Bangkok--5 Jul--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of KGI Securities (Thailand) PLC (KGI) at “BBB” with “stable” outlook. The rating reflects KGI’s sufficient capital base and adequate liquidity. The rating also takes into account the prospects of the stock market in the medium term, which should support revenue generation of securities firms. However, these strengths are partially offset by intense competition in the brokerage business. In addition, the liquidity and share prices in the Thai stock market are expected to remain highly volatile. While the “stable” rating outlook is premised on the expectation of good medium-term prospects for the stock market, even though the liquidity and share prices in the Thai stock market is expected to remain highly volatile. The current rating assumes that KGI will retain its market position in the brokerage business, as well as continuing to earn stable income from its asset management subsidiary, One Asset Management Co., Ltd. (1AM). In addition, KGI is expected to be able to control market risks arising from its investment portfolio and expand its business without substantially weakening its capital base or liquidity.
TRIS Rating reported that, with more than Bt6,400 million in total assets in 2005, KGI ranks second among securities firms in Thailand, engaging in brokerage, investment banking, and portfolio investment and trading. After liquidation of overseas investments made during 2000-2003, KGI returned some of its share capital to shareholders in 2003 and focused more on securities related businesses in the domestic market. In the brokerage business, due to additional new brokers and more trading volume from institutional investors, a sector in which KGI is less competitive, the company’s brokerage market share shrank to 3.7% in 2005 from 4.5% in 2004 and 5.2% in 2003, and ranked eighth amongst 41 brokerage houses. Despite KGI’s weaker business performance, TRIS Rating affirms the current rating as it already takes into account the fluctuating nature of securities business. The good medium-term prospects for the stock market are expected to support continued growth of KGI’s businesses. However, KGI’s profitability remains pressured from intense competition among brokers and volatile stock market movements.
In terms of fee-income base, TRIS Rating said that, although KGI has expanded its investment banking division since 2003, it will take more time for the company to generate substantial revenue from this line of business. However, its asset management subsidiary, 1AM, has continued to generate a sizable and steady flow of revenue, and has made a significant contribution to KGI’s total income. In addition, KGI also has been active in proprietary investment. Besides expecting capital gains and interest/dividend income from securities investment, it is also able to utilize some of those securities in its structured products to gain spreads or fees, and to develop a broader client base. KGI reported a net profit of Bt156 million in March 2006, compared with a net profit of Bt159 million for the whole of 2005. However the net profit for 2005 was 50% less than that recorded in 2004. The main reasons for the reduced profitability in 2005 were lower brokerage market share, loss on securities trading of Bt13 million, and relatively high operating expenses. Operating expenses were equivalent to 67.6% of total income whereas the average for the top-20 brokers (by 2005 market share) was only 55.5%.
TRIS Rating said, as of December 2005, KGI had shareholders’ equity of more than Bt4,200 million, which was more than sufficient to support all of its operations. The company’s total assets to equity ratio at the end of 2005 was 1.52 times, which was in line with the industry average of 1.55 times. However, the company also plans to utilize bank loans and the issuance of debt securities to fund its future expansion.
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