TRIS Rating Co., Ltd. has affirmed the company rating of Seamico Securities PLC (ZMICO) at “BBB” with “stable” outlook. The rating is based on ZMICO’s sound capital base, sufficient liquidity, 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 be able to rebuild its brokerage market share to the previous level. The company is also expected to utilize excess liquidity in order to enhance business operations rather than paying out a huge dividend, as in 2007. In addition, ZMICO 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 provides brokerage services as its core business. Revenue contribution from brokerage fees accounts for more than 70% of total revenue. The revenue base includes fee income from advisory services such as investment advisory, securities underwriting, and financial advisory. The company just started an asset management company, Seamico Asset Management Co., Ltd., in 2007. The new company will provide fund management for private funds and mutual funds. After new management in position due to the company’s share acquisition, ZMICO has decided to provide derivatives products by itself instead of a subsidiary, Seamico Derivatives Co., Ltd. The derivatives products will still be offered jointly with a foreign securities firm which has the expertise. The service includes issuing derivatives products for Thai investors, mainly focused on underlying assets in Thailand. In the brokerage business, TRIS Rating said that ZMICO’s market share declined to 3.05% as of December 2007, down from 3.77% in 2006, 4.28% in 2005, and 5.96% in 2004. The drops came as institutional trading made up a larger share of market trading volume while ZMICO has a small institutional client base, the loss of marketing staff due to fierce competition, and the company’s reorganization. However, its market share has recovered to 3.55% as of February 2008 after the new management team successfully recruited an experienced marketing team. In addition, the company is in the process of improving the quality of its research and is looking for a business alliance with a large international securities house to enhance its market share. TRIS Rating said, ZMICO has a good track record in securities underwriting transactions for small- to medium-sized companies. 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 vulnerable when brokerage commissions are eventually liberalized. However, the investment banking business was slow last year. There were not many deals completed since the stock market environment was not favorable for new listings. ZMICO underwrote only Bt127.1 million of equity securities in 2007. ZMICO has reported profits since 2002. Annual net profit peaked at Bt730 million in 2003, matching the stock market recovery. Profits shrank in later years as the stock market cooled. In 2007, ZMICO earned total revenue of Bt850 million, with Bt49 million in net profit or 32% of the net profit reported for 2006. Return on average shareholders’ equity (ROAE) has been declining after its peak at 41.6% in 2003 to only 1.7% in 2007. ZMICO’s capital base was significantly strengthened after a recapitalization in early 2004, pushing the equity base to Bt3,068 million. Although the company had a substantial dividend payout of Bt390 million in 2007, the net capital ratio (NCR) stayed at 356% which was far higher than the 7% regulatory requirement. ZMICO still has a sufficient amount of cash on hand to facilitate future business expansion. As of December 2007, ZMICO maintained cash and deposits of Bt717 million with no long-term debt obligations. In addition, the company also has a short-term investments totaling of Bt308 million, which are deemed liquid and provide an additional base of funds. The leverage ratio (total assets to equity) was quite stable at 1.30 times, compared with 1.29 times in 2006. -- EndSeamico Securities PLC (ZMICO) Company Rating: Affirmed at BBB Rating Outlook: Stable -------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. 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