Fitch Ratings (Thailand) has affirmed Yuanta Securities (Thailand) Company Limited's (YSTH) National Long-Term Rating at 'AA(tha)'. The Outlook is Stable. Fitch has also affirmed the National Short-Term Rating at 'F1+(tha)'.

KEY RATING DRIVERS

Shareholder Support Underpins Ratings: YSTH's National Ratings reflect Fitch's belief that there is a high probability that the ultimate parent, Taiwan-based Yuanta Financial Holding Co., Ltd. (YFHC, BBB+/Stable/bbb+), would provide extraordinary support to YSTH, if needed.

Strategically Important Subsidiary: Fitch views YSTH as a strategically important subsidiary of the Yuanta group as the company plays a key part in the group's aspiration to expand in south-east Asia, including Thailand. That said, YSTH remains small relative to its parent group, accounting for 0.8% of YFHC's consolidated assets and 2.2% of net profit in 2022.

Thailand is not yet a core market for the parent group, in Fitch's view. YSTH also has a shorter record of operations and financial support as part of the Yuanta group, having been acquired in 2016.

Increasing Integration and Synergies: Integration with the parent has been increasing since the acquisition with brand sharing, closer control as well as operational and business linkages. The parent group owns 99.9% of YSTH, and there is a high degree of control via the board of directors and alignment of strategy and risk-management policy. There has been ordinary support and increasing coordination with the parent, including in funding, product development, technical know-how and operating platforms.

Improving Performance Outlook: Fitch expects YSTH's performance momentum to continue over the medium term, supported by a strengthening domestic franchise and more diversified revenue. YSTH's performance has improved since 2016 as the company benefited from its parent's capital and funding support as well as business cooperation. YSTH has significantly reduced its profitability gap relative to the industry since 2021.

Key financial ratios such as return on equity (2022: 9.3%; 2017: 0.3%) and the cost/income ratio (2022: 75%; 2017: 99.97%) were stronger than the industry averages of 4.6% and 85%, respectively, in 2022 (2017: 8.3%; 75%). YSTH's operating profit/average equity weakened to 11.6% in 2022 (2021: 17.7%), but this was in line with industry trends and due mainly to unfavourable market conditions.

Satisfactory Liquidity: Fitch assesses that YSTH has an acceptable funding and liquidity profile, with access to various banks' credit facilities and local capital markets. In addition, YSTH has back-up intra-group liquidity lines to ensure support for its operations and capacity to meet financial obligations.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

YSTH's National Long-Term Rating is sensitive to changes in YFHC's credit profile. There may be downside to YSTH's National Long-Term Rating in the event of a downgrade of the parent's Viability Rating (VR), indicating a weakened ability to provide support. Any action would also take into account YSTH's credit profile relative to other entities within Thailand's national rating universe.

Moreover, a weakening in the parent's propensity to support YSTH could also affect the National Long-Term Rating. This may occur if the parent reduces its shareholding in the Thai subsidiary to below 75%, combined with reduced management control, operational links or business synergies. However, Fitch does not expect such adverse changes in the near to medium term.

YSTH's National Short-Term Rating is unlikely to be downgraded unless its National Long-Term Rating is downgraded to 'A+(tha)' or below.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

YSTH's National Long-Term Rating could be upgraded if the parent's credit profile strengthens, indicating an increased ability to support the subsidiary. This would likely be reflected in positive action on YFHC's VR.

The National Long-Term Rating may also be upgraded if Fitch believes that the parent's willingness to support YSTH has increased. This may be indicated by YFHC making substantial investments in YSTH's business and operational resources, including its footprint - signalling the subsidiary's growing importance to the parent's franchise.

There is no upside to the National Short-Term Rating, as it is already at the top end of the scale.

DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS

YSTH's short-term debenture programme is rated at the same level as its National Short-Term Rating, as issuances under the programme will constitute the company's unsubordinated and unsecured obligations.

DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES

The debenture programme rating will move in tandem with YSTH's National Short-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.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

YSTH's National Ratings are linked to YFHC's credit profile, as indicated by the VR.