Management Discussion and Analysis (MD & A)

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Overview of the Historical Financial Position and Operating Performance

Overview of the historical financial position and operating performance from 2021–2023 are as follow;

The shareholders’ equity as of December 31, 2023 was THB 10,658.55 million, increased by 3.94 percent from THB 10,254.52 million at the end of 2022. This was resulted from a good operating performance that reflected on a rise in the Company’s retain earnings. The Company had registered capital of THB 2,639.22 million and retained earnings of THB 5,179.43 million.

Total revenues in 2023 amounted to THB 6,498.71 million increased by 15.56 percent from THB 5,623.60 million in 2022 as a result of a growth in portfolio. The major sources of revenues were from interest income form loan receivables which mainly were interest income from hire purchase business, accounted for 74.06 percent of total revenue in 2023 and 74.13 of total revenue in 2022.

The total profit for the year 2023 amounted to THB 1,218.77 million decreased by 19.40 percent from THB 1,512.14 million in 2022. The net profit margin ratio in 2023 was 18.75 percent decreased from 26.89 percent in 2022. The return on equity ratio in 2023 was 11.71 percent, decreased from 15.69 percent at the end of 2022.

The total portfolio before allowance for expected credit losses in 2023 amounted to THB 75,257.47 million, increased from THB 67,605.39 million in 2022 or increased by 11.32 percent. The NPLs ratio at the end of 2023 was at 4.70 percent of the total portfolio, increased from 3.47 percent at the end of 2022. This was the result of an increase in delinquency of the Company and its subsidiary. The allowance for expected credit losses to NPLs ratio was 62.32 percent at the end of 2023, decreased from 75.04 percent at the end of 2022.

Operating Performance by Business

Revenues

The total revenues of the Company and its subsidiaries during 2021 - 2023 equaled to THB 4,414.38 million, THB 5,623.60 million and THB 6,498.71 million respectively. The major sources of revenues were an interest income from loan receivables and service income.

Interest income from loan receivables

Interest income from loan receivables in 2021 - 2023 amounted to THB 3,807.93 million, THB 4,862.80 million and THB 5,657.71 million respectively. Interest income in 2022 increased 27.70 percent from 2021 and interest income in 2023 increased 16.35 percent from 2022. Interest income from loan receivables in 2021 - 2023 accounted for 86.26 percent 86.47 percent and 87.06 percent of total revenues respectively.

Interest income from hire purchase agreements

Interest Income from hire purchase agreements during 2021 - 2023 amounted to THB 3,288.02 million, THB 4,168.89 million, and THB 4,813.16 million respectively. The hire-purchase interest income in 2022 increased by 26.79 percent from 2021, income in 2023 increased by 15.45 percent from 2022 due to the expansion in the hire purchase portfolio and the increase of hire purchase interest rate. The hire-purchase account receivables before allowance for expected credit losses at the end of the year 2021 - 2023 equaled to THB 49,888.06 million, THB 60,637.60 million and THB 67,716.34 million respectively. The hire-purchase interest income accounted for 74.48 percent, 74.13 percent and 74.06 percent of the total revenues of the Company and its subsidiaries during the year 2021 - 2023 respectively.

Interest income from financial lease agreements

Interest income from financial leases agreements of the subsidiary (Bangkok Grand Pacific Lease Plc.) during 2021 - 2023 amounted to THB 63.58 million, THB 79.72 million and THB 85.70 million respectively. This income in 2022 increased by 25.39 percent from 2021 and income in 2023 increased by 7.50 percent from 2022. The increase was from an increase in financial lease interest rate. The financial lease receivables before allowance for expected credit losses at the end of the year 2021 - 2023 equaled to THB 1,114.15 million, THB 1,255.42 million and 1,325.25 THB million respectively. Interest income from financial leases accounted for 1.44 percent, 1.42 percent and 1.32 percent of the total revenues of the Company and its subsidiaries respectively.

Interest income from factoring business

Interest income from factoring business of the subsidiary (Bangkok Grand Pacific Lease Plc.) during 2021 - 2023 amounted to THB 2.88 million, THB 2.38 million and THB 0.09 million respectively. The factoring income in 2022 decreased by 17.36 percent from 2021. And the income in 2023 decreased by 96.22 percent from 2022. This decrease was due to the fact that the subsidiary has stopped providing factoring loans since the second quarter of 2023.

The factoring receivables before allowance for expected credit losses at end of the year 2021-2022 equaled to THB 126.84 million and THB 16.49 million respectively. For the year 2023, there was no factoring receivable because the subsidiary has stopped operating factoring business.

Interest income from loan agreements

Interest income from loan business during 2021 - 2023 amounted to THB 453.45 million, THB 611.81 million and 758.76 THB million respectively. The loan income in 2022 increased by 34.92 percent from 2021, and loan income in 2023 increased by 24.02 percent from 2022 due to the expansion in the loan portfolio from an increase in disbursement which was mainly from car loan business. The loan account receivables before allowance for expected credit losses at the end of the year 2021 - 2023 equaled to THB 4,599.74 million, THB 5,695.88 million and THB 6,215.88 million respectively. The interest income accounted for 10.27 percent, 10.88 percent and 11.68 percent of the total revenues of the Company and its subsidiaries during the year 2021 - 2023 respectively.

Service incomes

Service incomes during 2021 - 2023 amounted to THB 509.57 million, THB 638.10 million and THB 657.62 million respectively. Service incomes comprised of service income from insurance broker business, fee and other service incomes. Service incomes were mainly from service income from insurance broker business which accounted for 92.07 percent of service income in 2023.

Service income from insurance broker business

Service income from insurance broker business during 2021 - 2023 amounted to THB 435.05 million, THB 585.96 million and THB 605.48 million respectively. This income in 2022 increased by 34.69 percent from 2021 due to an increase of disbursement and penetration rate, and in 2023 increased by 3.33 percent from an increase of revenue from outside customers.

Other Incomes

Other incomes included penalty income, dividend income, income from solar PPA business and etc. Other incomes from the Company and its subsidiaries during 2021 - 2023 amounted to THB 96.88 million, THB 122.70 million and THB 183.38 million respectively. Other other incomes in 2022 increased by 26.65 percent from 2021 and incomes in 2023 increased by 49.45 percent from 2022. The increases in 2023 were mainly attributable to an increase in income from solar PPA business of the subsidiary.

Expenses

The Company and its subsidiaries’ expenses (including expected credit losses and impairment loss on assets foreclosed and finance cost, excluding income tax expenses) during 2021 - 2023 amounted to THB 2,905.07 million, THB 3,727.15 million and THB 4,969.87 million respectively. Expenses in 2022 increased by 28.30 percent from 2021 and expenses in 2023 increased by 33.34 percent from 2022. The major source of expenses was finance cost, followed by expected credit losses and impairment loss on assets foreclosed, and selling and administrative expenses. Details of expense are as follows:

Selling and administrative expenses

Selling and administrative expenses of the Company and its subsidiaries during 2021 - 2023 amounted to THB 1,049.22 million, THB 1,126.66 million and THB 1,281.31 million respectively. Selling and administrative expenses in 2022 increased by 7.38 percent from 2021 due to the growth of disbursement while the Company had better efficiency. The expense in 2023 increased by 13.73 percent from 2022 due to the increase of selling expense of solar PPA business, and employee expense from an increase of staff and the open of new branches.

The cost to income ratio in 2023 was 27.91 percent, increased from 26.26 percent in 2022 but decreased from 31.07 in 2021. Selling and administrative expenses accounted for 36.12 percent, 30.23 percent and 25.78 percent of the total expenses exclude income tax expenses of the Company and its subsidiaries during 2021 - 2023 respectively. The selling and administrative expenses were mainly employee expenses.

Expected credit losses and impairment loss on assets foreclosed

Expected credit losses and impairment loss on assets foreclosed expenses of the Company and its subsidiary during 2021 - 2023 amounted to THB 816.72 million, 1,264.88 THB and THB 1,779.05 million respectively. Expected credit losses and impairment loss on assets foreclosed in 2022 increased by 54.87 percent from 2021, and in 2023 increased by 40.65 percent from 2022. This was due to a write-off and an increase in delinquency. The increase in 2023 was also from an increase in loss from declining in value of asset foreclosed. The Company had expected credit losses and impairment loss on assets foreclosed to average loan receivable ratio in 2021 - 2023 equal to 1.34 percent, 1.68 percent and 2.09 percent respectively. The expected credit losses and impairment loss on assets foreclosed accounted for 28.11 percent, 33.94 percent and 35.80 percent of total expenses exclude income tax expenses during 2021 - 2023 respectively. The Company had expected credit losses to average loan receivable ratio (Credit cost) in 2021 - 2023 equal to 1.36 percent, 1.66 percent and 1.67 percent respectively.

Financial Cost

Financial cost was the main cost of the Company’s business which consisted of interest expenses and guarantee fees. The financial cost of the Company and its subsidiaries during 2021 - 2023 amounted to THB 1,039.13 million, THB 1,335.61 million and THB 1,909.51 million respectively. Financial cost in 2022 increased by 28.53 percent from 2021 and finance cost in 2023 increased by 42.97 percent from 2022. This increase was due to an increase of the borrowings amount to support the portfolio expansion and an increase of interest expense rate according to the increases of Policy Interest Rate. The interest expense rate in 2021 - 2023 were equal to 2.55 percent, 2.63 percent and 3.14 percent respectively. During the year 2021 - 2023, the financial cost accounted for 35.77 percent, 35.83 percent and 38.42 percent of the total expenses exclude income tax expense respectively.

Profit for the year

Profits during the year 2021 - 2023 for the Company and its subsidiaries amounted to THB 1,202.80 million, THB 1,512.14 million and THB 1,218.77 million respectively. The profit in 2022 increased by 25.72 percent from 2021 due to an increase of disbursement and the Company’s improvement in operating efficiency and cost management. The profit in 2023 decreased by 19.40 percent from 2022 due to a slowdown of disbursement, an increase in finance cost and expense of asset quality.

Net profit margin ratio during the year 2021 - 2023 equaled to 27.25 percent, 26.89 percent and 18.75 percent respectively. The earning per weighted average shares during the year 2021 - 2023 equaled to THB 2.62 per share, THB 2.86 per share and THB 2.31 per share respectively.

Financial Status Analysis

Assets

The total assets of the Company and its subsidiaries at the end of the year 2021 - 2023 amounted to THB 56,668.69 million, THB 69,148.57 million and THB 77,528.92 million respectively. Total assets at the end of 2022 increased by 22.02 percent from end of 2021 and total assets at the end of 2023 increased by 12.12 percent from end of 2022. The increase in total assets was mainly due to a growth of the number of the hire-purchase account receivables (net of allowance for expected credit losses) which were the main assets of the Company and its subsidiaries which accounted for 86.18 percent, 85.66 percent and 84.86 percent of the total assets at the end of the year 2021 - 2023 respectively. The main assets of the Company and its subsidiaries were summarized as follows:

Total portfolio

Total portfolio (net of allowance for expected credit losses) of the Company and its subsidiary at the end of the year 2021 - 2023 amounted to THB 54,396.31 million, THB 65,844.18 million and THB 73,052.27 million respectively. Total portfolio at the end of of 2022 increased by 21.05 percent from end of 2021 and total assets at the end of 2023 increased by 10.95 percent from end of 2022. The detail of types of portfolio are as follow;

Hire-Purchase Receivables

The hire-purchase receivables (net of allowance for expected credit losses) of the Company and its subsidiary at the end of the year 2021 - 2023 amounted to THB 48,837.71 million, THB 59,234.97 million and THB 65,790.00 million respectively. The hire-purchase receivables at the end of 2022 increased by 21.29 percent from end of 2021 and hire-purchase receivables at the end of 2023 increased by 11.07 percent from end of 2022. The disbursement in 2023 amounted to THB 29,421.96 million, slightly decreased from THB 30,024.62 million in 2022.

Financial Lease Receivables

The financial lease receivable (net of allowance for expected credit losses) of the subsidiary (Bangkok Grand Pacific Lease Plc.) at the end of the year 2021 - 2023 amounted to THB 1,081.89 million, THB 1,235.24 million and THB 1,300.34 million respectively. Financial lease receivables at the end of 2022 increased by 14.17 percent from end of 2021 and financial lease receivables at the end of 2023 increased by 5.27 percent from end of 2023. Financial lease disbursement in 2023 amounted to THB 615.04 million slightly decreased from THB 656.69 million from 2022.

Loan Receivables

The loan receivables (net of allowance for expected credit losses/ doubtful accounts) of the Company and its subsidiary at the end of the year 2021 - 2023 amounted to THB 4,411.85 million, THB 5,357.58 million and THB 5,961.93 million respectively. The loan receivables at the end of 2022 increased by 21.44 percent from end of 2021 and loan receivables at the end of 2023 increased by 11.28 percent from end of 2022. The increase in the loan receivables were mainly from to a growth of the disbursement of the Company and its subsidiary. The disbursement in 2023 amounted to THB 5,012.10 million increased 1.76 percent from THB 4,925.36 million in 2022. The majority of disbursement were from and car loan of the Company in the amount of THB 3,055.86 million and loan of the subsidiary in the amount of THB 1,956.24 million.

Quality of Receivables of the Company and its subsidiary

The Company and its subsidiary had the customer’s status classification under Thai Financial Report Standard 9 to assess the quality of the receivables. The Company classify receivables status by state of credit risk.

Table of the balance of hire purchase receivables of the Company and its subsidiary classified by State of credit risk as at December 31, 2023

Note: * The hire purchase receivables were calculated from the hire purchase receivables before subtracting allowance for expected credit risk.

Table of the balance of financial lease receivables of the subsidiary classified by State of credit risk as at December 31, 2023

Note: * The financial lease receivables were calculated from the financial lease receivables before subtracting allowance for expected credit risk

Table of the balance of loan receivables of the Company and its subsidiary classified by State of credit risk as at December 31, 2023

Note: * The loan receivables were calculated from the loan receivables before subtracting allowance for expected credit risk.

Non-performing loans to total lending (NPL ratio) at the end of the year 2021 - 2023 of the Company and its subsidiary were at 2.71 percent 3.47 percent and 4.70 percent respectively.

The adequacy of the Company and its subsidiary’s provision for expected credit losses

The Company and its subsidiary have adequate provision for expected credit losses according to financial reporting standards. Management judgement is used in estimating the allowance for expected credit losses of debtors who are having problems making principal and/or interest payments, with management taking into consideration analysis of debtor status performed on an individual and a group basis, the probability of default, estimated losses arising from the default, historical collection experience, collateral value, statistical data and economic factors. These are used in determining assumptions and forward-looking scenarios, as well as probability weighted outcomes.

The allowance for expected credit losses to NPL ratio at the end of 2023 was 62.32 percent, reflecting the adequacy of the provision for credit losses of the Company and its subsidiary according to financial reporting standards.

Land, Building and Equipment and Intangible assets

Land, Building and Equipment and Intangible assets (Intangible assets such as computer programs) of the Company and its subsidiaries at the end of the year 2021 - 2023 amounted to THB 168.64 million, THB 202.62 million and THB 497.63 million respectively. The increase in 2023 was mainly from solar cell equipment of the subsidiary's solar PPA business.

Assets Foreclosed

Assets foreclosed of the Company and its subsidiary such as vehicles and equipment repossessed from contractual customers’ default, at the end of the year 2021 - 2023 amounted to THB 122.07 million, THB 556.55 million and THB 1,570.43 million respectively, comprised of 217 contracts, 587 contracts and 1,522 contracts respectively. The increase of the assets foreclosed in 2022-2023 was a result of an increase in repossessed vehicles of the Company. However, the number of contracts of assets foreclosed are considered to be low compared to total contracts in 2021 - 2023 which were 55,656 contracts, 63,279 contracts and 69,912 contracts, respectively.

Total Liabilities

Total liabilities of the Company and its subsidiaries at the end of the year 2021 - 2023 amounted to THB 47,413.47 million, THB 58,894.05 million and THB 66,870.37 million respectively. The total liabilities at the end of 2022 increased 24.21 percent from end of 2021 and total liabilities at the end of 2023 increased 13.54 percent from end of 2022. The increases in liabilities were mainly from an increase in the borrowings to support disbursement and the growth of portfolio.

Table presents details of total liabilities of the Company and its subsidiaries

(Million baht)

Source: Audited 2021-2023 consolidated financial statements of Asia Sermkij Leasing Public Company Limited.

Note: ^1/Other liabilities consisted of lease liabilities, amounts due to related parties, income tax payable, other current liabilities, rental deposit, derivative liabilities, and provision for long-term employee benefit, etc.

The Company and its subsidiaries had short-term borrowings (Including the current portion of long-term borrowings that due within 1 year) at the end of 2021 - 2023 amounted to THB 20,882.61 million, THB 22,198.23 million and THB 31,931.36 million respectively, or equaled to 44.04 percent, 37.69 percent and 47.75 percent of total liabilities at the end of 2021 - 2023 respectively.

Debt to equity ratio of the Company and its subsidiaries at the end of the year 2021 - 2023 equaled to 5.12 times, 5.74 times and 6.27 times respectively.

Shareholders’ equity

Shareholders’ equity of the Company and its subsidiaries at the end of the year 2021 - 2023 amounted to THB 9,255.22 million, THB 10,254.52 million and THB 10,658.55 million respectively, increasing from operating profit. The retained earnings at the end of 2023 equaled to THB 5,179.43 million, increased from THB 4,719.75 million in 2022.

Return on equity during 2021 - 2023 equaled 15.66 percent, 15.69 percent and 11.71 respectively.

Liquidity

As at December 31, 2023 the loan repayment and the installment to be obtained in different period were summarized as follows:

(Million Baht)

The Company and its subsidiaries have the loan repayment due in 1 year more than installment expected to be obtained within 1 year in the amount of THB 3,474.09 million. However, this gap would not affect the Company and its subsidiary liquidity as the Company and its subsidiaries can always renew the loan agreement and can regularly issue new bond when it comes maturity. In addition, the Company and its subsidiaries still have the unused credit line from financial institutions amounting to approximately THB 11,462 million. These factors reflected the credibility and sufficiency in the financial status of the Company and its subsidiaries

The Company and its subsidiaries have improved the funding structure by gradually increasing the long-term borrowings to short-term borrowings ratio to prevent liquidity risk. In the end of 2023, the Company and its subsidiaries had long-term borrowings to short-term borrowings ratio at 89:11.

Cash Flow

The Company and its subsidiaries had the profit before tax during the year 2021 - 2023 amounted to THB 1,509.32 million, THB 1,896.45 million and THB 1,528.84 million respectively. After adjusting the non-cash expenditures and the change in assets and liabilities, the Company and its subsidiaries had the net cash flow used in operating activities during the year 2021 - 2023 amounted to THB 9,126.91 million, THB 10,250.89 million and THB 7,357.34 million respectively. This was mainly resulted from an increase in hire purchase receivables during the year 2021 - 2023 by THB 9,929.21 million, THB 12,229.53 million and 9,857.57 THB million respectively and the increase in loan receivables during the year 2021 - 2023 by THB 1,821.20 million, THB 1,212.00 million and THB 1,208.65 million respectively.

The net cash flow used in investing activities of the Company and its subsidiaries during the year 2021 - 2023 amounted to THB 10.25 million, THB 62.97 million and THB 310.35 million respectively. The net cash flow used in 2023 increased from 2022 due to an investment in equipment which was solar cell equipment for solar PPA business of the subsidiary.

Moreover, the net cash flow from financing activities of the Company and its subsidiaries during the year 2021 - 2023 amounted to THB 9,213.54 million, THB 10,443.77 million and THB 7,617.37 million respectively. The increase in 2023 was mainly from long-term debentures and borrowings.

Fulfillment of borrowing covenant obligation

The Company has to comply with the borrowing covenant by maintaining debt to equity ratio of not more than 10 times which the Company has always fulfilled the obligation. As of December 2023, the Company has debt to equity ratio at 6.27 times.

Relief measures to assist customers who were affected from COVID-19

The Company and its subsidiary provided debt restructuring measure to assist customer who were affected from Covid 19 pandemic. As of December 31, 2023, the company and its subsidiary had debts which are under the measures to assist customer totally 6.46 percent of total portfolio of the Company and its subsidiary.