Bangkok--3 Aug--TRIS Rating
TRIS Rating Co., Ltd. has affirmed the company rating of SCB Securities Co., Ltd. (SCBS), a wholly-owned subsidiary of Siam Commercial Bank PLC (SCB), at “A+” with “stable” outlook. In addition to SCBS’s stand-alone credit profile, the rating is enhanced by SCBS’s status as a “core” subsidiary of SCB. SCBS has demonstrated business strengths, including continued increases in brokerage market share, a strong investment banking unit, and diverse income sources with growing revenue contribution from its subsidiaries. The company also has a sound capital base and excess liquidity after a capital increase in 2004. 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.
The “stable” outlook is based on the expectation that SCBS will be able to sustain its strong market positions in the brokerage, investment banking, and fund management businesses. Solid support from the parent company will help SCBS stay ahead of its rivals, especially after brokerage commissions are liberalized. The rating outlook is also premised on the expectation of good medium-term prospects for the stock market, despite fluctuations.
TRIS Rating reported that SCBS is one of the top-tier brokers and underwriters of equity securities. SCBS is considered by the parent company as one of the core subsidiaries of the SCB Group, fulfilling the overall group strategy to provide a full range of financial services under a universal banking platform. SCBS’s competitive advantage is partly derived from the combined resources of the SCB Group as it shares its parent company’s distribution network and brand name. SCBS also receives financial and non-financial support from its parent company, including lines of credit, additional capital injections, and access to broad client base. Over the past three years, SCBS has developed a significant presence in both the brokerage and investment banking businesses.
TRIS Rating said that, in the brokerage business, SCBS’s market share expanded impressively from 1.8% in 2001 to 5.2% in 2005, as the client base grew, research quality was improved, and institutional dealers were recruited. As SCBS has a larger contribution of trading value coming from institutional clients than most brokers, the company tends to have higher concentration risk from large brokerage clients. In terms of fee-income base, SCBS has been one of the leading underwriters of equity securities, backed by its good track record and the management’s relations with large corporations and state enterprises. It underwrote around Bt2.4 billion worth of equity securities in 2005. SCBS has also recognized a sizeable amount of income from SCB Asset Management Co., Ltd. (SCBAM), in which it owns 68%. SCBAM contributed Bt545 million of revenue to SCBS in 2005. Total assets under SCBAM’s management grew substantially from Bt27.9 billion in 2003 to Bt122.8 billion in 2005 with market share improving from 2.5% to 8.5%, which ranked fourth among all fund management firms in Thailand. In addition, SCB Capital Services Co., Ltd. (SCBCS), another wholly owned subsidiary, made larger revenue contribution of Bt275 million to SCBS in 2005. The contribution accounted for 12.5% of SCBS’s total income, compared with only Bt90 million, or 4% of the total income in 2004. As a result, SCBS has diversified sources of income, which will make its earnings less susceptible to the liberalization of brokerage commissions.
TRIS Rating said, as of December 2005, SCBS’s total assets stood at over Bt6.8 billion. Net investments represented the largest asset portion (38%), while over Bt1.9 billion was preserved in cash, which provides the company with strong liquidity. This excess liquidity was retained following the capital increase in 2004 for funding new business opportunities. SCBS’s remaining non-performing receivables of Bt282 million, which were incurred during the 1997 financial crisis, are fully provisioned. The company eliminated its accumulated losses in 2003. It reported a net profit of Bt389 million in 2005, 17.4% lower than in 2004. SCBS’s profitability, as measured by return on average equity (ROAE), also declined to 7.2% as of December 2005 from 12.7% as of December 2004.