more conservative provisioning criteria that were enforced at the end of 2012.
Mr. Konoshita stated that GL’s management is not concerned with the lower profits in Q3 since the outlook in the current quarter and well into next year looks very promising. Sales revenue has continued to grow substantially while the overall market sentiments have now started to improve. The high provisions for Q3 can be (partially) reverted back to profits in the future once overdue accounts return to pay.
Another factor that will have an important bearing on future profitability is GL’s operations in Cambodia. “All start-up expenses for the Cambodian business have been consolidated in Q3. We will reach the break-even point there in the current quarter, which means from next year onwards we will start booking profits from Cambodia,” Mr. Konoshita stated.
On top of motorcycle leasing, GL has recently entered into an agreement with Siam Kubota Corporation to take over the financing of Kubota agricultural machinery sales in Cambodia while it has also been negotiating to take over a sizable micro-finance firm there. Owing to the strong growth potentials in Cambodia, Mr. Konoshita stated that overall profitability there could match or surpass that of Thailand in the next few years.