Fitch Affirms Finansia Syrus' National Long-Term Rating at 'BBB+(tha)'; Outlook Stable

Monday 10 January 2022 16:33
Fitch Ratings (Thailand) has affirmed Finansia Syrus Securities Public Company Limited's (FSS) National Long-Term Rating at 'BBB+(tha)', and its National Short-Term Rating at 'F2(tha)'. The Outlook is Stable.

The National Ratings of FSS reflect the company's established concentrated franchise in Thailand's competitive securities brokerage industry, moderate non-brokerage business lines and continued execution risk from its strategy to reduce dependence on retail brokerage income. This is balanced by FSS's adequate capitalisation and liquidity that provide a buffer against unexpected risks.

FSS, like other Thai securities firms, benefitted from strong market trading conditions during 2021. We expect more moderate operating conditions to prevail through the cycle, with lower retail trading volume on average than the past year. The brokerage business remains the main driver of FSS's performance, making up 81% of its revenue at end-9M21, compared with the sector average of 56%. FSS's strengths lie in retail brokerage. It has maintained a consistent ranking as one of the five-biggest firms by brokerage trading volume in the past few years.

FSS's operating profit/average equity jumped to 14.9% in 9M21 from 4.1% in 2020, in line with improvements across the industry. However, its heavy brokerage reliance may continue to pressure its profitability and lead to greater volatility than higher-rated peers. Longer-term earnings improvement and stability are dependent on the success of initiatives to enhance non-brokerage revenue.

FSS's capitalisation remains sound, with a net adjusted leverage ratio of 2.6x at end-9M21. Fitch expects the company's capitalisation to continue to withstand potentially volatile internal capital generation, as well as form a base for further expansion to diversify from its concentrated business model. Adequate liquidity coverage, with large liquid assets compared with debt, also provides a buffer against risks.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Rating upside could result from a sustained improvement in the company's business profile, which would materially enhance its long-term earnings generating capability through a more diverse and successful business mix. A sufficiently meaningful improvement in profitability would include an operating profit/average equity ratio that is maintained above 10% over the medium term, provided we perceive earnings quality as adequately balanced and sustainable, with consistent buffers in terms of capital and liquidity.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A rating downgrade could be triggered by a considerably greater-than-expected deterioration in FSS's financial position, including a substantial fall in its operating profit to average equity, which would impair the company's ability to maintain a commensurately sound capital buffer. This may lead to downward revisions in multiple financial-profile factors under Fitch's rating framework, which may stem from unexpected weakness in the company profile.

Any significant adverse shifts in the company's business strategy or risk appetite could also prompt negative rating action, although Fitch does not envision a material deterioration in the near term.

The principal sources of information used in the analysis are described in the Applicable Criteria.

Additional information is available on

Source: Fitch Ratings