Bangkok--16 Dec--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Kim Eng Securities (Thailand) Public Company Limited’s (KEST) National Long-term at ‘A(tha)’ with a Stable Outlook, and Short-term rating at ‘F1(tha)’. Fitch has also affirmed the ‘F1(tha)’ National Short-term rating on KEST’s up to THB2.0bn bills of exchange (B/E) revolving programme (each B/E with tenor not exceeding 270 days).
The ratings take into account KEST’s solid brokerage franchise in the Thai market, its strong capital position, and strong support from its parent, Singapore’s Kim Eng Holdings Limited (KEH). KEST has maintained its conservative strategy, with focus on its securities brokerage business, which has helped stabilise its performance through periods of market volatility. Meanwhile, market risks appear moderate given its small proprietary trading position, although the agency notes that the launch of derivative warrants and planned higher securities investment could increase KEST’s risk profile. The Stable Outlook reflects KEST’s solid market position, the maintenance of support from KEH and its relatively strong capital. A ratings upgrade could occur if KEST is able to further consolidate its franchise and manage its risk profile well, and/or if there is a substantial increase in KEH’s holding from 55.9% or a stronger linkage with its parent. The ratings could be downgraded if there is a significant decline in capital, or a sharp increase in leverage arising from an aggressive growth strategy.
KEST’s performance remains strong despite the liberalisation of brokerage commissions since the start of 2010. It reported a slight increase in net profit to THB564m in 9M10 (9M09: THB520m), due mainly to stronger business volume, especially in Q210 and Q310. Profitability measures remain strong, with ROA of 9.3% and ROE of 17.2% in 9M10. The securities and derivative brokerage remained the major source of income, accounting for 88% of total revenue in 9M10 (2009: 88%). Trading volume is expected to remain strong in 2011, which should support its overall performance in 2011.
Nonetheless, Fitch notes that KEST has higher exposure to margin lending than its peers given its larger base of retail customers. Margin loans increased to THB4.3bn (97% of equity) at end-9M10 from THB2.0bn (45% of equity) at end-2009 driven by stronger business volume. Despite that, credit risk remains moderate, given the risk mitigation through margin calls and forced sales. Non-performing receivables, most all of which are a legacy from the 1997 crisis, remained stable yoy at THB291m at end-9M10 or 3.4% of total brokerage receivables, and are fully provisioned.
Its liquidity position has weakened with liquid assets to total assets ratio declining to 5% at end-9M10 (at end-2009: 32%). Liquidity risk, however, is mitigated by KEH’s liquidity support line, available undrawn committed facilities from local financial institutions of THB1.8bn at end-9M10, and its ability to raise funds in the local debt capital market.
KEST mainly funds its operations from equity, while most of its liabilities are securities and derivatives business payable. The equity is of high quality, consisting mainly of core equity. Its equity to assets ratios weakened to 44.4% at end-9M10 (end-2009: 63.6%), due to strong business volume in the last three business days of September 2010. KEST’s net capital ratio (NCR) remains strong, despite declining to 97.4% at end-9M10 (end-2009: 147%) versus the Securities and Exchange Commission requirement of 7% for all securities firms in Thailand.
KEST is a subsidiary of KEH, the largest securities broking group in Singapore. KEST has a strong brokerage franchise with a 12.7% market share in 9M10, ranking first, in terms of trading volume, among Thai brokerage firms. The company also provides services such as derivative trading, underwriting, advisory and securities borrowing and lending and derivative warrants.
Contacts:
Primary Analyst
Wasant Polcharoen
Director
+662 655 4758;
Fitch Ratings (Thailand) Limited
55 Wireless Road
Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Vincent Milton
Senior Director
+662 655 4759
Committee Chairperson
Jonathan Lee
Senior Director
+886 2 8175 7601