Group Lease ready to roll regionally
GL started as a motorcycle financing business and by 2010 had become one of the top 10 in Thailand. Until 2011 we were focused purely on Thailand, where we have nearly 250 points of sale. But as a result of the floods in 2011, we accelerated our plans to expand across Cambodia, Laos, Myanmar and Vietnam.
SET-listed Group Lease Plc (GL) operates a motorcycle hire-purchase business, mainly for Japanese motorcycles with well-known brands such as Honda, Yamaha, Suzuki and Kawasaki. Chief executive Konoshita Mitsuji discusses the company's strategy and outlook.
What is GL's business model?
Group Lease's goal is to help customers acquire the equipment they need to be productive, says chief executive Konoshita Mitsuji.
Today we're the market leader in Thailand. We finance motorcycles in Thailand and Cambodia, offer collateralised loans on motorcycles in Thailand and finance agricultural machinery, specifically Kubota, in Cambodia. Our key theme is we want to provide financing for the tools and equipment our customers need in order to be productive.
How is business progressing in Cambodia?
We entered Cambodia over a year ago with an exclusive arrangement to finance Honda motorcycles. Today we have 153 points of sale: 131 for Honda and 22 for Kubota. We're leasing 2,000 motorcycles a month, and this figure is growing by 15% per month. Kubota financing is worth 100 million baht a month and growing strongly as well.
Finally, we've begun financing for solar panels in Cambodia on a small scale to test the market. Thus, in Cambodia today we have a total portfolio of US$35 million and plan to increase it to $100 million.
In mid-2014, GL acquired Tanabun. What were the reasons, and what effect will it have on GL?
We took the strategic view that GL needed to take advantage of the poor economic environment in 2013 and 2014 to look for acquisition targets. We acquired full control of Tanabun from the Thai Credit Retail Bank at book value. Its business model is a wonderful addition to our current offerings, as it focuses on motorcycles for cash or collateralised loans, which is the next step for GL. The Tanabun business has since improved to 1,000 a month from 200 motorcycles.
How is GL financing its expansion throughout Thailand and the region?
Currently GL's debt-to-equity ratio is very low at 1.8 compared with an average of 5-8 for the industry, so we have the leeway necessary to leverage further if required. We have also made three successful warrant issues in the past five years. The first two were very successful, with exercise prices at two and 3.50 baht a share, while a third warrant has an exercise price of 10 baht a share, which we fully support as major shareholders and have exercised ourselves.
What differentiates GL from its competitors?
Our target customers are not based in cities but mainly rural areas. Our extremely strong network, unique point-of-sale system and technology at each site allow us to be flexible, cost-efficient and quick to approve a new loan. In Cambodia, for example, we can approve financing within a day, whereas our competition requires three weeks.
What are the biggest risks facing your business?
Given that most of our customers are in rural areas and engaged predominantly in agriculture, any effect on their income such as from a natural disaster would have a negative effect on us. Demographics are also important when we look to expand. If a country has characteristics such as those of Japan, Singapore or the US — low interest rates and an ageing population — then our business model will not be as successful as it can be in this region.
How will the Asean Economic Community affect your business?
Asean used to be considered a source of cheap labour to manufacture goods for other markets but now has its own middle class that is booming in terms of purchasing power. We are very positive about this region. We're established in Cambodia, while in Laos we have 40 people ready to start working once we receive licence approval from that country's central bank. The goal there is to have an even more asset-light business than in Cambodia. We're also exploring opportunities in Myanmar and hope to have a presence in Vietnam and Indonesia.
Where do you see GL in five years?
Over the past 12 months we have focused on expanding our portfolio, improving our dealer relationships and creating the infrastructure needed to ensure we can acquire the highest-quality customer base. In Thailand we are averaging 5,000 to 6,000 new leasing contracts a month and comfortable with this size, hoping to expand it by 10-15% per year.
Combined with Cambodia we want our total portfolio to reach $200 million, and over the next five to 10 years we plan to continue to expand further in terms of portfolio size, product offerings and locations. We'll continue to focus on small-scale financing. Ultimately we want to service tens of millions of customers and achieve market capitalisation of $100 billion.
The Executive Q&A Series is presented by ShareInvestor, Asia's leading financial internet media and technology company and the largest investor relations network in the region, with more than 500 listed clients. This interview was conducted by ShareInvestor. For more information, e-mail email@example.com or visit ShareInvestorThailand.com