Fitch Ratings (Thailand) has affirmed Asia Plus Group Holdings Public Company Limited's (ASP) National Long-Term Rating at 'A(tha)' with a Stable Outlook.
At the same time, the agency has affirmed ASP's National Short-Term Rating at 'F1(tha)'.
Key Rating Drivers
Established, Diversified Business Model: ASP's ratings are underpinned by its steady franchise as one of Thailand's largest independent securities groups, with an established business model, diversified income streams and longstanding presence in the domestic capital market. We expect these franchise strengths to help ASP maintain adequate financial performance, despite the currently challenging operating environment for Thai securities firms.
Difficult Operating Environment: Thai securities firms have been affected by weak stock market conditions, with muted trading value and poor investor sentiment over the past two years. Stock market trading volume for 9M24 declined by around 16% year-on-year and equity IPOs also plummeted. Signs of market improvement since 3Q24 could support better industry performance, if sustained. Nonetheless, Fitch expects market activity to remain cyclical, and persistently lackluster trading conditions would pressure securities firms' credit profiles.
Asset Quality Potentially Volatile: ASP's key asset-quality metrics have been broadly stable over the past several years. However, our assessment also takes into account risks from the company's non-loan exposure - such as private-equity investments, foreign bonds and foreign equity - which can create volatility in its financial metrics.
Relatively Sound Earnings Profile: ASP's profitability, as reflected by operating income/average equity, has been more stable than that of peers and well above the sector average over the past several years. We expect lower profitability at ASP's fund management subsidiary in 2024 to be partly offset by investment gains and improved brokerage revenue from better market trading volume in 2H24.
New asset management products and expanding client relationships could also support segment profitability in the coming year. We believe it will take time for ASP to restore its asset management fee income to prior levels, but still expect profitability to remain stronger than that of many peers.
Adequate Capitalisation: We expect ASP to maintain an adequate capital buffer with moderate leverage. Its net adjusted leverage ratio of 2.2x at end-June 2024 was broadly stable from end-2023. Holding company common-equity double leverage is not excessive, at 107% as of end-June 2024. Leverage may rise with increased capital-market activity, but current levels provide some headroom for growth and to absorb earnings downside.
Stable Funding and Liquidity: ASP's funding is generally stable, although, like its securities peers, there is some reliance on wholesale funding. Liquidity is generally adequate, with about 90% of ASP's financial instruments being highly liquid. Cash and liquid investments covered 1.7x of short-term funding as of end-June 2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
There may be downside to the ratings if financial metrics deteriorate beyond our expectations and underperform the industry, which may cause us to re-assess ASP's competitive position and franchise. In particular, operating profit/average equity at below 7% for a sustained period could indicate weakened earning capacity, especially if returns become more volatile from year to year.
A large increase in the net adjusted leverage ratio or holding-company common equity double leverage at above 120%, both for a sustained period, may also indicate a weakening capital position and lead to a downgrade.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
There may be upside to the ratings over the medium-term if ASP's franchise strengthens further, particularly in more stable, non-brokerage business lines that boost earnings stability in the face of market volatility. This is provided that this occurs without undue balance-sheet risk, profitability remains above that of peers and capitalisation and liquidity buffers remain adequate. That said, such improvements may be less likely in the near term, given the weak operating conditions and competitive industry dynamics.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
ASP's senior unsecured notes are rated at the same level as its National Long-Term Rating, as they represent its unsecured and unsubordinated obligations.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The senior debt ratings will move in tandem with ASP's National Long-Term Rating.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
(C) 2024 Electronic News Publishing, source ENP Newswire