Bangkok--18 Jun--TRIS Rating TRIS Rating Co., Ltd. has upgraded the company rating of KGI Securities (Thailand) PLC (KGI) to “BBB+” from “BBB” with “stable” outlook. The rating reflects KGI’s capable management team with a proven track record, its strong market position in derivatives markets and its sufficient liquidity. The rating also takes into account fee-based businesses, which should generate steady revenue for KGI. However, these strengths are partially offset by intense competition in the brokerage business, the uncertain prospects of the stock market in the short to medium term, and unexpected market risk associated in the company’s proprietary trading. The “stable” rating outlook is based on the expectation that KGI will retain its market position in the brokerage business, and continue to earn stable income from its asset management subsidiary, 1AM, even though the liquidity and share prices in the Thai stock market are expected to remain highly volatile. In addition, KGI is expected to be able to control the risks arising from both its investment portfolio and new products, and will be able to expand without substantially weakening its capital base or liquidity. TRIS Rating reported that KGI had total assets of Bt8,278 million as of December 2007 and was ranked second among the 39 brokerage firms in Thailand. The company engages in brokerage services, investment banking, portfolio investment and trading. KGI also renders fund management services through its subsidiary, One Asset Management Co., Ltd. (1AM). In the brokerage business, KGI ranked seventh amongst 39 brokerage houses in 2007 and ninth for the first five months of 2008. KGI’s brokerage market share improved slightly to 3.94% in 2006 and 4.18% in 2007, partly as a result of an increase in proprietary trading and partly due to its marketing efforts. The company is the leading broker for futures and options traded on the Thailand Futures Exchange PLC (TFEX), with a market share of 11.22% for the first five months of 2008. Revenue generated from this business has grown continuously since 2006. The derivatives business will constitute a larger portion of revenue in the future as the market size and trading volume of derivatives contracts continue to grow. However, KGI’s profitability remains pressured by the intense competition among brokers and volatile stock market movements. TRIS Rating said, in terms of fee-based income, despite expanding the investment banking department in 2003, KGI has not yet generated a substantial amount of fees. However, the asset management subsidiary, 1AM, has continued to generate a sizable and steady flow of revenue, and has made a significant contribution of 13% to KGI’s total income in 2007. In addition, KGI also has been active in proprietary investments. In addition to generating capital gains and interest/dividend income from its securities investments, KGI can utilize these securities for structuring derivatives products sold and enlarging the company’s client base. However, the proprietary investment exposes the company to unexpected market risks. KGI’s net profit increased to Bt334 million in 2007 from Bt182 million in 2006, as income from proprietary trading grew significantly. KGI earned Bt156 million in interest and dividends, up from Bt140 million in 2006, as the proprietary portfolio expanded. KGI booked Bt448 million in profits from securities trading in 2007 compared with losses of Bt42 million in 2006. The company also booked Bt56 million of brokerage fees from derivatives trading, up from Bt11 million in 2006. The ratio of operating expenses to total income improved to 57.8% in 2007, from 72.6% in 2006, which was in line with the average of 55.5% for the 39 brokers in 2007. As of December 2007, KGI had a sufficient equity base of Bt4,492 million, up from Bt4,349 million in 2006. In terms of leverage, the ratio of total assets to equity in 2007 was 1.84 times, up from 1.46 times in 2006, which was higher than the industry average of 1.67 times. Management expects to increase bank borrowings to expand proprietary trading and over-the-counter (OTC) derivatives business.