Thailand Financial News

Fitch Ratings-Bangkok/Singapore-31 October 2006: Fitch Ratings (Thailand) has today affirmed the National Long- and Short-term ratings assigned to Kim Eng Securities (Thailand) Public Company Limited (”Kim Eng”) at ‘BBB+(tha)’ and ‘F2(tha)’ respectively with a Stable Outlook.

The ratings reflect Kim Eng’s strong local retail franchise and capital position, but take into account its weakening operating performance and high dependence on somewhat volatile brokerage and investment banking earnings. They also reflect operating and credit risks from its securities and underwriting businesses. Kim Eng is currently 57%-owned by Kim Eng Holdings Limited, a regional securities firm based in Singapore, although support from the parent should not be relied upon. The Outlook for the rating is Stable given strong capital and liquidity positions, notwithstanding some volatility in earnings. Downside risks could stem from a worse-than-expected weakening in economic growth and political conditions impacting the Thai capital market and Kim Eng’s earnings. Kim Eng’s main source of income - securities broking - made up 86% of total revenue in 2005. A decline in trading volumes and Kim Eng’s market share led to a fall in brokerage revenues to THB2 billion in 2005 from THB2.9bn in 2004. As a result, net income fell to THB715 million in 2005 from THB1 billion in 2004. In H106, net income continued to fall to THB315.7m from THB425.5m in H105 as brokerage revenues fell further alongside trading volumes and market share while fee and services income dropped alongside investment banking activities. Brokerage income is dependent on the performance of the Thai stock market, particularly trading volumes. Some liberalisation of brokerage commissions is likely to add pressure on the firm’s profitability in the future. Kim Eng intends to increase revenues from investment banking and private fund management, margin loans and derivative warrants, although their contribution is still expected to be relatively small. Securities business receivables and cash account for the mainstay of Kim Eng’s assets. Its impaired receivables fell slightly to THB305.5m (14.6% of total receivables) at end-June 2006 from THB307.6m (12.7%) at end-2005. Nearly all of its impaired receivables from margin lending were incurred during the country’s 1997 financial crisis and are fully provisioned. New impaired receivables have been negligible. Credit risks should generally be moderate, although risks from customers’ cash trading and its underwriting business may rise particularly during a falling market. While market risks appear moderate, Kim Eng’s proprietary trading has raised its risk profile, although trading volumes so far appear very small. Kim Eng has primarily funded its operations from capital. Most of its liabilities are in the form of securities trading accounts payable. As at end-June 2006, its debt to equity (”D/E”) ratio stood at 43.4%, down from 56.4% at end-2005. D/E ratio excluding securities trading accounts payable was even lower at only 12.9% at end-June 2006. Kim Eng’s equity declined slightly to THB3.9bn at end-June 2006 from THB4bn at end-2005 due to the appropriation of earnings for dividend payment (90% payout ratio in 2005) and legal reserve. Kim Eng’s equity to assets ratio of 69.7% at end-June 2006 is very strong partly because it is considering a significant capital allocation for starting a derivative warrant business in the future. Kim Eng Holdings Limited of Singapore currently holds 57% of shares in Kim Eng. Aside from brokerage services, Kim Eng provides underwriting, trading and investment services. It has the largest branch network among Thai securities firms, with a head office and 22 branches in Bangkok and 16 in provinces and market share of about 9%. Contact: Chaiyapat Paitoon; Vincent Milton, Bangkok +662 655 4762/4759; David Marshall, Hong Kong +852 2263 9963. Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. Media Relations: Ching-Yuen Lock, Singapore, Tel: +65 6238 7301; Sylvia McKaige, Singapore, Tel: +65 6336 0095.
Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site,