Bangkok--8 Jun--Fitch Ratings
Fitch Ratings (Thailand) has affirmed Phatra Securities Public Company Limited’s (Phatra) National Long-term rating at ‘A-(tha)’ with a Stable Outlook and its National Short-term rating at ‘F2(tha)’.
Phatra’s ratings are based on its strong investment banking and brokerage franchise for institutions and high-net-worth clients. They also reflect its solid capital, strong liquidity and debt-free position. The Stable Outlook also factors in Fitch’s expectations that Phatra will maintain its strong franchise as well as its solid capital and liquidity positions, although profitability may fluctuate depending on capital market conditions.
Greater revenue diversification and maintaining its profitability and market positions may benefit Phatra’s ratings. However, significant deterioration in its capital and liquidity position, declining profitability due to competition and a sharp increase in leverage may negatively affect ratings. Also, diversification into riskier areas such as proprietary trading and derivatives could increase Phatra’s risk profile, undermining its ratings.
Phatra reported strong performance in 2010 with net profit of THB1.6bn or return on equity of 43.5%, due to realized gains from the sale of its investment portfolio to the holding company and higher revenues. For Q111, Phatra continued to report improved performance with net profit increasing 24% yoy to THB156.7m and a return on equity of 15.5%, as stock market condition remained favorable. While market conditions and its strong franchise should continue to support Phatra’s performance in 2011, the fragile global economic recovery and domestic political uncertainty, may hold back foreign fund inflows and market sentiment.
Despite the liberalization of brokerage fees and increased competition from universal banks in wealth management and investment banking, Fitch expects Phatra’s strong franchise in brokerage and investment banking to help maintain its performance in the medium-term. Phatra’s diversification of its investment banking business to include more advisory services and a wider range of financial products could lead to less volatile revenue during unfavorable market conditions.
Equity remains the major source of funding. In addition, it has considerable amounts of high-quality liquid assets, mitigating liquidity risk. Phatra’s net capital ratio (NCR) declined sharply to 66% at end-2010 from 145% at end-2009 due to the sale of its investment portfolio to the holding company, although the ratio remains above the regulatory requirement of 7%. The equity to assets ratio also remained strong at 44%. However, capital is likely to gradually decline due to expected high dividend payout (at about 100% or higher) to finance asset growth at the holding company.
Phatra has been operating a securities business since 1974. It was de-merged from Phatra Thanakit Finance and Securities Public Company Limited into a separate entity in 1997. Due to a group restructuring in 2010, Phatra is currently 99.7% owned by Phatra Capital Public Company Limited (holding company). Phatra is the leading investment banking and equity research house in Thailand.