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) in Singapore, at “A-”. The rating outlook has been changed to “stable” from “negative”. 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 to receive business flow from the customer base of the DBS Group. However, these strengths are partially offset by intense competition in the brokerage business and the inherent volatility of the Thai stock market. The rating also takes into account the uncertainty surrounding the full liberalization of brokerage fees due to take effect in 2012.
The “stable” outlook reflects DBSVT’s rebounding market position in the securities brokerage business and its improved financial performance during the last two years. TRIS Rating will closely monitor the company’s operating performance and market position when the liberalization of brokerage commissions is fully implemented in 2012. 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. TRIS Rating expects DBSVT will continue to receive the DBS Group’s business and financial support.
TRIS Rating reported that DBSVT provides brokerage services as its core business along with other non-brokerage services, including financial advisory, equity underwriting, and wealth management. Brokerage fees have been the main source of revenue, accounting for 86% of DBSVT’s annual revenues during 2001-2010. Non-brokerage income accounted for 10% of total revenues in 2010. Interest income from margin loans, the largest portion of non- brokerage income, contributed around 6.5% of total revenues in 2010. The revenue contribution from the investment banking business has been minimal. Fee-based income sharply dropped to Bt6 million in 2010 from Bt29 million in 2008 and Bt9 million in 2009. TRIS Rating does not expect any sizable amount of revenue from this segment during the next two to three years. Gains and losses from securities trading are expected to be minimal as the company has decided to suspend proprietary trading.
TRIS Rating said, DBSVT’s brokerage market share increased to 2.5% in 2010 from 2% in 2009. Market share continued to rise, climbing to 2.61% for the first two months of 2011. DBSVT was ranked 17th among 35 Thai brokerage firms in 2010, up from 21st in 2009. Based on the strong support from the DBS Group, the company should be able to maintain its market position, if the environment gives confidence to foreign investors. Brokerage trading volume from the DBS Group contributed 36%-50% of total trading volume annually for the company during the last five years. In 2010, as with other brokers, DBSVT was not affected by sliding commission scale because the lower commission rates were more than compensated by higher trading turnover. Trading volume in 2010 increased almost 60% from 2009. The average daily turnover, including trading in shares listed on the Market for Alternative Investment (MAI), increased sharply to Bt29.07 billion in 2010 and Bt32.17 billion for the first two months of 2011 from Bt16.12 billion in 2008 and Bt18.23 billion in 2009. However, more intense competition is expected among brokerage firms after the full liberalization, which may cut brokerage revenue.
Net profit gradually declined from Bt209 million in 2005 to Bt172 million in 2006 and Bt132 million in 2007, due to unfavourable market conditions and increasing competition among securities firms. In 2008, the company reported a net loss of Bt22 million due to substantial losses on margin loans, a direct result of the stock market turmoil during the last quarter of 2008. The company reported a net profit of Bt34.13 million in 2009 and Bt79.02 million in 2010. Profits rose as market conditions began to improve in the second half of 2009. However, DBSVT may need to set more provisions if the market value of the collateral for its non-performing accounts deteriorates further. Provisions totaled Bt519 million and Bt563 million at the end of 2009 and 2010, respectively. DBSVT’s total assets ranged from Bt1.6 billion to Bt1.9 billion during 2005-2009, before significantly increasing to Bt2.4 billion as of December 2010. This remarkable increase arose from higher market trading values. Outstanding margin loans increased to around Bt875 million in 2010 from Bt554 million in 2008, due to higher market turnover. Margin loans outstanding accounted for 36.4% of total assets in 2010. The company plans to expand its margin loan portfolio in the medium term as the opportunity arises. More stringent credit granting criteria for margin loans are expected to help generate profits in this line of business.
DBSVT has only a small risk exposure in its own investments. DBSVT invested Bt9 million in shares of TSFC Securities Ltd. (TSFC). This investment was a mandated poll-fund for all financial institutions to support the establishment of TSFC. The company’s liquidity and financial flexibility remained sufficient. As of December 2010, the company utilized only 0.04% of the Bt2.5 billion in total credit facilities made available from several financial institutions. Almost all of the company’s outstanding debt was from its parent company, comprising SGD8 million in a subordinated loan and a short-term loan of SGD5 million. The company is in the process of signing a subordination revolving credit facility agreement worth SGD17 million with its parent company. The credit facility supports a regulatory requirement. DBSVT has an adequate equity base despite a drop from Bt1.007 billion as of December 2009 to Bt879 million as of December 2010. As of December 2010, the Net Capital Rule (NCR) was 59.23%, far above the 7% requirement of the Securities and Exchange Commission (SEC), said TRIS Rating -- End.
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