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A few smart survivors

Prudence during boom years paying off for National Finance

The re-entry of non-performing loans, high operating costs and a low revenue base are the major constraints on Finance and Securities stocks, according to analysts.

Many of the firms that survived the 1997 purge have had to undertake painful structural reforms to maintain competitiveness and future prospects of steady revenue streams.

An analyst said market capitalisation of the sector had fallen by more than 50% since the 1997 crisis, as a result of the closure of 56 finance companies and falling share values.

However, there have been some bright spots. The National Finance Group, for one, has been rewarded for the conservative policy it pursued during the economic boom.

Among the 20 listed firms in the sector ranked for one-year Total Shareholder Return, National Finance delivered 70.9%. Its subsidiary, Ekachart Finance, was the sector leader at 271.5%, followed by MFC Asset Management at 77.5%. Scandinavian Leasing placed last at -10.9%.

An analyst said one strength of National Finance was its client base and good prospects for future income if Ekachart Finance obtains a licence to operate a restricted bank.

The institution, named Thanachart Bank, would be able to carry out all banking operations except cheque clearing. Being able to accept fixed deposits and trade foreign exchange would help strengthen the position of the National Finance Group to expand its client base. Healthy consumer demand would also help strengthen the automobile leasing and mortgage loan businesses, given low interest rates, analysts said.

But low trading volume in the stock market will be a major constraint on the revenue prospects of finance and securities companies overall. Commissions are a major revenue source but they have been deregulated for the past year and price competition has driven some rates down to negligible levels.

Sirinattha Techasiriwan, an analyst from KGI Securities Plc, said revenue would improve if regulators devised steps to return to fixed minimum com missions, but no decision has been made on that score.

An analyst from Siam Industrial Credit said the re-entry of bad loans, as a result of the poor economic outlook, had eaten away the profit prospects of the sector, as lenders needed to increase loan provisions.

Kiatnakin Finance _ one of only two finance firms allowed to reopen after the 1997 closings _has moved aggressively to solidify its position, chiefly by expanding its portfolio through the acquisition of assets of other financial institutions.

If one considers short-term shareholder returns, the companies likely to do best in the next year are Ekachart, National and MFC, reflecting the strength of their balance sheets and revenue prospects.

MFC Asset Management, for example, was appointed by Krung Thai Bank to be its sole provident fund manager, providing a new revenue stream.

Leasing companies are expected to produce excellent yields on shareholder returns in the long-term.

Also worth watching is KGI Securities, which has won SEC approval to buy a 25% stake in One Asset Management from Bank Thai, giving KGI 100% ownership of the fund-management company.

- Parista Yuthamanop