Key Rating Drivers
Phatra’s ratings are based on its standalone financial strength, and reflect its sound domestic brokerage franchise for institutional and high-net-worth clients, and its strong investment banking presence. The ratings also take into account Phatra’s higher leverage than in past years, market risk exposures, and sensitivity to volatile stock market conditions. However, Fitch has not observed any fundamental increase in investment risk appetite or volatility, and believes that its track record in managing and hedging risk means that no change in the ratings is yet warranted.
Phatra benefits from business referrals, funding and resources from its parent company, Kiatnakin Bank Public Company Limited (KK). These are benefits reflected in Phatra’s business and financial profile.
Similar to all local brokerage firms, Phatra’s performance is sensitive to changes in stock market conditions. The intensifying competition in the brokerage industry is likely to continue to put pressure on Phatra’s profitability over the longer term. However, Fitch expects Phatra to remain among the stronger players in the local industry, supported by its well-established business expertise, strong client base, and its relatively diversified revenue streams.
Rating Sensitivities
Phatra’s standalone ratings are among the highest of Fitch-rated securities firms in Thailand. Rating upside is limited unless Phatra can improve its market position and materially lower its risk profile and leverage, sustain that through industry cycles, and demonstrate less sensitivity to market volatility.
Persistently higher leverage relative to industry peers (including sustaining leverage around 2013 peak levels), a substantial decline in liquidity (including through much higher use of short-term finance), or structurally inferior profitability, would likely lead to negative rating action. A significant and sustained rise in investment risk appetite and/or sensitivity to market volatility would also constitute downside risk to Phatra’s ratings.
Evidence of greater reliance on KK for support, particularly related to income generation and funding, may affect Phatra’s ratings insofar as KK itself is currently experiencing pressure on its own financial strength. In this regard, a significant deterioration in KK’s financial strength could also negatively affect Phatra’s company profile and its ratings.