TRIS Rating has affirmed 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 its large market share in securities brokerage, and its large capital base. The rating also takes into account the potential benefits TNS could realize from further utilizing TBANK’s nationwide branch network and business relationships to strengthen TNS’s market position. The rating is, however, constrained by the inherently cyclical nature of the securities industry and the downward pressure on brokerage commission rates resulting from the full liberalization of brokerage fees in 2012. The “stable” outlook takes into consideration TNS’s prudent style of management and its strong franchise in the brokerage. 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 among foreign investors in the near future.
TNS has maintained its market share in securities brokerage at 4%-5% over the last few years. Its market share of 4.8% in 2012 ranked it in seventh place among 32 active brokers. In February 2013, TNS entered into a business alliance with Daiwa Securities Group Inc. (Daiwa), Japan’s second largest securities firm, to distribute co-branded research to foreign institutional clients. This move should help TNS rebuild its foreign client base after losing more than 90% of trading flows from foreign investors as a result of the termination of its 5-year business alliance with a foreign partner in 2010.
TNS has been expanding its retail client base by using TBANK’s branches. About 36% of its new accounts in 2012 were acquired through referrals from TBANK, up from 25% in 2011 and 15% in 2010. TBANK provides generous incentives for its bank staff to make referrals and to encourage cross-selling. TNS also derived a certain amount of investment banking revenues and brokerage fees from providing services to related companies in the Thanachart Group. In addition to the business support, TNS also receives financial support from TBANK. Over 65% of TNS’s credit facilities are provided by TBANK. These kinds of support give TNS an advantage over other securities firms which are not affiliated with a full-service commercial bank.
TNS has been holding sizable investments in a few listed equity securities on its books. As of 31 December 2012, these investments were worth Bt1,042 million. While providing TNS with dividend income, these investments may expose TNS to a certain level of market risk. Other than these investments, TNS has limited exposure to market risk as it mainly engages in proprietary trading for arbitrage purposes and for hedging its positions in derivative warrants (DWs), but not in speculative day trading. As for TNS’s credit risk exposure, its margin loan portfolio has continued to grow, rising to Bt2.4 billion at the end of 2012, up from Bt1.9 billion a year earlier. At this level, TNS’s margin loan portfolio represents 6% of industry-wide margin lending and 82% of its own equity. 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 and underwriting.
TNS’s profitability has been strong and in line with peers. Net profit jumped 56% to Bt458 million in 2012. Operating expenses were under control. The ratio of operating expenses to net revenues declined to 57% in 2012, down from 63% in 2011. As of 31 December 2012, shareholders’ equity stood at almost Bt2.9 billion. The company ended 2012 with a net capital ratio (NCR) of 61%, compared with the regulatory requirement of 7%.
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