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14 March 2013
Buana Finance Rating

RATIONALE

EFINDO assigned its a rating to PT Buana Finance Tbk (BBLD or the Company). Outlook for the corporate credit rating is ‘Stable’. The ratings reflect the Company’s long standing presence in leasing business, very strong capitalization and sound profitability. However, the ratings are constrained by its exposure to high risk business sectors  and  high Non-Performing Receivables.

The Company was established on June 7, 1982, under the name of PT BBL Dharmala Leasing. BBLD is a finance company, which focuses on leasing business. It also provides financing for new and used cars, as well as factoring. As of Dec. 31, 2012 (FY2012), the Company’s shares were 67.6% owned by PT Sari Dasa Karsa, 8.1% by PT Asuransi Bina Dana Arta Tbk., 6.2% by Barclays Bank Plc Hongkong – Wealth Management, and the remaining 18.1% shares were owned by public.

The ratings reflect the Company’s:

  • Long standing presence in leasing business. The Company specializes in leasing business with over 30 years of experience. We believe that its long business presence should provide the Company better market understanding. Long standing relationship with some good customers also has enabled the Company to maintain its business position amidst the tightening competition. Moreover, the Company is supported by its close relationship with its dealers, which we believe as one of the keys to BBLD’s business model.
  • Very strong capitalization. PEFINDO views that the Company has a very strong capitalization profile. As of FY2012, BBLD recorded total equity of IDR1.0 trillion. The figure was resulted from its strong profit accumulation and the distribution of bonus shares, which were issued from the capitalization of the share premium. In terms of financial leverage, BBLD’s Debt to Equity (DER) ratio in FY2012 was low at 2.4x, much lower than the regulatory maximum of 10.0x. The Company will also maintain its Dividend Payout Ratio (DPR) at less than 50% should its DER reach 3.0x. Given its large equity base and low leverage, PEFINDO views that the Company should have a favorable cushion to absorb potential business risks and support its moderate growth projection going forward.
  • Sound profitability. Although BBLD’s Net Interest Margin (NIM) declined to 10.1% in FY2012 from 11.0% in FY2011 due to tight competition, its profitability indicators remain considered strong. Its high margin was mainly supported by the Company’s focus in medium-sized companies for its leasing business and targeting used car consumer financing, which offers higher margin. In terms of operating efficiency, the Company managed to improve its Cost to Income Ratio (CIR) to 30.2% in FY2012 from 34.9% in FY2011. The Company’s CIR is favorable compared  to its  rated  peers in our  portfolio that have averaged around 44%. With effective cost management and high NIM, the Company reported a high return on average asset ratio (ROAA) at 4.7% in FY2012 which was above its peers’ average in our portfolio of 3.8%. By maintaining its strong financing growth combined with efficient operation, PEFINDO views that the Company should be able to maintain its favorable bottom line figure in the future. The above ratings are constrained by:
  • Exposure to high risk business sectors. As of FY2012, more than 60% of BBLD’s account receivables came from construction, mining and agribusiness and forestry sectors. Therefore, the Company’s business growth and quality of receivable will be highly dependent on those sectors. Despite the expected strong growth of construction business in the medium term, construction business in
    the long term remains highly exposed to a number of unpredictable factors such as government’s commitment to infrastructure development, inflations and interest rates. As for mining and agribusiness sectors, demand for the leasing business highly depends on the commodity prices, which will in nature fluctuate depending on supply demand dynamic. PEFINDO views that external risks beyond the Company’s control as described above could subsequently impact the Company’s performance.
  • High Non-Performing Receivables. The Company’s Non-Performing Receivables (NPR) to Net Service Asset (NSA) Ratio (OD>60 days) for its leasing segment has increased to 3.5% as of FY2012 from 2.4% as of FY2011, higher than its leasing peers’ average of below 1.0%. The Company’s NPR (OD>30 days) for consumer financing segment also increased to 6.4% from 4.6% during the same period, which is also higher than its peers’ average of around 3.2%. The Company’s relatively high NPR was attributable to the challenging economic conditions affected by declining commodity prices and change in government regulation affecting export of some mining commodities. PEFINDO will closely monitor the result of the Company’s effort to reduce its non-performing receivable, which includes  the establishment of collection and remedial units that are responsible to handle receivables’ collection.

 

OUTLOOK

A ‘stable’ outlook is assigned to the corporate rating. The rating may be raised if the Company could significantly improve its market share in financing industry on a consistent basis.  On the other hand, the rating may be lowered if there is a material deterioration in the Company’s asset quality or profitability.


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