TRIS Rating affirms the company rating on RHB Securities (Thailand) PLC (RHBS) at ?AA-? with a ?stable? outlook. The rating mainly reflects the company?s status as a highly strategic subsidiary of the RHB Group, whose main operating entity is RHB Bank Berhad (rated ?AA/Stable? by TRIS Rating). Based on its ?highly strategic? subsidiary status, the rating on RHBS is one notch below the rating assigned to RHB Bank Berhad according to TRIS Rating?s ?Group Rating Methodology?.
KEY RATING CONSIDERATIONS
A highly strategic subsidiary of RHB Group
We consider RHBS to be a highly strategic subsidiary of the RHB Group (comprising RHB Bank Berhad and all subsidiaries). RHBS is 99.9% owned by RHB Investment Bank Berhad (RHBIB), which in turn is wholly owned by RHB Bank Berhad. RHBS serves as part of the Group?s investment banking franchise and regional platform providing access to the Thai capital market and offering various financial products including equities, derivatives, investment banking (IB), and fixed income.
The company also operates under the Group?s integrated risk policies and operating platforms. The new Chief Executive Officer (CEO), Mr. Lee Yuan Tat, was directly appointed by the head office. In addition, RHBS?s financial targets comprise a part of the Group?s aggregate regional performance while its strategies and policies are aligned with those of the Group and are monitored by the head office.
Modest market position with positive developments
RHBS?s market position in the securities brokerage business in Thailand remains modest. It had a revenue share of 1.3% and ranked 27th in 2021, a similar level to that of 2018-2020. Its derivatives brokerage revenue market share was relatively stable at 2.4% in 2021 (ranked 19th).
On a more positive note, its average commission rates improved to 10 basis points (bps) in 2021 from 8bps in 2020, above the industry average of 8 bps. This was due to the company?s strategy to reposition itself by gearing toward a full-service broker rather than a discount broker. Margin loan portfolio also increased to THB1.7 billion in 2021 from THB1.1 billion in 2020, in line with the company?s target to increase its margin loans to around THB5 billion in the next few years.
With a new management team appointed in 2021, RHBS has now set its sights on rebuilding its brand in Thailand and reestablishing its business in many areas, including agent business for fixed income products as well as derivative warrants, which has been paused since 2020. The company plans to improve and expand its product offerings while recruiting experienced teams. The plans, if successfully carried out, should help diversify RHBS?s revenue mix and improve its revenue base over the next few years.
Strong financial support from the Group
RHBS has continued to receive both business and financial supports from the RHB Bank Group which demonstrates the Group?s commitment to provide timely supports to RHBS if needed. This is expected to continue in the foreseeable future. At the end of March 2022, the company had access to THB489 million in credit facilities from RHB Bank Berhad Thailand and USD20 million of credit lines from RHB Bank Berhad (Labuan), which accounted for around 35% of its total credit line of THB3.4 billion. The credit lines have helped provide financial flexibility for RHBS?s operations.
BASE-CASE ASSUMPTIONS
TRIS Rating?s base-case assumption is that RHBS will remain a highly strategic subsidiary of the RHB Group.
RATING OUTLOOK
The ?stable? outlook reflects our view that RHBS will maintain its status as a highly strategic subsidiary of the RHB Group, whose main operating entity is RHB Bank Berhad in Malaysia, and will continue to operate as an integral part of and receive strong support from the Group.
RATING SENSITIVITIES
The rating and/or outlook could be revised upward or downward should there be any changes in RHB Bank Berhad?s credit profile or if there is any change in our view on RHBS?s status to the RHB Group.
COMPANY OVERVIEW
RHBS is 99.9% owned by RHBIB, a wholly-owned investment banking arm of RHB Bank Berhad. RHB Bank Berhad is the fourth largest commercial bank by asset size of the eight local banks in Malaysia. Apart from the commercial banking and investment banking businesses, the RHB Group also has significant operations in insurance and asset management through its subsidiaries, which all fall under the RHB Group. RHB Bank Berhad is rated ?AA? with a ?stable? outlook by TRIS Rating and ?BBB+? with a ?stable? outlook by S&P Global Ratings. RHBIB received the same rating and outlook from S&P Global Ratings, reflecting its status as a ?core? subsidiary of RHB Bank Berhad.
RHBS was established in 2000 as BFIT Securities PLC and listed on the Stock Exchange of Thailand (SET) in 2004. In 2011, the company was renamed OSK Securities (Thailand) PLC, after OSK Investment Bank Berhad, Malaysia, acquired a 49.8% equity stake in the company. In 2013, the company was delisted from the SET after RHB Capital Berhad became its major shareholder. In 2015, following an internal restructuring at the RHB Group level, the company was renamed RHB Securities (Thailand) PLC (RHBS). Following an integration which started in 2014, RHBS is now a part of RHBIB?s operating platform with integrated risk management and control.
RELATED CRITERIA
- Group Rating Methodology, 13 January 2021
RHB Securities (Thailand) PLC (RHBS)
Company Rating: AA-
Rating Outlook: Stable