KEY RATING DRIVERS
Ratings Reflect Standalone Strength: ASP's National Long-Term Rating reflects its established and diversified securities franchise, which supports its superior earnings performance relative to peers within Thailand's competitive and fragmented securities sector. ASP's ratings also reflect its steady financial performance through past market cycles, and adequate capital and liquidity buffers, which we expect to be sustained over the medium term.
Sound Franchise, Diversified Business: ASP has a relatively sound domestic franchise, particularly among retail investors. This has helped ASP sustain higher commission rates than industry averages despite intense brokerage fee competition. ASP has also diversified its business into related fee-earning areas, such as asset management, investment, and investment banking and capital markets services, which support earnings diversity and profitability. Non-brokerage revenue was about 53% of total revenue, on average, during 2018-9M22, higher than the industry average of about 44%.
Profitability Above Industry Average: ASP's competitive advantages should help it maintain above-industry profitability over the medium term. This is despite a fall in annualised operating profit/average equity to 10% in 9M22, from a peak of 25.1% in 2021, due to investment losses and weaker brokerage revenue amid a 13.5% year-on-year decline in market trading volume. Still, operating profitability remains largely consistent with ASP's past performance and its current rating level.
Leverage Rising But Manageable: Capitalisation and leverage remains within Fitch's tolerance for the rating level, although ASP's leverage had increased since 2020 as stronger market sentiment drove an expansion in margin lending. Net adjusted leverage ratio rose further to 3.1x by end-9M22 from 1.4x at end-2019. Even so, we do not expect net adjusted leverage to increase significantly from the current level because more muted market sentiment should temper any further balance sheet expansion.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Fitch may downgrade ASP's ratings if financial metrics were to deteriorate sharply beyond our expectations and underperform the industry. In particular, operating profit/average equity sustained below 7% could also lead to a downgrade, especially if combined with persistently weaker capital buffers relative to earnings and balance sheet risks. Such a development may indicate prolonged competitive pressure leading to a greater-than-expected impact on profitability, or unexpected weaknesses in the company's franchise and business diversification that are not currently factored into Fitch's rating assessment.
A further narrowing in ASP's liquidity coverage, as measured by liquid assets/short-term funding, would also be negative for the rating.
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, and near-term upside may be limited. An upgrade is possible in the longer term if ASP's franchise continues to strengthen, including in its non-brokerage business lines, such that it derives an even higher proportion of its earnings from more stable, recurring income streams without undue balance sheet risk. This is provided that its profitability remains higher than that of peers, combined with strong capitalisation and liquidity buffers.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The senior unsecured notes are rated at the same level as ASP's National Long-Term Rating, as they represent its unsecured and unsubordinated obligations.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The senior debt ratings would 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.
Additional information is available on www.fitchratings.com
Source: Fitch Ratings