Bangkok--26 Jul--Fitch Ratings Fitch Ratings (Thailand) has today upgraded Kim Eng Securities (Thailand) Public Company Limited's (Kim Eng) National Long-term rating to 'A(tha)' from 'BBB+(tha)' and its National Short-term rating to 'F1(tha)' from 'F2(tha)'. The Outlook is Stable. This follows a reassessment of the company's moderate risk profile (thanks to its solid capital and liquidity positions) and its strong local retail franchise, which draws benefits from the expertise and support of its strong and sizeable foreign parent and its longstanding presence in the region. While leverage could increase in the future, its balance sheet should remain strong. And while earnings were down in 2006 and H107 due to weak market conditions, a significant improvement over H207 is expected on higher trading volume. The Outlook is Stable given strong capital and liquidity positions. Downside risks could stem from worse-than-expected capital market conditions or a substantial diversification into higher risk businesses. Securities broking made up 85.5% of total revenue in 2006. A decline in trading volumes and Kim Eng's market share led to a fall in brokerage revenues to THB1.7 billion in 2006 and only THB257 million in Q107. Brokerage income is dependent on the performance of the Thai stock market, particularly trading volumes. Some liberalisation of brokerage commissions is likely to add pressure on the firm's profitability in the future. Kim Eng intends to increase revenues from investment banking and private fund management, margin loans and derivative warrants, although their contribution is still expected to be relatively small. Securities business receivables and cash makes up the mainstay of Kim Eng's assets. Its impaired receivables fell slightly to THB305.1m at end-March 2007, from THB310.2m at end-2006 while impaired receivable ratio rose to 18.1% of total receivables from 17.6%. Nearly all of Kim Eng's impaired receivables from margin lending were incurred during the country's 1997 financial crisis and are fully provisioned. New impaired receivables have been negligible. Credit risks should generally be moderate, although risks from customers' cash trading and Kim Eng's underwriting business may rise particularly during a falling market. While market risks appear moderate, Kim Eng's proprietary trading has raised its risk profile, although trading volumes so far appear very small. Kim Eng has primarily funded its operations from capital. Most of its liabilities are in the form of securities trading accounts payable. As at end-March 2007, its debt/equity (D/E) ratio was very low at 35.8%, although this could rise significantly in the future. The D/E ratio excluding securities trading accounts payable was even lower at 15.3%. Kim Eng's equity declined to THB3.8bn at end-March 2007, from THB4bn at end-2006, due to dividend payments (89% payout ratio in 2006). Its equity/assets ratio of 73.7% at end-March 2007 is strong, partly because it may need a significant capital allocation for its derivative warrant business in the future and to fund other business expansion. Kim Eng Holdings Limited of Singapore currently holds a 57.6% stake in Kim Eng. Kim Eng Holdings reported solid 2006 net profit of SD109m. Aside from its brokerage business, Kim Eng provides underwriting, trading and investment services. It has the largest branch network among Thai securities firms, with a head office and 21 branches in Bangkok; it has 17 branches in the provinces and a market share of about 8%. Contacts: Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963