TRIS Rating Co., Ltd. has affirmed the company rating of Bualuang Securities PLC (BLS) at “A-” with “stable” outlook. The rating is enhanced from BLS’s stand-alone credit profile to reflect its status as a strategically important member of Bangkok Bank PLC (BBL) Group. BBL is the largest shareholder and provides both financial and business support to BLS. The stand-alone rating is based on BLS’s solid franchise in brokerage and investment banking, its capable and conservative management team, and strong liquidity and capital positions. The rating also takes into account the potential benefits from leveraging the BBL Group’s nationwide network and business relationships. However, the rating is constrained by the increasingly competitive operating environment, high volatility of the Thai stock market, and the looming challenge from the full liberalization of brokerage fees due to take effect in 2012.
The “stable” outlook reflects the expectation that BLS will be able to utilize its franchise strength and support from the BBL Group to generate acceptable profit margins and maintain volume in the face of more intense competition and pricing pressure as the full liberalization of brokerage fees approaches. The outlook also takes into consideration BLS’s conservative policy on margin lending and proprietary trading as well as its continuing effort to diversify its sources of revenues and expand its retail customer base.
TRIS Rating reported that the intensifying competition in the brokerage industry following the introduction of the sliding scale commission scheme in January 2010 did not affect BLS’s market position. Although its average commission rate was driven down to 0.20% in 2010 from 0.22% in 2009, BLS was able to maintain its revenue share of brokerage fee from securities trading above its market share in terms of trading volume, with the share in terms of revenue rising from 4.4% in 2009 to 4.8% in 2010 and in terms of volume rising from 4.1% in 2009 to 4.4% in 2010. Brokerage fees from securities trading grew 37% to Bt1,060 million in 2010 as daily turnover at the Stock Exchange of Thailand (SET) and the Market for Alternative Investment (MAI) jumped 59% to hit a record high of Bt29 billion. BLS was ranked ninth among 35 active brokers in terms of trading volume in 2010.
TRIS Rating said, BLS’s revenue from investment banking has been very strong for the last few years, reflecting the company’s ability to leverage its own track record and relationships with client base of the BBL Group to strengthen its position as one of the market leaders in the field. Revenue from private fund management fees grew 13% to Bt32 million in 2010. However, this relatively stable source of revenue accounted for less than 2% of total revenues. Overall, BLS’s revenues are, to a certain extent, generated from diversified sources, but they may not be as stable as the revenues of some competitors who generate a substantial amount of their revenues from fund management fees.
BLS has limited exposure to market risk, with the policy to only engage in proprietary trading for the purpose of arbitrage investment and hedging its positions in derivative warrants business. Credit risk is moderate. BLS ended the year with an outstanding margin loan balance of Bt266 million in 2009 and Bt415 million in 2010, which represented 1.7% and 1.5% of the total industry-wide figures, respectively.
BLS launched its derivative warrant products in September 2010 and these products turned out to be very profitable. Gains on trading in securities and derivatives in 2010, coming mainly from derivative warrants issuing and market making activities from the end of the third quarter to the end of the year, totalled Bt118 million. However, this windfall gain should be viewed as being specific to the circumstances during the period rather than something that could be sustained, especially as the market becomes more developed over time.
TRIS Rating said, being affiliated with BBL has several positive implications for BLS besides the benefit from shared use of the “Bualuang” brand. About 10% of new BLS’s retail brokerage accounts during each of the past few years came through referrals from BBL, under the Introducing Agent Agreement established in 2007. BBL’s long-standing relationships with many large business groups provide BLS with an edge in servicing institutional brokerage clients through privileged corporate access and in securing investment banking transactions. BBL is also the one who currently provides BLS with more than 95% of all its available credit facilities.
BLS’s net profit jumped from Bt224 million in 2009 to Bt491 million in 2010. Net capital ratio stayed far above the regulatory requirement at 45%. The number of branches remained at 24 while the number of employees increased from 505 in 2009 to 544 in 2010, said TRIS Rating. -- End
Company Rating: Affirmed at A- Rating Outlook: Stable
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