TRIS Rating Co., Ltd. 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-” 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 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, effective 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 also 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 revenues in 2011, while non-brokerage income accounted for 10% of total revenues. Interest income from margin loans, the largest portion of non-brokerage income, contributed around 6.5% of total revenues in 2011. The revenue contribution from the investment banking business has been minimal. Fee-based income was Bt11 million, or 1.6% of total revenues in 2011. 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 2.65% in 2011 from 2.54% in 2010 and 2.01% in 2009. Market share slightly declined to 2.58% for the first four months of 2012. DBSVT was ranked 17th among 33 Thai brokerage firms in 2011, 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 2011, as with other brokers, DBSVT was not largely affected by sliding commission scale because the lower commission rates were more than compensated by higher trading turnover. Daily trading volume in 2011 was almost flat from 2010. The average daily turnover, including trading in shares listed on the Market for Alternative Investment (MAI), sustained at around Bt29 billion in 2010 and 2011, but up from Bt16 billion in 2008 and Bt18 billion in 2009. However, more intense competition is expected among brokerage firms after the full liberalization in 2012. This may put pressure on DBSVT’s brokerage revenue.
DBSVT’s profitability gradually improved after the crisis in 2008. The company reported a net profit of Bt34.13 million in 2009, Bt80.20 million in 2010, and Bt82.32 million in 2011. Profits rose as market conditions began to improve in the second half of 2009. The decline in average brokerage fees after the liberalization is expected to limit DBSVT’s profitability in the future. However, the company has prepared to stabilize its earning ability by diversifying into other fee-base businesses and launching innovative products in response with the market changes and customers’ needs.
DBSVT’s total assets ranged from Bt1.6 billion to Bt1.9 billion during 2005-2009, before significantly increasing to Bt2.4 billion in 2010 and Bt2.8 billion in 2011. This remarkable increase arose from higher market trading values. Outstanding margin loans in 2011 increased to more than a billion from Bt875 million in 2010, following higher market turnover. Margin loans outstanding accounted for 37% of total assets in 2011. 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 2011, the company utilized only 1.9% of the Bt2.66 billion in total credit facilities made available from several financial institutions. Almost all of the company’s outstanding debt was from its parent company. DBSVT has an adequate equity base with Bt940 million as of December 2011, while the Net Capital Rule (NCR) was 66.7%, far above the 7% requirement of the Securities and Exchange Commission (SEC), said TRIS Rating. — End
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