KEY RATING DRIVERS
ASP's ratings reflect its well-established securities franchise and diversified business model relative to Fitch-rated standalone securities firms in Thailand. Fitch believes ASP's sustainable competitive advantages enable the firm to navigate industry challenges and cyclical downturns over the medium term. Near-term competitive pressure may be mitigated by a stable operating environment, supported by our forecast of GDP growth accelerating to 4.5% in 2022 from 0.9% in 2021. Fitch expects a slowdown in market trading volume in 2022 after a particularly strong 2021, but market activity should remain sufficient for securities firms to operate with adequate profitability, including ASP.
ASP's ratings also reflect its steady financial profile. The company's earnings performance in 2021 was supported by healthy investor sentiment and stock-market trading volume rising 49% yoy in 9M21 after gaining 33% in 2020. Operating profit/average equity surged to 27% in 9M21 from an average of 12% during 2017-2020. Profitability may moderate as market volumes ease, but we expect earnings to be well-supported in 2022. The company's capital and liquidity profiles also remained stronger than that of local peers and commensurate with its rating.
ASP's commission fees have narrowed but remained higher than the industry's average of 0.08% at end-9M21, reflecting the depth of its full-service brokerage platform and entrenched client base. ASP is also well-positioned as a group to continue diversifying its business model away from domestic brokerage, which should support earnings stability. Non-brokerage revenue accounted for about 56% of total revenue in 9M21, higher than the industry average of 44%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
ASP's ratings are already high relative to other Fitch-rated standalone Thai securities firms. There is limited near-term rating upside in light of its market-oriented business and the industry's fragmented and competitive nature.
An upgrade is possible in the longer term if ASP's stronger franchise and continued business model diversification manifest in earnings that are stable through the cycle and consistently higher than that of peers, combined with strong capitalisation and liquidity buffers.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch could downgrade ASP's ratings if profitability were to deteriorate sharply beyond our expectation and underperform the industry. Prolonged competitive pressure leading to a greater-than-expected impact on profitability would also affect the ratings negatively. Operating profit/average equity sustained below 7% could lead to a downgrade, especially if combined with weaker capital buffers relative to earnings and balance-sheet risks. These developments would also indicate unexpected weaknesses in the company's franchise and diversification efforts.
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.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings