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, 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 reflects the expectation that TNS will continue to receive the full support of 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 loan portfolio, 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. The company’s market share of 4.6% in 2013 ranked it sixth among 33 active brokers. In 2013, TNS entered into a business alliance with Daiwa Securities Group Inc. (Daiwa), Japan’s second-largest securities firm. Under the terms of the alliance, TNS and Daiwa will distribute co-branded research to foreign institutional clients, with an aim to expand services to the clients in key markets in Asia, Europe, and the United States (US). This move should help TNS rebuild its foreign client base. TNS had very few foreign clients left after 2010, when it terminated a five-year business alliance with its previous foreign partner.
TNS receives both business and financial supports from being a part of the Thanachart Group. TNS has been expanding its retail client base by using TBANK’s branches. Over 30% of TNS’s new brokerage accounts were acquired through referrals from TBANK during the last few years. In addition to the business support, TNS receives financial support from TBANK in the form of credit facilities. TNS has been granted a large credit line from TBANK. These supports give TNS an advantage over other securities firms which are not affiliated with a full-service commercial bank.
TNS has been carrying on its books sizable investments in a few listed equity securities. As of December 2013, these investments were worth Bt1.3 billion. While these investments provide dividend income, they expose TNS to a certain level of market risk. Other than these investments, TNS has limited exposure to market risk. 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 Bt3.1 billion at the end of 2013, up from Bt2.4 billion a year earlier. At this level, the value of TNS’s margin loan portfolio represents 7% of industry-wide margin lending and 93% of its own equity. TRIS Rating expects TNS will 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. Its revenues have been steadily growing. TNS reported a net profit of Bt801 million in 2013, compared with Bt462 million in 2012. Operating expenses are under control. The ratio of operating expenses to net revenues declined to 49% in 2013, down from 57% in 2012. As of December 2013, shareholders’ equity stood at Bt3.4 billion. The company ended 2013 with a net capital ratio (NCR) of 48%, compared with the regulatory requirement of 7%.
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