TRIS Rating Co., Ltd. has assigned the company rating of Thanachart Securities PLC (TNS) at “A” with “stable” outlook. The rating is enhanced from TNS’s stand-alone credit profile to reflect its status as a fully-owned subsidiary of Thanachart Bank PLC (TBANK) and a strategically important member of the Thanachart Group. The stand-alone rating is based on TNS’s experienced and prudent management team, its ability to maintain large market share in brokerage business, and its large capital base. The rating also takes into account the potential benefits from further utilizing TBANK’s nationwide branch network and business relationships to strengthen TNS’s market position. The rating is, however, constrained by the increasingly competitive operating environment, the high volatility of the Thai stock market, and the uncertain outcomes once brokerage fees are fully liberalized in 2012. The “stable” outlook takes into consideration TNS’s prudent style of management and its strong franchise in the brokerage business. The outlook also reflects the expectation that TNS will continue to receive the full support from TBANK and maintain its status as a strategically important member of the Thanachart Group. In addition, TRIS Rating expects TNS to maintain an adequate risk management system to control the credit risk in its margin lending, and to be able to regain its brokerage market share from foreign investors in the near future.
TRIS Rating reported that TNS’s market share in securities brokerage has been solid at 4%-5% over the last few years. At the end of 2010, TNS acquired the operations of Siam City Securities Co., Ltd. (SCIBS), which had around 0.9% market share in securities brokerage in 2010. Despite the acquisition, TNS’s market share in 2011 slightly declined to 4.4% (ranked 10th among 33 active brokers) from 4.5% (ranked 8th) in 2010. The drop was due to the end of the business alliance with a foreign partner in mid-2010. TNS lost more than 90% of its trading flows from foreign investors as a consequence. TNS had been cooperating with this foreign partner in securities brokerage, investment banking, and research since 2005. TNS is in the process of negotiating new business alliances with several potential international partners in an effort to regain its market position in the foreign segment. In derivatives brokerage, TNS’s market share improved in almost all product categories, with the overall market share rising to 2.5% in 2011 from 2.2% in 2010.
TRIS Rating said, TNS has been expanding its retail client base by using TBANK branches. About 25% of its new accounts in 2011 were acquired through referrals from TBANK, up from less than 15% in 2010. TBANK provides generous incentives for its bank staff to make referrals and to encourage cross-selling. As TBANK recently merged with Siam City Bank PLC (SCIB), the potential for the cross-selling has become stronger, as the number of the bank branches increased to 677 at the end of 2011, compared with 257 branches a year earlier. In addition, TNS derived a certain amount of investment banking revenues and brokerage fees from providing services to related companies in the Thanachart Group. These kinds of support give TNS an advantage over other securities firms not affiliated with full-service commercial banks. Besides the cross-selling and referrals, TBANK also provides credit facilities to TNS which are more than 60% of the company’s available credit facilities.
TNS has limited exposure to market risk as it mainly engages in proprietary trading for arbitrage purposes, and not in speculative day trading. TNS, however, has been holding sizable investments in a few listed equity securities on its books. As of 31 December 2011, these investments were worth Bt855 million. While providing TNS with dividend income streams, these investments may expose TNS to a certain level of market risk. As for TNS’s credit risk exposure, its margin loan portfolio almost doubled in size to Bt1.9 billion at the end of 2011, up from Bt1.0 billion a year earlier. TRIS Rating expects TNS to continue to be able to control the credit risk from margin lending by strictly enforcing margin calls and forced sales, and by maintaining its stringent criteria on collateral.
TNS’s profitability has been strong and in line with peers. The ratio of operating expenses to net revenues, however, rose to 63% in 2011 from 54% in 2010. This is because the operating expenses in 2011 rose by 20%, mainly as a result of TNS’s larger operations after the acquisition of SCIBS. At the same time, TNS lost a large portion of its brokerage revenues from foreign investors in 2011 due to the termination of the 5-year business alliance with its foreign partner.
TNS’s net profit dropped to Bt293 million in 2011 from Bt391 million in 2010 despite a 4% rise in total revenues. The company ended 2011 with shareholders’ equity of Bt2.6 billion. As of 31 December 2011, the net capital ratio (NCR) was 149%, much higher than the regulatory requirement of 7%, said TRIS Rating. — End
Company Rating: A Rating Outlook: Stable
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