TRIS Rating Co., Ltd. has assigned the company rating to Bualuang Securities PLC (BLS) at “A-” with “stable” outlook. The rating is enhanced from BLS’s stand-alone credit profile to reflect its status as a strategically important member of Bangkok Bank PLC (BBL). BBL is the largest shareholder and provides both financial and business support to BLS. In addition, the rating for BLS is supported by the capable management team, a diversified revenue source from non-securities brokerage businesses such as the investment banking, sufficient financial flexibility and strong liquidity. However, these strengths are partially offset by the uncertainty of the Thai stock market, operating challenges following the brokerage business partial liberalization in 2010, and capital market volatility around the world. These factors will in part affect the company’s business and financial position in the future.
The “stable” outlook reflects TRIS Rating’s expectation that BLS will maintain its position as a strategically important entity of BBL. In addition, the rating outlook is based on the expectation that the company can retain its position in the securities brokerage business, amid uncertainty in the capital market and the operating climate after a partial liberalization in 2010. The outlook also takes into consideration BLS’s ability to generate a stream of fee-based income mainly from investment banking with the strong support from BBL, and maintain a stringent credit policy for the margin loan business and a conservative policy for the investment portfolio.
TRIS Rating reported that BLS was set up in 2001, after Bualuang Finance Co., Ltd., one of BBL’s subsidiary, acquired the securities brokerage license from BOA Securities Co., Ltd. The company later acquired the retail brokerage and private fund management businesses of JP Morgan Securities (Thailand) Ltd. (formerly known as JF Thanakom Securities Co., Ltd.) during 2001-2002. BLS is a strategic subsidiary under the full consolidation of BBL. BLS fulfils the overall BBL’s strategy of providing a full range of securities brokerage services under a universal banking platform. BLS benefits from the ability to access the BBL network, brand sharing, customer referrals, foreign partnerships, and competitive funding sources. Currently, BBL holds 56.34% of BLS’s shares. However, BBL support has not been as strong as if BLS is a wholly-owned subsidiary.
BLS currently provides securities brokerage, investment banking and fund management services. These major lines of business have contributed almost 90% of total annual revenue during the last five years. In the brokerage business, BLS started its first year of operations with 3.66% market share in 2002. Its market share gradually declined to 3.29% in 2005, before rising to 3.54% in 2006, due to trading from overseas investors via the company’s exclusive partner, Morgan Stanley Asia Ltd. (MSAL). The market share continued to rise, ending up at 3.97% in 2008. Effective on 2 November 2009, the Stock Exchange of Thailand (SET) revised its method for calculating securities brokerage market share by excluding proprietary trade from the database. In 2009, proprietary trade from securities firms accounted for 13% of total trading volume. Therefore, as BLS proprietary trading volume was minimal, its market share increased to 4.08% in 2009. BLS is ranked eighth among 38 brokerage companies based on market share in 2007-2009. BLS initially signed a research support agreement with MSAL in 2006, before converting to an exclusive partner agreement in 2007. The agreement prohibits MSAL from entering a similar agreement with other securities firms in Thailand. Retail clients have remained the major revenue contributors and constituted 60%-70% of trading volume since 2006.
BLS currently renders securities brokerage, securities trading, financial advisory, securities underwriting, investment advisory, private fund management, selling agent, derivative brokerage, along with stock borrowing and lending services through its Bangkok head office and 23 full branches. Revenue from fee-based income contributed around 14% on average to total annual income during the last five years. This source of income will be a cushion when the brokerage commission liberalization policy is fully enforced in 2012.
TRIS Rating said, BLS is one of the leading underwriters of equity securities, backed by the full support of the parent company’s network and management relationships. The company underwrote almost Bt20 billion worth of equity securities during the last five years. Past major deals included Thai Oil PLC in 2004, TPI PLC and Ticon Property Fund in 2005, Future Park Property Fund and Ticon Industrial Connection PLC in 2006, SNC Former PLC and Ticon Property Fund in 2007, Thai Tap Water Supply PLC and TFUND in 2008, and Bangkok Life Assurance PLC and TLOGIS Property Fund in 2009. As the underwriting business is highly related to prospects for the stock market, BLS also offers financial advisory services, including mergers and acquisitions (M&A) and restructurings, to offset any downturn in the underwriting business. As of December 2009, assets under management of BLS were valued at Bt4.8 billion for private funds (10th in the industry) and Bt7.4 billion for the provident fund business (13th place). Revenue generated from the asset management business, though relatively stable, contributed only around 2% of total annual income during the last five years. BLS has only a small risk exposure from asset composition. As of December 2009, 71.0 % of the Bt2.8 billion in total assets comprised cash and receivables from customer trading accounts. In the margin loan business, after substantial losses totalling Bt78 million in 2008, the balance of outstanding margin loans declined from Bt881 million in 2007 to Bt236 million in 2008 and slightly increased to Bt266 million in 2009. TRIS Rating expects the company to maintain a stringent credit policy to avoid any future substantial losses.
In the investment business, BLS maintains only small amount of investments (12% of total assets on average from 2005 to 2009). The majority of the holdings are government bonds. BLS has a small amount of proprietary trading. Therefore, based on the current risk exposure in the investment and margin loan businesses, TRIS Rating believes that the company has adequate capital to cover a certain level of losses from future downside risks. Liquidity and financial flexibility are considered strong as the company has unused credit facilities of Bt3.5 billion provided by the parent company. As of December 2009, the Net Capital Ratio (NCR) was 98.71%, far above the minimum requirement (7%) set by the Securities and Exchange Commission (SEC) of Thailand.
Despite the cyclicality inherent in the securities business, BLS’s net profit was stable from 2004-2009. Annual profits ranged from Bt100-Bt200 million. Return on average equity (ROAE) ranged from 16%-18% during 2005-2007, before declining to 9.7% in 2008 due to the market crisis. However, ROAE climbed back to 16% in 2009, said TRIS Rating. -- End
Rating Outlook: Stable
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