Bangkok--30 Aug--TRIS Rating
TRIS Rating has affirmed the company rating of DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT), a wholly-owned subsidiary of DBS Vickers Securities Holdings Pte., Ltd. (DBSVSH) in Singapore, at “A-” with “stable” outlook. The rating is enhanced from DBSVT’s stand-alone credit profile to reflect its status as a strategically important subsidiary of the DBS Group, which provides DBSVT with both financial and non-financial support. The stand-alone rating is based on DBSVT’s ability to utilize the network and resources of the DBS Group and to receive business flow from the customer base of the DBS Group. However, these strengths are partially offset by intense competition in the brokerage business, the inherent volatility of the securities industry and the uncertainty surrounding the full liberalization of brokerage fees, effective in 2012. The “stable” outlook reflects DBSVT’s ability to sustain its market position and financial profile in the medium term, amid intensifying competitive environment and pressure from downward trend of brokerage commission fees. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, playing an ongoing role in Thailand’s securities market as part of the DBS Group’s international network. TRIS Rating also expects DBSVT will continue to receive the DBS Group’s business and financial support.
DBSVT provides brokerage services as its core business along with other non-brokerage services, including financial advisory, equity underwriting, and wealth management. DBSVT’s financial profile has been improved and revenue base has been better diversified since 2011. Brokerage fees have been the main source of revenue, accounting for 84% of DBSVT’s revenues in 2012, down from 86% in 2011. Non-brokerage income accounted for 7% of total revenues. Interest income from margin loans, the largest portion of non-brokerage income, contributed around 9% of total revenues in 2012. The revenue contribution from the investment banking business has been minimal. Fee-based income was Bt16 million, or 2.4% of total revenues in 2012, up from around 1.7% in 2011. Gains and losses from securities trading are expected to be minimal as the company has decided to suspend proprietary trading.
DBSVT’s brokerage market share increased to 2.65% in 2011 from 2.54% in 2010 and 2.01% in 2009. Market share improved to 2.89% in 2012 and sustained at around that level for the first half of 2013, ranked 17th among 33 Thai brokerage firms. Based on the strong support from the DBS Group, the company should be able to maintain its market position if the environment gives confidence to foreign investors. Brokerage trading volume from the DBS Group contributed more than 50% of total trading volume in 2012.
As with other brokers, DBSVT was not largely affected by commission fee liberalization in 2012 because the lower commission rates were more than compensated by higher trading turnover. Daily trading volume rose by about 10% from Bt59 billion in 2011 to Bt65 billion in 2012. DBSVT’s average commission rate was 0.16% in 2011 and 0.14% in 2012, which moved in line with the industry average rate. However, intensifying competition is expected to exist among brokerage firms after the full liberalization in 2012. This may put pressure on DBSVT’s brokerage revenue in the future.
DBSVT’s profitability gradually improved after the crisis in 2008. The company reported a net profit of Bt34 million in 2009, Bt80 million in 2010, Bt82 million in 2011 and Bt122 million in 2012. Profits rose as market conditions began to improve since the second half of 2009. The continual decline in average brokerage fees after the liberalization is expected to gradually limit DBSVT’s brokerage fee income in the future. However, the company is expected to stabilize its earning ability by diversifying into other fee-base businesses and launching innovative products in response with the market changes and customers’ needs.
DBSVT’s total assets were around Bt2.8 billion in 2011 and 2012. Outstanding margin loans in 2011 and 2012 increased to more than a billion from Bt875 million in 2010, following higher market turnover. Outstanding margin loans accounted for 37% of total assets in 2011 and 40% in 2012. The company plans to expand its margin loan portfolio as the opportunity continues in 2013. More stringent credit granting criteria for margin loans are expected to help mitigate credit risk and generate profits in this line of business.
DBSVT has only a small risk exposure in its own investments. The company’s liquidity and financial flexibility remained sufficient. As of December 2012, the company utilized only 0.02% of the Bt2.65 billion in total credit facilities made available from several financial institutions. DBSVT has an adequate equitybase with Bt1,062 million as of December 2012, while the net capital rule (NCR) was 98.2%, up from 66.7% in 2011, and far above the 7% requirement from the Securities and Exchange Commission (SEC).
DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT)
Company Rating: A-
Rating Outlook: Stable