Fitch Ratings Indonesia has affirmed PT Panin Sekuritas Tbk's (Pansek) National Long-Term Rating at 'AA-(idn)' and National Short-Term Rating at 'F1+(idn)'.
The Outlook is Stable.
'AA' National Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country's highest rated issuers or obligations.
'F1' National Short-Term Ratings indicates the strongest capacity for timely payment of financial commitments relative to other issuers or obligations in the same country. Under the agency's National Rating scale, this rating is assigned to the lowest default risk relative to others in the same country or monetary union. Where the liquidity profile is particularly strong, a '+' is added to the assigned rating.
KEY RATING DRIVERS
Pansek's ratings are based on the company's standalone credit profile and reflect its moderate franchise, adequate profitability and prudent capitalisation and liquidity buffers. The affirmation reflects Fitch's expectation that the company's financial profile will continue to support its rating level in the near term, amid waning pressure from the coronavirus pandemic.
Fitch expects Indonesia's securities industry to further stabilise in 2021, driven by a gradual economic recovery and better market sentiment. After a market rout in early-2020 at the onset of the pandemic, Indonesia's Stock Exchange Index had recovered to pre-pandemic levels by early-2021. Market trading value during 2020 was at the same level as in 2019, supported by a surge in new domestic retail investors into the market.
Pansek mainly operates in asset management and securities trading, with a moderate franchise in Indonesia's capital market. Pansek ranked 16th out of 105 domestic securities companies by stock transaction value in 2020.
Fitch believes Pansek's satisfactory capitalisation and liquidity will remain intact in the near term. Pansek had modest net adjusted leverage - as measured by (tangible assets - reverse repurchase agreements - securities borrowed)/tangible equity - of around 1.2x at end-3Q20 (2019: 1.2x). Meanwhile, liquidity, measured by liquid assets/short-term funding, strengthened to 14.8x (2019: 3.8x) following a substantial reduction in bank debt as margin trading and reverse repo balances fell. Pansek's conservative balance-sheet management helps to balance its earnings profile, which is sensitive to market volatility.
Pansek's profitability is susceptible to fluctuations in the market value of its considerable portfolio of marketable securities. Against this, its asset-management business provides a steadier revenue stream to cover operating expenses and absorb mark-to-market volatility. On average, asset-management fees are its largest income source, at 55% of total recurring revenue over 2015-9M20, with the rest coming from interest income (26%), brokerage fees (18%) and underwriting fees (0.5%).
Fitch sees ongoing pressure on asset-management fees as a key medium-term risk for profitability. Nevertheless, we believe Pansek's profitability will remain commensurate with its rating level in the near to medium term, supported by its diversified revenue streams, continual efforts to raise assets under management, and investments in online trading capability that could help strengthen its franchise, if successful. Securities valuation gains could also bolster profitability in the near-term as market valuations improve.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Downward rating pressure may arise from a significant weakening in Pansek's capitalisation, liquidity, and profitability that reduces its buffers against earnings fluctuations when markets turn volatile. This may be due to a sharp market correction leading to capital impairment, diminished liquid asset holdings or a more aggressive approach towards balance-sheet management - although Fitch does not expect any changes to the latter in the next few years.
A sustained deterioration in profitability, possibly due to pressure on asset-management fees, could weaken the recurring revenue buffer over time and pressure the rating, unless offset by gains in cost efficiency or other flow-related revenue.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade could result from a material strengthening in Pansek's franchise, combined with an improved operating environment for Indonesian securities companies. This is likely to be driven by progressive structural improvement in the capital market regulatory framework. However, Fitch believes such factors would only change over the longer term.
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.
RATING ACTIONSENTITY/DEBT RATING PRIOR
PT Panin Sekuritas Tbk Natl LT AA-(idn) Affirmed AA-(idn)
Natl ST F1+(idn) Affirmed F1+(idn)
VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com