Bangkok--17 Oct--TRIS Rating
TRIS Rating Co., Ltd. has assigned a “A-” company rating with “stable” outlook to DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT), a wholly owned subsidiary of DBS Vickers Securities Holdings Pte., Ltd. (DBSVSH) (member of DBS Group) in Singapore. The rating reflects an enhancement from DBSVT’s stand-alone credit profile to accredit its status as a strategically important entity of DBS
Group, which provides it with both financial and non-financial support. The rating is also based on the company’s ability to maintain its brokerage market share, and to expand the investment banking business which can utilize the network and resources of DBS Group. The rating also takes into account DBSVT’s adequate capital base with ample liquidity. However, these strengths are partially offset by stiff competition among securities brokers in Thailand. In addition, as with other securities firms, the main business of DBSVT still remains susceptible to the volatility of the Thai stock market.
The “stable” outlook reflects the expectation that DBSVT’s status as a strategically important entity of DBS Group will remain unchanged. The company is likely to continue to play a role in Thailand’s securities market as a part of DBS Group’s international network. The company’s performance is likely to remain sensitive to market conditions and regulatory changes, but unlikely to change DBSVT’s business strategy or DBS Group’s implicit support for the company.
TRIS Rating reported that DBSVT provides brokerage services as its core business, supported by other non-brokerage services including financial advisory, equity underwriting, and wealth management. In the brokerage business, DBSVT faced a gradual decline in market share in recent years. As of June 2006, its market share dropped to 2.7% from 2.9% in 2005, 3.1% in 2004, and 3.3% in 2003. The main reason for the drop in market share was increasingly competitive market conditions, which resulted in lower trading volume from its top active traders. Another reason was that competitors opened new branches while DBSVT had no policy for investing in new branch offices.
The company has a different strategy than rivals. DBSVT will transform its business model to capture more institutional clients and local high net worth customers as it can utilize the resources within the DBS Group. The retail client base is expected to be enlarged through Internet trading as well as stronger wealth management teams. Wealth management services will better serve the specific needs of each individual client with a wider range of products than an ordinary retail broker. This shift in strategy reflects a way to utilize the group’s resources rather than just making vast new
investments to open new branches.
TRIS Rating said, in the investment banking business, besides focusing on medium-sized companies, DBSVT’s rank as an underwriter has improved through its niche in property funds. In 2005, DBSVT acted as co-lead underwriter of CPN Retail Growth Property Fund, the first Thai property fund sold internationally. It underwrote 19.7% of the total deal size of Bt10.9 billion. Ticon Industrial Connection PLC’s (TICON) Bt4.09 billion deal in early 2006 was the second property fund, with DBSVT as lead underwriter with a 60% committed share. DBSVT is also expanding to other areas of advisory services including mergers and acquisitions (M&A) and financial advisory work, with support from its parent international franchise network (DBS Group). However, the revenue contribution from these activities remains small. DBSVT completely eliminated an accumulated loss in 2002, and has remained profitable since. As of June 2006, the half year performance showed a net profit of Bt96 million, compared with Bt124 million in the same period last year. The decline reflected a more difficult market environment and lower trading volume. However, profitability as measured by annual return on average equity was over 20% for each year during 2003-2005.
TRIS Rating said that DBSVT’s total assets increased significantly to Bt2.75 billion in 2003 as the stock market rapidly recovered. However, total assets dropped to Bt1.88 billion in 2004 and Bt1.89 billion in 2005. A large portion of assets was securities business receivables, which are highly volatile and depend on market trading volume. As of June 2006, DBSVT did not have any significant investments in securities as it does no proprietary trading. The only investments were Bt14 million worth of common stock of TSFC Securities Ltd. (TSFC), which was a mandated poll-fund (for all financial institutions) for subsidizing the establishment of TSFC, and some shares purchased as part of its underwriting commitments. DBSVT’s liquidity position is sound and its financial flexibility is strong. As of June 2006, cash and deposits totalled Bt471 million with no long-term debt obligations.
In addition to financial support from its parent, DBSVT has been granted lines of credit totalling about Bt2 billion from other financial institutions as alternate sources of funding, which provide financial flexibility.
DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT)
Company Rating: A-
Rating Outlook: Stable