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Fitch Ratings-Taipei/Hong Kong/Singapore-04 August 2009: Fitch Ratings has today affirmed Taiwan's Tachan Securities Co., Ltd's (Tachan) Long-term foreign currency Issuer Default Rating (IDR) at 'BB', Short-term foreign currency IDR at 'B', National Long-term Rating at 'BBB+(twn)', National Short-term Rating at 'F2(twn)', Individual rating at 'D', Support rating at '5' and Support Rating Floor at 'NF'. The Outlook is Stable.
Tachan's ratings reflect its small franchise and less diversified revenue sources, as compared to its peers, but also takes into account its reasonably good liquidity and strong capitalisation. Tachan is a small player in Taiwan's securities brokerage market. Constrained by its limited brokerage scale, its earnings are reliant on its proprietary trading performance, which is susceptible to the volatility of the equity market. Nevertheless, Fitch acknowledges Tachan's efforts to improve the diversity of its earnings, which includes promoting its online trading services and expanding its customer base through community sponsorships.
Tachan recorded an ROE of -8.2% in 2008, its first annual loss since inception, as stock trading losses more than offset brokerage profits in the inclement market conditions. However, the securities company managed to establish a path back to profitability and registered a net profit of TWD76.8m in H109 (annualised ROE of 4.8%). Although heightened market volatility will increase the variability of Tachan's bottom-line results in 2009, Fitch expects its large capital base to be sufficient to buffer against unexpected large trading losses.
That said, the agency notes that Tachan has greatly trimmed its risk appetite amid the ongoing economic downturn, which has led to much-reduced equity investments (2.7% of net worth at end-Q109 from 25.0% at end-2007) and a shift in debt securities investments toward government bonds. Tachan also has good liquidity with a current ratio of 206.1% at end-Q109, and is strongly capitalised. Its CAR stood at 1,245% at end-Q109, up from 715% at end-2007, due to its sharp reduction in riskier assets.
Established in 1988, Tachan is one of the smaller securities firms in Taiwan. It operates through two branches, with a national brokerage market share of 0.14% in June 2009. Marlon Chu, the founder, and his investment vehicles, own about 80% of the company.
Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
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