Tris Rating has given Country Group Securities Plc (CGS) a BBB- company rating based on its strong capital base and liquidity.
Tris said CGS, a subsidiary of Country Group Holdings Plc (CGH) with management closely linked to the consolidated group, has made a significant contribution to the overall performance of CGH.
CGS's net profit contributed an average of 19% of CGH's profitability and CGS's equity base constituted an average of 57% of CGH's shareholder equity over the past two years.
Tris said CGS has ample liquidity and financial flexibility and a strong capital base to support future business expansion. The company's ratio of liquid assets to total assets was 62.6% in 2017, above the industry average of 33.5%.
CGS's ratio of equity to adjusted assets was 76.5% in 2017, well above the industry average of 53%. The company's total shareholder's equity was 2.87 billion baht at the end of 2017 with a net capital ratio of 132%, compared with the regulatory requirement of 7%.
However, Tris noted a decline in the company's revenue and profitability since 2016. This is because of new products related to derivatives trading and instruments, as well as investment banking fees as the company ventured into that field and it has not yet delivered stable and substantial revenues.
CGS is considered to be in a transition period as the company shifts its business model from traditional brokerage products to more innovative products since 2016. In 2016, CGS sold part of its retail brokerage to UOB Kay Hian Securities (Thailand) Plc as part of the company's new business strategy.
As the company shifts focus to derivative products, its derivatives brokerage market share in terms of trading volume increased to 3.83% in first seven months of 2018 from 1.53% in 2017. Tris forecasts CGS's market share in derivatives brokerage will continue to improve during the next few years.
Looking forward, Tris expects CGS's business expansion plans to offer a wider range of products should enable it to become less reliant on brokerage fees and gradually raise revenues to cover its high operating costs. The company's ratio of operating expenses to net revenues was 76.7% in 2017, higher than the industry average of 63.5%.
The stable outlook reflects Tris's expectation that CGS will maintain its status as a core subsidiary of CGH and continue to contribute a significant portion of its net profit and equity. Tris also expects CGS's financial performance will improve over the next few years.
CGS offers a full range of securities services. The company received a permit from the Securities and Exchange Commission to commence its private fund management business in June 2017.
