TRIS Rating Co., Ltd. has assigned the company rating of SCB Securities Co., Ltd. (SCBS), a wholly-owned subsidiary of Siam Commercial Bank PLC (SCB), at "A+" with "stable" rating outlook. The rating is based on SCBS's stand-alone credit profile, which has demonstrated business strengths, including steady increases in brokerage market share, a strong investment banking unit, and diverse income sources. The company also has a sound capital base and liquidity after a capital increase in 2004. Furthermore, the rating is enhanced by the company's status as a "core" subsidiary of SCB. However, these strengths are partially offset by stiff competition among brokers and the business concentration risk from its large brokerage clients. In addition, the main business of SCBS is susceptible to stock market volatility as with other securities firms.
While the "stable" outlook recognizes SCBS's strong competitive advantage derived from being a core member of the SCB group. SCBS is expected to sustain its strong market position in both the brokerage and investment banking businesses. Solid support from the parent company will help SCBS stay ahead of its rivals, especially after brokerage commissions are liberalized. The rating outlook is also premised on the expectation of good medium-term prospects for the stock market, despite fluctuations.
TRIS Rating reported that SCBS is one of the top-tier brokers and underwriters of equity securities. The company is considered by the parent company, SCB, as one of the core subsidiaries of the SCB group, fulfilling the overall group strategy to provide a full range of financial services (universal banking). SCBS's competitive advantage is partly derived from the combined resources of the SCB group. SCBS shares its parent company's distribution network and brand name. The company also receives financial and non-financial support from its parent company, including lines of credit, additional capital injections, and a broad client base. SCBS has developed a significant presence in brokerage and investment banking in the past three years. In the brokerage business, SCBS's market share steadily climbed from 2.3% in 2002 to 4.0% in 2004, as the client base grew, research quality was improved, and institutional dealers were recruited. As SCBS has a larger contribution of trading value coming from institutional clients than most brokers, the company tends to have higher concentration risk from large brokerage clients. As with other brokers, SCBS will eventually face stronger competitive forces after brokerage commission liberalization, expected in 2007.
In investment banking, SCBS has been one of the leading underwriters of equity securities, backed by the company's good track record and the management's relations with large corporations and state enterprises. In mid-2004, SCBS expanded by entering the private fund business, targeting affluent individuals. Moreover, the company has recognized a sizeable amount of income from SCB Asset Management Co., Ltd. (SCBAM) which it owns 68%. As a result, SCBS has diversified sources of income, which will make its earnings less susceptible to the liberalization of brokerage commissions.
TRIS Rating also said that SCBS's total assets have increased significantly in the past three years, following its business growth. SCBS's liquidity is enhanced through its access to liquidity funds at SCB. The company increased its paid-up capital by Bt3,470 million in 2004 to fund new business opportunities, leaving it with excess liquidity and a strong capital base. Profitable since 1999, SCBS eliminated its accumulated losses in 2003. The company posted a sharp increase in net profit in 2004 as income in each business unit grew. However, its profitability, as measured by return on average equity, declined, following the capital increase. - End
SCB Securities Co., Ltd. (SCBS) Company Rating: A+ Rating Outlook: Stable