Bangkok--18 Oct--Fitch Assigns
Fitch Ratings (Thailand) has today assigned an 'F1(tha)' National Short-term rating to Kim Eng Securities (Thailand) Public Company Limited's (KEST; 'A(tha)'/Stable) up to THB2.0bn bill of exchange (B/E) revolving programme (each B/E with tenor not exceeding 270 days).
The B/E programme will mature in March 2011, and the proceeds will be used to fund growth in margin lending, derivative warrants and for working capital purposes. The rating takes into account KEST's solid brokerage franchise in the Thai market, strong support from its parent, Kim Eng Holdings Limited of Singapore (KEH), as well as its strong capital and liquidity positions. KEST also maintains a conservative strategy with less exposure to higher-risk and volatile businesses, which has helped stabilise its performance through the cycle. Meanwhile, market risks appear moderate with relatively small proprietary trading, although the agency notes that its launch of derivative warrants has increased its risk profile.
KEST's performance has been relatively stable in H110, yoy, despite the liberalisation of brokerage commissions since the start of 2010. KEST reported net profit of THB271.2m in H110 (H109: THB279.5m). Its brokerage income increased by 5% yoy to THB998.8m, despite a reduction in brokerage fee, thanks largely to stronger business volume, especially in Q210, although this was largely offset by higher operating expenses. Trading volumes further recovered in Q310 which should support a stronger performance in H210. Securities and derivative brokerage remained the major source of income, accounting for 89% of total revenue in H110 (2009: 88%). ROAA and ROAE were relatively strong at 8% and 13%, respectively, in H110.
Nonetheless, KEST has a high exposure to margin lending, versus local peers, given its larger base of retail customers who are the main borrowers. Margin loans continued to increase to THB3.193bn at end-June 2010 (about 75% of equity) from over THB2.0bn in 2009. Despite that, credit risk remains moderate, given the risk mitigation through margin calls and forced sales. Non-performing receivables, most of which is a legacy from the 1997 crisis, remained stable yoy at THB291m at end-June 2010, or about 5% of total and are fully provisioned.
KEST mainly funds its operations with equity, while most of its liabilities are securities and derivatives business payable (accounting for 36% of total assets at end-June 2010). KEST's total equity at end-June 2010 stood at THB4.3bn, down from THB4.5bn at end-2009, as a result of large dividend payout. The equity is of high quality, consisting mainly of core equity. KEST's Net Capital Ratio (NCR) was strong at 133.12% at end-June 2010, versus the Securities and Exchange Commission requirement of 7% for all securities firms in Thailand. Equity to Asset ratio is still strong at 55.2% at end-June 2010, despite a sharp decline from 73.6% at end-2009, as a result of strong business volume over the last three business days in June 2010 which increased its securities business receivables.
KEST is a subsidiary of KEH, the largest securities broking group in Singapore; KEH currently holds 55.9% of KEST. KEST has a strong brokerage franchise with a 12.5% market share in H110, ranking first among Thai brokerage firms. The company also provides other services including derivative trading, underwriting, advisory and securities borrowing and lending.