TRIS Rating Co., Ltd. has affirmed the company rating of KGI Securities (Thailand) PLC (KGI) at “BBB” with “stable” outlook. The rating reflects KGI’s strong capital base and sufficient liquidity. The rating also takes into account the prospects of the stock market in the medium term, which should support revenue generation of securities firms. However, these strengths are partially offset by intense competition in the brokerage business. In addition, the liquidity and share prices in the Thai stock market are expected to remain highly volatile.
The “stable” rating outlook for KGI is based on the expectation of good medium-term prospects for the stock market, even though the liquidity and share prices in the Thai stock market are expected to remain highly volatile. The current rating assumes that KGI will retain its market position in the brokerage business, and continue to earn stable income from its asset management subsidiary, 1AM. In addition, KGI is expected to be able to control the risks arising from both its investment portfolio and future new products, as well as expand without substantially weakening its capital base or liquidity.
TRIS Rating reported that as of December 2006, KGI had total assets of Bt6,343 million, ranked second among securities firms in Thailand. The company engages in brokerage services, investment banking, and portfolio investment and trading. After liquidating overseas investments made during 2000-2003, KGI returned some of its share capital to shareholders in 2003 and focused more on securities-related businesses in the domestic market. In the brokerage business, KGI’s brokerage market share shrank to 3.7% (ranked eighth amongst 41 brokerage houses) in 2005 from 4.5% in 2004 and 5.2% in 2003. The drop came as new brokers opened (from 39 firms in 2004 to 41 firms in 2005) and more trading volume came from institutional investors, a sector in which KGI is less competitive. However, KGI’s brokerage market share slightly improved to 3.94% in 2006, due partly to an increase in proprietary trading. In 2006, the company was the leading broker for futures traded on the Thailand Futures Exchange PLC (TFEX) with market share of about 16.5%. Revenue generated from this business remains small but is expected to grow. The derivatives business will constitute a larger portion of revenue in the future as the market size and trading volume of derivatives contracts continue to grow. The good medium-term prospects for the stock market are expected to support KGI’s businesses. However, KGI’s profitability remains pressured from intense competition among brokers and volatile stock market movements.
In terms of fee-based income, despite expanding the investment banking department in 2003, it has not yet generated a substantial amount of fees. However, the asset management subsidiary, One Asset Management Co., Ltd. (1AM), has continued to generate a sizable and steady flow of revenue, and has made a significant contribution to KGI’s total income. In addition, KGI also has been active in proprietary investments. Besides expecting capital gains and interest/dividend income from securities investments, KGI can utilize these securities for structuring derivatives products sold for gaining spread or fees and enlarging the company’s client base.
TRIS Rating said, KGI reported a net profit of Bt182 million in 2006, up from Bt159 million in 2005, as income from interest and dividends grew. KGI earned Bt140 million in interest and dividends, up from Bt79 million in 2005, as the proprietary portfolio expanded. However, KGI booked Bt42 million in losses on securities trading in 2006 compared with losses of Bt13 million in 2005. The ratio of operating expenses to total income was quite high at 72.6% in 2006 and 67.6% in 2005, while the average of the top 20 brokers (ranked by brokerage market share) was 66.2% in 2006 and 59.5% in 2005. As of December 2006, KGI had a sufficient equity base of Bt4,349 million, up from Bt4,231 million in 2005. In terms of leverage, total assets to equity as of December 2006 was 1.46 times, which was in line with the industry average of 1.45 times. However, KGI expects to increase bank borrowings to expand proprietary trading and over-the-counter (OTC) derivatives business, and may issue bills of exchange to fund future expansion. -- End
KGI Securities (Thailand) PLC (KGI)
Company Rating: Affirmed at BBB
Rating Outlook: Stable
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Copyright 2007, 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.
The “stable” rating outlook for KGI is based on the expectation of good medium-term prospects for the stock market, even though the liquidity and share prices in the Thai stock market are expected to remain highly volatile. The current rating assumes that KGI will retain its market position in the brokerage business, and continue to earn stable income from its asset management subsidiary, 1AM. In addition, KGI is expected to be able to control the risks arising from both its investment portfolio and future new products, as well as expand without substantially weakening its capital base or liquidity.
TRIS Rating reported that as of December 2006, KGI had total assets of Bt6,343 million, ranked second among securities firms in Thailand. The company engages in brokerage services, investment banking, and portfolio investment and trading. After liquidating overseas investments made during 2000-2003, KGI returned some of its share capital to shareholders in 2003 and focused more on securities-related businesses in the domestic market. In the brokerage business, KGI’s brokerage market share shrank to 3.7% (ranked eighth amongst 41 brokerage houses) in 2005 from 4.5% in 2004 and 5.2% in 2003. The drop came as new brokers opened (from 39 firms in 2004 to 41 firms in 2005) and more trading volume came from institutional investors, a sector in which KGI is less competitive. However, KGI’s brokerage market share slightly improved to 3.94% in 2006, due partly to an increase in proprietary trading. In 2006, the company was the leading broker for futures traded on the Thailand Futures Exchange PLC (TFEX) with market share of about 16.5%. Revenue generated from this business remains small but is expected to grow. The derivatives business will constitute a larger portion of revenue in the future as the market size and trading volume of derivatives contracts continue to grow. The good medium-term prospects for the stock market are expected to support KGI’s businesses. However, KGI’s profitability remains pressured from intense competition among brokers and volatile stock market movements.
In terms of fee-based income, despite expanding the investment banking department in 2003, it has not yet generated a substantial amount of fees. However, the asset management subsidiary, One Asset Management Co., Ltd. (1AM), has continued to generate a sizable and steady flow of revenue, and has made a significant contribution to KGI’s total income. In addition, KGI also has been active in proprietary investments. Besides expecting capital gains and interest/dividend income from securities investments, KGI can utilize these securities for structuring derivatives products sold for gaining spread or fees and enlarging the company’s client base.
TRIS Rating said, KGI reported a net profit of Bt182 million in 2006, up from Bt159 million in 2005, as income from interest and dividends grew. KGI earned Bt140 million in interest and dividends, up from Bt79 million in 2005, as the proprietary portfolio expanded. However, KGI booked Bt42 million in losses on securities trading in 2006 compared with losses of Bt13 million in 2005. The ratio of operating expenses to total income was quite high at 72.6% in 2006 and 67.6% in 2005, while the average of the top 20 brokers (ranked by brokerage market share) was 66.2% in 2006 and 59.5% in 2005. As of December 2006, KGI had a sufficient equity base of Bt4,349 million, up from Bt4,231 million in 2005. In terms of leverage, total assets to equity as of December 2006 was 1.46 times, which was in line with the industry average of 1.45 times. However, KGI expects to increase bank borrowings to expand proprietary trading and over-the-counter (OTC) derivatives business, and may issue bills of exchange to fund future expansion. -- End
KGI Securities (Thailand) PLC (KGI)
Company Rating: Affirmed at BBB
Rating Outlook: Stable
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Copyright 2007, 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.