Fitch Ratings (Thailand) has affirmed Land and Houses Securities Public Company Limited's (LHS) National Long-Term Rating at 'AA(tha)' and National Short-Term Rating at 'F1+(tha)'. The Outlook is Stable.
Key Rating Drivers
Parental Support Drives Ratings: The ratings are based on Fitch's expectation of extraordinary support from LHS's parent, LH Financial Group Public Company Limited (LHFG, AA+(tha)/Stable), in the event of stress. The ratings also consider the company's credit worthiness relative to other rated entities within the Thai national rating universe.
Strong Support Ability: LHFG is a bank holding company with Land and Houses Bank Public Company Limited (LH Bank, AA+(tha)/Stable) as its main operating entity. LHS represents less than 2% of LHFG's consolidated assets and equity, so any required support to LHS is likely to be immaterial relative to the group's financial resources.
LHFG's credit profile is ultimately underpinned by support from its Taiwan-based parent company, CTBC Bank Co., Ltd. (CTBC, A/Stable/a). We expect support from CTBC would extend to LHS through LHFG due to the securities firm's important strategic linkages with other entities within the group.
Strategically Important Subsidiary: LHS is the only subsidiary of LHFG with securities-related licences, and it plays a complementary role providing capital-market services such as securities trading, derivatives trading and investment banking to its parent group's clients. LHS enables the group to offer a wider range of financial services, and we believe the subsidiary's strategic role will remain unchanged over the medium term despite performance challenges in the past few quarters.
Nonetheless, LHS's rating is one notch below LHFG's on the national rating scale as we view the securities business as ancillary, rather than core, to the parent group's franchise. The assessment also takes into consideration LHS's small size and financial contribution relative to its parent.
Clear Control and Integration: LHFG owns 99.92% of LHS, and there are strong management and operational linkages between parent and subsidiary. LHFG appoints LHS's board members and senior management, and LHS's strategic direction and risk management processes are closely aligned with its parent's. There is a high level of integration and collaboration between LHS and other group companies such as client referral activities, cross-selling, product development, technical know-how exchange, and shared operating systems.
Significant Reputational Linkages: Fitch believes LHS's reputation is closely tied to LHFG due to their shared branding and close marketing co-ordination. As a result, any default of LHS would present a high reputational risk to other parts of the group.
Ongoing Ordinary Support: LHFG provides regular operational and financial support to LHS, including a capital injection of THB 318 million in November 2024 that should help LHS improve its tangible assets/tangible equity ratio to around 4.9x on a pro forma basis, from 6.8x in June 2024. Furthermore, LH Bank continues to provide credit facilities to LHS to support its liquidity management.
Earnings Under Pressure: The ratings also take into account the company's volatile financial performance. LHS's profitability has weakened amid subdued market trading volumes, with operating profit/average equity deteriorating to -8.9% (annualised) in 1H24 (2023: 13.5%). We view that prospects in 2025 remain challenging due to lacklustre market sentiment and the company's lack of revenue diversity. Nevertheless, Fitch does not expect the performance challenges to reduce LHFG's propensity to support LHS in near term due to the company's strategic role in the group and longer track record of profitability.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Any negative action on LHFG's National Long-Term Rating would likely indicate a reduced ability to support LHS, leading to similar rating action on LHS. For more detail on LHFG's rating and sensitivities, please see "Fitch Affirms Land and Houses Bank and LH Financial at 'AA+(tha)'; Outlook Stable", published on 14 March 2025. Any rating action would also take into account relativities within Thailand's national rating universe.
There could also be ratings downside from a decline in LHFG's propensity to support LHS. For instance, a material reduction in LHFG's ownership to below 75%, along with diminished management control, and a decline in marketing linkages and operational integration could place pressure on the ratings. Persistent weak performance may also lead to a negative re-assessment of the company's strategic importance. Nevertheless, we do not expect any near-term changes to the parent's propensity to support LHS.
LHS's National Short-Term Rating would be downgraded to 'F1(tha)' if the company's National Long-Term Rating was downgraded to 'A-(tha)', or if LHFG's National Short-Term Rating was downgraded to 'F1(tha)'.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of LHFG's National Long-Term Rating could lead to positive rating action on LHS.
We may also take positive rating action if we perceive any strengthening in LHFG's propensity to support LHS - such as if LHS plays an increasingly significant role in LHFG's consolidated franchise - although we do not expect any major changes in the near term. Any action would also consider LHS's credit profile relative to peers rated on Thailand's national rating scale.
There is no upside to the National Short-Term Rating as it is at the top end of the scale.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
LHS's ratings are linked to LHFG's credit profile, as indicated by the parent's National Long-Term Rating.