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Jih Sun Securities 'twBBB-' Rating Affirmed; Outlook Stable
RATIONALE Taiwan Ratings Corp. today affirmed its 'twBBB-' long-term counterparty credit rating and 'twA-3' short-term credit rating on Jih Sun Securities Co., Ltd. (Jih Sun Securities). The outlook on the long-term counterparty rating is stable.. The ratings on Jih Sun Securities continue to reflect the company's satisfactory position in Taiwan's stock brokerage market, and its adequate capitalization and good liquidity. These strengths are moderated by the volatile and competitive nature of the domestic securities industry and the likelihood that Jih Sun Securities may need to provide financial support to its parent holding company, Jih Sun Financial Holding Co., Ltd. (Jih Sun FHC), and other group members in times of financial stress. Jih Sun Securities and Jih Sun International Bank (twBBB-/Stable/twA-3) are the two main operating subsidiaries of Jih Sun FHC. Integration between the two subsidiaries has accelerated after the implementation of a new organizational structure by Jih Sun FHC in January 2004, under which Jih Sun Securities' key business lines have been consolidated at the holding company level according to business type. The company's risk management and back-office functions have also been centralized. By leveraging the customer base and distribution channels of its fellow group members, Jih Sun Securities is expected to benefit from increased cross-selling and resource sharing opportunities. Jih Sun Securities maintains a satisfactory position in the stock brokerage market, as reflected by its 4.4% market share in the first half of 2004. Moreover, the productivity and profitability of the company's brokerage business is better than the industry average, providing a financial buffer against its relatively volatile earnings performance. Jih Sun Securities had an annualized average return on equity of 5.8% in the 2000-2004 period, slightly better than the industry average of 5.5% in the same period. However, the company's earnings volatility was relatively higher in the 2000-2004 period, mainly because of a sluggish earnings performance since 2003. Trading losses on government bonds in 2003 and derivatives in 2004 somewhat reflect the company's increased risk appetite, but the overall impact on the company's financial profile remains within the company's risk tolerance threshold. Jih Sun Securities' capitalization is adequate. The company had a net worth of NT$18.5 billion at the end of June 2004, and its leverage ratio (adjusted asset to net worth) was a manageable 2.2x. Jih Sun Securities' liquidity is good. Liquid assets, such as cash, short-term investments and marketable securities, accounted for more than 30% of the company's total assets at the end of June 2004. OUTLOOK: STABLE The
outlook reflects the expectation that Jih Sun Securities' satisfactory
brokerage market position and good capitalization will continue to support
its credit profile over the medium term.
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