Bangkok--30 Nov--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed Kim Eng Securities (Thailand) Public Company Limited's (KEST) National Long-term rating at 'A(tha)' with a Stable Outlook and affirmed its National Short-term rating at 'F1(tha)'.
The rating takes into account its solid brokerage franchise in the Thai market, strong support from parent, Kim Eng Holdings Limited of Singapore (KEH), and strong capital and liquidity positions. KEST maintains a conservative strategy with less exposure to higher-risk and volatile businesses, which has helped stabilise its performance through the cycle. The Stable Outlook is supported by KEST's solid market position and still strong liquidity and capital. Downside rating risks could stem from worse-than-expected capital market conditions, or substantial diversification into higher risk businesses.
KEST's performance has been relatively stable despite the weak market environment in 2008. The company reported net profit of THB534.8m, which was relatively flat y-o-y despite lower brokerage fees in Q408. Net profit for 9M09 was THB520.3m, a 21% improvement y-o-y, due to strong growth in brokerage fees as the market recovered. Annualised ROAA rose to 10.5% in 9M09 from 8.8% in 2008, and annualised ROAE increased to 16.2% from 12.8% in 2008. Securities and derivatives brokering remains the major source of income, accounting for 91% of total revenue in 9M09 (2008: 87%). Fitch believes that the planned liberalisation of brokerage commissions in 2010 is likely to impact profitability moderately.
KEST has relatively higher exposure to margin lending than peers given its larger base of retail customers who are the main borrowers. Margin loans stood at THB2.1bn at end-September 2009, or 49% of equity. Despite that, credit risk remains moderate, given the risk mitigation through margin calls and force-sales. Non-performing receivables, most of which are a legacy from the 1997 financial crisis, remain stable at THB292m at end-September 2009, or about 5% of total, and are fully provisioned. Market risks appear moderate given that KEST has no exposure to proprietary trading, although its plan to launch derivative warrants next year could raise the risk profile.
KEST funds its operations with equity. KEST's total equity at end-September 2009 stood at THB4.3bn, a moderate increase from THB4.2bn at end-2008 due to profit accumulation. Equity is of high quality, consisting mainly of core equity. KEST's Net Capital Ratio (NCR) has significantly weakened due to a strong increase in three-day receivables in 2009, although the ratio remains stronger than the minimum 7% requirement. At end-September 2009, NCR stood at 147% compared with 376% at end-2008. The equity to asset ratio declined to 55.5% at end-September 2009, compared to 78.9% at end-2008, due to larger securities and derivatives receivables resulting from high business volume at the end of the accounting period, but is still strong.
KEST is a subsidiary or Kim Eng Holdings Limited (KEH), the largest securities broking group in Singapore. KEST has a strong brokerage franchise with 10.5% market share in 10M09, ranking first among Thai brokerage firms. The company also provides other services including derivative trading, underwriting, advisory and securities borrowing and lending. KEH currently holds 55.9% of KEST.
Contacts: Narumol Charnchanavivat/Vincent Milton, Bangkok, Tel: +662 655 4763/4759.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
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