Bangkok--18 Jan--TRIS Rating
TRIS Rating Co., Ltd. has assigned the company rating of Seamico Securities PLC (ZMICO) at “BBB” with “stable” outlook. The rating is based on ZMICO’s sound capital base with strong liquidity following a capital increase of Bt805 million in early 2004, and an experienced and capable management team. 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 ZMICO still remains susceptible to the volatility of the Thai stock market.
The “stable” outlook reflects TRIS Rating’s expectation that ZMICO will maintain its market positions in the core and supporting businesses. The company is also expected to utilize excess liquidity in order to enhance business operations. In addition, the company should be able to manage the market risks arising from its investment portfolio and expand without substantially weakening its capital base or liquidity.
TRIS Rating reported that ZMICO currently provides brokerage services as its core business, supported by a full range of advisory services, including investment advisory, securities underwriting, and financial advisory. Furthermore, besides ZMICO’s 51% in stake holding in ZMICO Knight Fund Management Co., Ltd. (SKFM), it will start its own asset management company in 2007. The new company will provide fund management for private funds and mutual funds. In addition, in order to provide a wider range of products and services matching with the new Thailand Futures Exchange PLC (TFEX), ZMICO will invest jointly with a foreign securities firm to establish a new derivatives company. The new company will assist ZMICO in issuing derivatives products for Thai investors, mainly focused on Thai underlying assets. Going forward, ZMICO will focus on businesses that support its core business. Unrelated businesses will eventually be divested.
In the brokerage business, TRIS Rating said that ZMICO’s market share declined to 3.80% for the first nine months of 2006 from 4.27% and 5.96% in 2005 and 2004, respectively. The drop came as institutional trading made up a larger share of market trading volume and the loss of marketing staff due to fierce competition. Since ZMICO has a small institutional client base, the company is improving the quality of its research and looking for a business alliance with a large international securities house to better serve institutional clients.
For the investment banking business, ZMICO has a good track record in securities underwriting transactions for small- to medium-sized companies. From past successes, ZMICO’s investment banking teams have been recognized as competent and professional. Strengthening the investment banking team will eventually benefit the company in the long run in terms of revenue diversification, which will alleviate the risk from over-dependence on brokerage income. Earnings will then be less susceptible to the coming liberalization of brokerage commissions. During the first half of 2006, however, there were few deals since the stock market environment was not favorable for new listings. ZMICO totally underwrote about Bt785.6 million worth of equity securities during the first nine months of 2006, while it still has an estimated total deals of Bt15 billion of investment banking transaction in the pipeline.
TRIS Rating said, ZMICO has continued to report profits since 2002, the same year that the company completely eliminated its accumulated losses. Net profit peaked at Bt730 million in 2003, matching the stock market recovery. However, profits shrank in later years as the market cooled. For the first half of 2006, ZMICO announced a net profit of Bt112 million, 31% declined year-on-year. Total revenue was Bt603 million, which included a gain of about Bt100 million from the sale of investments, mainly in Raimon Land PLC (RAIMON). In terms of profitability, ZMICO’s ratio of net profit to average shareholders’ equity (ROAE) peaked at 41.6% in 2003. The ratio slumped to 19.2% in 2004 and 6.1% in 2005. However, as of June 2006, the company’s ROAE slightly improved to 7.4% (annualized).
ZMICO’s capital base was significantly strengthened after a recapitalization in early 2004, pushing the equity base to Bt3,068 million. ZMICO still has a large amount of cash on hand to facilitate future business expansion. As of June 2006, ZMICO maintained cash and deposits of Bt828 million with no debt obligations. In addition, the company also has short-term investment totalling of Bt555 million, which are deemed liquid and provide an additional base of funding. As of the first half of 2006, ZMICO’s leverage ratio (total assets to equity) was quite strong at 1.5 times, which was better than the industry average of 1.8 times, said TRIS Rating.
Seamico Securities PLC (ZMICO)
Company Rating: BBB
Rating Outlook: Stable