Zhongtai Securities Co. Ltd.

The stable outlook on Zhongtai Sec reflects our expectation of a moderately high likelihood of the company receiving support from the Shandong provincial government, if needed, in the next two years. We also expect the company to maintain its market position and strong capitalization in the same period. We could lower the ratings on Zhongtai Sec if the company's SACP weakens. This could happen if: The company could not sustain its market position, or its revenue concentration increases such that its earnings were over-reliant on market-sensitive sources; or Its risk-adjusted capital (RAC) ratio fell below 10% on a sustained basis, possibly due to aggressive business or investment expansion without commensurate capital accumulation. An upgrade of Zhongtai Sec is remote. However,

...Zhongtai Securities Co. Ltd. (Zhongtai Sec) is likely to sustain strong capitalization over the next two years. We expect the company to maintain a risk-adjusted capital (RAC) ratio above 10%. Earnings recovery and manageable asset growth are likely to support the company's internal capitalization accumulation, in our view. Zhongtai Sec's above-average risk appetite moderates its credit strength. This mainly reflects the company's risk of performance volatility stemming from a higher proportion of directional exposure in its equity portfolio than its peers. This is despite the company's recent initiatives in portfolio risk rebalancing. Moderately high likelihood of government support will likely remain. Zhongtai Sec will likely maintain its close link with the Shandong government over the next two years. Our view reflects the provincial government's ultimate control of the company via other state-owned enterprises (SOEs) and influence in appointing the company's senior management. The local...

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