SAWAD Shares Down 7% amid Concerns over Possible Rise in NPLs in 2Q

Shares of Srisawad Corporation Pcl. (SET: SAWAD) fell about 7% on Wednesday amid concerns of the prospect of high non-performing loan (NPL) in the second quarter.

The share price of SAWAD dropped THB3.75/share, or 6.67%, to THB52.50/share, with a trading value of THB997 million.

Concerns over asset quality over the next 6-12 months following aggressive hire purchase (HP) loan expansion since 2022 have prompted CGS-CIMB Securities to maintain its “Reduce” rating and THB49 price target for SAWAD.

The 1Q23 NPL ratio remained unchanged at 2.5% due primarily to the higher loan base (+80% YoY). NPL rose from THB1.4 billion to THB1.6 billion quarter over quarter, with the majority of the growth attributable to motorbike HP.

According to CGS-CIMB’s note on Wednesday, the 2Q23 NPL ratio should be roughly the same. Meanwhile, the loan base in 2Q23 is still aggressively higher (at least 8% QoQ). Thus, the NPL amount is growing significantly.

Moreover, according to SAWAD, an NPL rate of 2.5% is way too low. Depending on the state of the economy and the SAWAD collection policy, the NPL ratio may reach a more typical range of 3.0% to 4.00% in the coming year. Given the increased likelihood of default and loss given default from HP, CGS-CIMB anticipates a rise in credit cost from 140 basis points in 1Q23.