TRIS Rating has affirmed the company rating of TSFC Securities PLC (TSFC) at “BB+” with “stable” outlook. The rating reflects the financial support from the largest shareholder of TSFC, the Stock Exchange of Thailand (SET), and the recent improvement in its financial profile. However, the rating is constrained by intense competition and TSFC’s funding costs, which are higher than its rivals. These two factors limit TSFC’s ability to expand its margin loan business. The rating takes into consideration that the company has a short track record in two new business (private repurchase agreement (REPO) and stock borrowings and lending (SBL)). The “stable” outlook is based on TRIS Rating’s three key expectations: the stock market will move in a stable momentum with no unexpected downside risks in the medium term, and TSFC will be able to maintain its current financial performance and maintain its market share in margin lending. In addition, the outlook reflects the continuing support TSFC receives from the largest shareholder, SET.
After an equity capital increase in July 2009, TSFC now has a strong equity base. As of September 2013, the shareholders’ equity of TSFC was Bt.1, 163 billion. The major shareholders are the SET (24.66% of the outstanding shares), the Ministry of Finance (MOF; 10.56%), Krungthai Bank PLC (KTB; 6.02%), and the Government Savings Bank (GSB; 4.92%). The other shareholders are commercial banks (18.12%), securities companies (16.61%), asset management funds (14.77%), insurance companies (4.30%), and others (0.04%). The ratio of shareholders’ equity to total assets jumped from 0.71% in 2008 to 29.3% in 2009. As of September 2013, the ratio rose to 36.75%, as the total assets of the company had decreased.
As of September 2013, TSFC’s total assets were Bt3,165 million against Bt3,152 million of gross margin loan receivables. TSFC recorded net losses of Bt901 million and Bt858 million in 2008 and 2009, respectively, due to net unrealized losses from investments in securities held for trading, TSFC reported a net loss of Bt0.3 million in 2010. In 2011, TSFC had net profits of about Bt1 million, but turned to record a net loss of Bt8 million in 2012. Net profit increased to Bt21 million for the first nine months of 2013, stronger than TRIS Rating’s expectation.
The company will face challenges in its core business for two main reasons: changing market conditions and the competitive response to TSFC’s re-entry into the margin lending business. From 2010 to September 2013, other securities brokers rapidly expanded their margin loan portfolios. The total amount of outstanding of margin loans grew to Bt45 billion as of September 2013, from Bt16 billion in 2009. TSFC’s margin loans, however decreased to Bt3,152 million. Its market share had ranged from 22% to 29% from 2006 through 2008. TSFC was badly affected by the financial crisis in 2008. As a result, its market share nosedived to 14% in 2009, and tumbled to 6% in September 2013. TSFC had a lower market share in its core business because it lost its competitive funding costs. The company is now attempting to expand its margin loan portfolio. However, the expansion poses some risk management challenges and exposes the company to a higher level of credit risk.
According to TSFC’s business plan, the company has opportunities in new businesses, private REPO and SBL. However, it has not yet proved it can be successful in the new lines of business. The management team will need time to build-up its track record and achieve the market size goals stipulated in the business plan. TSFC’s other fee and service incomes accounted only for Bt.1 million of the total revenues in September 2013.
TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2013, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.