TRIS Rating Affirms Company Rating and Outlook of “DBSVT” at “A-/Stable”

TRIS Rating has affirmed the company rating of DBS Vickers Securities (Thailand) Co., Ltd. (DBSVT), a wholly-owned subsidiary of DBS Vickers Securities Holdings Pte., Ltd. (DBSVSH) affiliated company within DBS Group in Singapore, at “A-” with “stable” outlook. The rating is enhanced from DBSVT’s stand-alone credit profile to reflect its status as a strategically important subsidiary of the DBS Group, which provides DBSVT with both financial and non-financial support. The stand-alone rating is based on DBSVT’s ability to utilize the network and resources of the DBS Group and the fact that it receives business flow from the customers of the DBS Group. The rating is, however, constrained by the inherently cyclical nature of the securities industry and the downward pressure on brokerage commission rates resulting from the full liberalization of brokerage fees in 2012. The “stable” outlook reflects DBSVT’s ability to sustain its market position and financial profile in the medium term, amid intensifying competition and falling of brokerage commission fees. TRIS Rating expects DBSVT to remain a strategically important entity of the DBS Group, playing an ongoing role in Thailand’s securities market as part of the DBS Group’s international network. In addition, DBSVT will continue to receive business and financial support from its parent company. TRIS Rating also expects DBSVT will be able to diversify into other fee-base businesses and launch innovative products in response to changing market condition and customer needs.

DBSVT provides brokerage services as its core business, along with other non-brokerage services, including financial advisory, equity underwriting, and wealth management. DBSVT’s financial profile has improved and its revenue base has been broadened since 2011. Brokerage fees have been the main source of revenue, accounting for 82% of DBSVT’s revenues in 2013, down from 84% in 2012. Interest income from margin loans, the largest portion of non-brokerage income, contributed around 11% of total revenues in 2013. The revenue contribution from the investment banking segment has been minimal. Fee-based income was Bt21 million, or 2.5% of total revenues in 2013, up from around 2.4% in 2012. Gains and losses from securities trading are modest as the company has suspended proprietary trading.

DBSVT’s brokerage market share increased to 2.63% in 2011 from 2.53% in 2010 and 2.01% in 2009. Its market share improved to 2.87% in 2012 and sustained at 2.84% in 2013 and 2.86% for the first five months of 2014, ranked DBSVT 16th among 33 Thai securities firms. Based on the strong support DBSVT receives from the DBS Group, DBSVT should be able to maintain its market position if foreign investors regain their confidence in Thai stock market. Brokerage trading volume from the DBS Group contributed more than 50% of total trading volume in 2013.

As with other brokers, DBSVT was continuously affected by the commission fee liberalization in 2012. DBSVT’s average commission rate was 0.14% in 2012 and 0.11% in 2013, which follows the slide in the industry average rate. However, competition may intensify after the full liberalization in 2012. DBSVT’s brokerage revenue may be under pressure in the future.

DBSVT’s profitability gradually improved after the subprime crisis in 2008. Profits rose because market conditions began to improve in the second half of 2009. The company reported a net profit of Bt34 million in 2009, Bt80 million in 2010, and Bt82 million in 2011. In 2012, DBSVT’s net profit was Bt122 million. Excluding an extraordinary income from a reverse for loan loss provision, the net income was Bt58 million. In 2013 net profit was Bt108 million following a decline in the average commission fees. Net profit, however, was more than compensated by higher trading turnover. The average brokerage fee after the liberalization is expected to gradually decline. The fall in brokerage fees will limit DBSVT’s brokerage fee income in the future. However, the company is expected to stabilize its earning ability by diversifying into other fee-base businesses and launching innovative products in response with changing market conditions and customer needs.

DBSVT’s total assets were around Bt2.8 billion in 2012 and increased to Bt3.8 billion in 2013. Outstanding margin loans accounted for 53% of total assets, rising from Bt1,117 million in 2012 to Bt2,040 million in 2013. Margin Loans rose as market turnover rose. DBSVT’s margin loan portfolio comprised 4.46% of total industry-wide margin lending in 2013. DBSVT is expected to employ more criteria for margin loans to help mitigate its credit risk and generate profits in this line of business.

DBSVT has only a small risk exposure from its own investments. Liquidity and financial flexibility remained sufficient. As of December 2013, the company utilized 32.8% of its Bt2.66 billion credit facilities made available from several financial institutions and its parent company. The Parent company’s credit line of Bt390 million has enhanced DBSVT’s liquidity and flexibility. DBSVT’s capital structure was weaker in 2013 because it paid a dividend of Bt100 million and leveraged more to expand its margin loan portfolio. DBSVT, however, does have an adequate equity base. Shareholders’ equity totaled Bt1,069 million as of December 2013. The net capital ratio (NCR) was 51.6%, far above the 7% requirement set by the Securities and Exchange Commission (SEC).

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