BUSINESS LINES

(1) TYPES OF BUSINESS

(A) Securities Broker

KGI Securities (Thailand) Public Company Limited, a member of the Stock
Exchange of Thailand (SET Broker seat No. 13), has developed an
efficient computer system to serve its customers. The Company also
provides research for its clients in order to support them in making
accurate and effective investment and trading decisions.

In 2004, the Company ranked No. 4 with a 4.52% equities brokerage market
share. For trading in securities, clients can open either a cash account
or a credit balance account. Cash account clients also have the option
of trading via the internet. The commission for cash accounts and credit
balance accounts is 0.25% and the commission for internet trading is
only 0.21%.

The following table shows breakdown by type of clients and type of
accounts for the past 3 years.

+---------------------+--------+-----+--------+-------+--------+-----+
| Trading Volume      | 2002   | %   | 2003   | %     | 2004   | %   |
+---------------------+--------+-----+--------+-------+--------+-----+
| SET (Baht million)* | 8,     |     | 19,    |       | 20,    |     |
|                     | 414.86 |     | 030.24 |       | 647.39 |     |
+---------------------+--------+-----+--------+-------+--------+-----+
| The Company (Baht   | 1,     |     | 1,     |       | 1,     |     |
| million)*           | 273.73 |     | 990.01 |       | 868.32 |     |
+---------------------+--------+-----+--------+-------+--------+-----+
| The Company’s       | 7.56%  |     | 5.23%  |       | 4.52%  |     |
| market share (%)    |        |     |        |       |        |     |
+---------------------+--------+-----+--------+-------+--------+-----+
| Breakdown by types  |        |     |        |       |        |     |
| of clients          |        |     |        |       |        |     |
+---------------------+--------+-----+--------+-------+--------+-----+
| - The Company’s     | -      | -   | 65.71  | 3.30  | 106.74 | 5   |
| portfolio           |        |     |        |       |        | .71 |
+---------------------+--------+-----+--------+-------+--------+-----+
| - Fund              | 83.83  | 6   | 48.15  | 2.42  | 79.82  | 4   |
|                     |        | .59 |        |       |        | .27 |
+---------------------+--------+-----+--------+-------+--------+-----+
| - Retail client     | 1,     | 79  | 1,     | 80.83 | 1,     | 74  |
|                     | 015.50 | .79 | 608.58 |       | 383.04 | .03 |
+---------------------+--------+-----+--------+-------+--------+-----+
| - Foreign client    | 173.40 | 13  | 267.57 | 13.45 | 298.72 | 15  |
|                     |        | .82 |        |       |        | .99 |
+---------------------+--------+-----+--------+-------+--------+-----+
| Total               | 1,     | 100 | 1,     | 1     | 1,     | 100 |
|                     | 273.73 | .00 | 990.01 | 00.00 | 868.32 | .00 |
+---------------------+--------+-----+--------+-------+--------+-----+
| Breakdown by types  |        |     |        |       |        |     |
| of account          |        |     |        |       |        |     |
+---------------------+--------+-----+--------+-------+--------+-----+
| - Cash account      | 1,     | 94  | 1,     | 95.17 | 1,     | 93  |
|                     | 203.68 | .57 | 893.91 |       | 750.19 | .67 |
+---------------------+--------+-----+--------+-------+--------+-----+
| - Credit balance    | 69.05  | 5   | 96.10  | 4.83  | 118.13 | 6   |
| account             |        | .43 |        |       |        | .33 |
+---------------------+--------+-----+--------+-------+--------+-----+
| Total               | 1,     | 100 | 1,     | 1     | 1,     | 100 |
|                     | 273.73 | .00 | 990.01 | 00.00 | 868.32 | .00 |
+---------------------+--------+-----+--------+-------+--------+-----+

Note : * Trading volume referred to volume in both SET and MAI

To better reflect the current economic circumstances and the growth of
the capital market, the company has a policy to expand its business by
expanding its network throughout the country. As of 31 December 2004,
the Company had 17 branches locations throughout the country; 6 branches
are located in the Bangkok area and 11 branches are located in
provincial areas.

+----+---------------------------+-----+------------------------------+
|    | Bangkok area              |     | provincial areas             |
+----+---------------------------+-----+------------------------------+
| 1. | Pin Klao                  |     | North                        |
+----+---------------------------+-----+------------------------------+
| 2. | Surawongse                | 1.  | Chiang Mai                   |
+----+---------------------------+-----+------------------------------+
| 3. | Yaowaraj                  | 2.  | Chiang Rai                   |
+----+---------------------------+-----+------------------------------+
| 4. | Silom                     | 3.  | Nakornsawan                  |
+----+---------------------------+-----+------------------------------+
| 5. | Ratchadaphisek            |     |                              |
+----+---------------------------+-----+------------------------------+
| 6. | Changwattana              |     | North East                   |
+----+---------------------------+-----+------------------------------+
|    |                           | 4.  | Nakhon Ratchasima            |
+----+---------------------------+-----+------------------------------+
|    |                           | 5.  | Pakchong                     |
+----+---------------------------+-----+------------------------------+
|    |                           | 6.  | Udonthani                    |
+----+---------------------------+-----+------------------------------+
|    |                           |     |                              |
+----+---------------------------+-----+------------------------------+
|    |                           |     | Central                      |
+----+---------------------------+-----+------------------------------+
|    |                           | 7.  | Samutsakorn                  |
+----+---------------------------+-----+------------------------------+
|    |                           | 8.  | Supanburi                    |
+----+---------------------------+-----+------------------------------+
|    |                           | 9.  | Nakorn Pathom                |
+----+---------------------------+-----+------------------------------+
|    |                           | 10. | Petchburi                    |
+----+---------------------------+-----+------------------------------+
|    |                           |     |                              |
+----+---------------------------+-----+------------------------------+
|    |                           |     | South                        |
+----+---------------------------+-----+------------------------------+
|    |                           | 11. | Had Yai                      |
+----+---------------------------+-----+------------------------------+

Note: Ayutthaya Branch was opened on 1 March 2005

Policy in accepting Clients

Types of clients opening accounts with the Company are as follows:

1.  Individual who may be a Thai national or a foreigner.

2.  Juristic persons categorized as follows:

-   Local financial institutions including finance and securities
    companies, commercial banks, finance companies, insurance companies,
    etc.

-   Foreign financial institutions.

-   Juristic persons registered in Thailand, which are a limited
    partnership or a limited company.

-   Juristic persons registered abroad.

For individual clients, in deciding whether to accept a client and the
credit line to be given to that client, the Company will consider the
occupation, place of residence, years of work, revenues, financial
status, and debt service ability of the client. For juristic persons,
the Company will consider financial position and status, shareholders,
and management as well as their operations.

Account opening procedures

(1) Cash Account

    1.  If a client would like to open an account with the Company, a
        marketing officer will request sufficient documentary evidence
        from the client in order to understand the client’s investment
        objectives, knowledge and experience of investing in securities,
        financial status and debt service ability. Documentary evidence
        which must be submitted to the Company includes; copy of ID
        card, copy of house registration, copy of company’s affidavit
        (in case of juristic person), copy of business license (in case
        of specific business), specimen signatures, copy of bank book,
        other evidence showing client’s assets, copy of audited
        financial statements for the past 2 years (in case of juristic
        person) together with client’s signatures in the application
        form and other agreements. The marketing officer will consider
        all the information and then make a recommendation, supported by
        the documents, to the credit division officer to grant a credit
        line for the client.

    2.  The credit division officer will check the client’s background
        and calculate an appropriate credit line for the client
        according to the company’s criteria, which include the financial
        status, debt service ability as well as debt service history,
        and then propose to the appropriate authorised persons to
        approve the credit line.

(2) Cash trading via the Internet

  The Company provides cash trading via the Internet with the same
  credit line issuing system as for cash accounts.

(3) Credit balance account

The provision of loans for securities trading in credit balance accounts
is based on a system that considers the value of a client’s portfolio on
a mark-to-market basis. A client who intends to trade in a credit
balance account must deposit cash or securities that are on the
Company’s approved securities list with the Company of not less than
initial margin rate set by the Company before he executes his first
trade. The client may only buy securities included in the Company’s
marginable securities list. The Company will adjust the value of these
securities, using the market price, each day. This may result in
changing the client’s purchasing power and margin calls to the client as
the value of their collateral changes with the market. (See details of
the Company’s loans for securities trading in credit balance accounts in
no 5.3: Loans for securities trading in credit balance accounts)

Authority in approving credit line for cash accounts, credit balance
accounts and internet accounts

The company has implemented “different levels of authority” for persons
authorized to approve credit lines for cash accounts, credit balance
accounts, and internet accounts. The level starts from the head of
marketing division up to the Chief Operating Officer. The policy on
credit line approval has been set up by the Risk Management committee.

(B) Securities Dealer

Thai securities market in Y2004 was very volatile. The SET Index dropped
13.5% in 2004 (1st Quarter drop was around 16%), and as a result, the
Company’s portfolio suffered a loss.

In view of the volatility, the Company adjusted its investment policy in
1st quarter. We reduced portfolio size for directional trades and
increased the portfolio size for strategic trades (Spread Trade,
Arbitrage and Pair Trades).

The Company has paid close attention to proprietary trading and
investment. The Proprietary Trading Department and Fixed Income
Department are responsible for stock or bond selection and investment
allocation according to established policy, while the Risk Management
Division implements the policies laid down by the Risk Management
Committee, and closely tracks the departments’ exposure to control the
Company’s overall risks.

(C) Investment Advisory

SEC granted an approval to the Company to operate investment advisory
business on 6 January 2004, allowing the Company to provide a full range
of services.

(D) Financial advisory and securities underwriting

The SEC has granted the Company approval to operate a financial advisory
business under the scope specified by the SEC. This includes acting as a
financial advisor. The Company also provides a securities underwriting
service to those firms intending to issue both fixed income and equity
securities.

With its determination to grow rapidly in Thailand’s competitive
business environment, its ability to leverage on the Company’s expertise
in financial engineering and fixed income and the Company’s regional
financial network, the Company’s tri-lingual investment banking team is
well positioned to provide a full range of services to clients hoping to
access both domestic and foreign capital markets.

(E) Securities Borrowing and Lending (SBL)

The Ministry of Finance granted the Company approval to conduct
securities lending and borrowing business on February 26, 1999. The
Company can act as a principal or agent assisting stock lenders
(normally institutional investors) and our clients who want to borrow
securities.

The Company performs SBL business both as a principal and as an agent.

In 2004, the Company extended full services to all types of clients,
including:

1. Institutional Lenders

2. Institutional Borrowers

3. Retail Lenders

4. Retail Borrowers

(F) Securities Registrar

The Company received approval to conduct securities registrar business
on 14 June 1994, the Company maintained its securities registrar license
in order to support its derivatives products in the future.

(G) Selling Agent of Unit Trust

The Company’s fixed income department has been appointed as a selling
agent for asset management firms such as KTAM, SCBAM, INGAM, TMBAM, OAM,
MFC, KASSET, Aberdeen. All clients are advised on the appropriate fund
based on their risk tolerance and investment return requirements. The
funds that we sell include equity funds, fixed income funds, flexible
funds, and property funds, retirement mutual funds and long-term equity
funds.

(H) Derivatives

1.  OTC Derivatives

The company has spent more than 10 years preparing for derivatives
products. The major shareholder, the KGI Group has also helped by
transferring knowledge and technology to the Company. The KGI Group sent
derivatives experts to train our staff to be ready for this new market
in Thailand. At the same time, the Company sent staff to its related
companies in Taiwan and Hong Kong to closely study their sophisticated
derivatives markets. The Company is adopting the same program and
software as used in Taiwan and Hong Kong. The software is widely
recognized in developed derivatives markets in many countries and should
be effective in the Thai market as well. Such system will greatly
enhance the risk management capability of the Company in hedging our
derivatives positions. The Company is ready to provide services relating
to derivatives products to clients. At the moment, we focus mainly on
institutional clients who clearly understand the risks and rewards of
such products.

1.1. OTC Derivatives

OTC Derivatives products are tailor-made, and designed according to
client’s request. The clients may choose to invest in derivatives for
two purposes: a). to reduce risk; and b). to enhance return on their
investment portfolio.

  a). Most of the clients who wish to reduce risk of their portfolio are
  long term equity investors. They’d like to protect against loss on
  their portfolio by, for example, buying (long) put options.

  A put option grants buyer the right to sell stock at agreed price
  (strike price) at the specified time. Therefore, if market price of
  such equity is lower than the strike price, buyer has the right to
  sell such equity at a higher price than the market price

  b). Clients who want to enhance return on investment may buy call
  options which requires less investment than buying the stock directly.
  With this leverage, the return on investment in call options can be
  much higher than the return on investment in stock.

  A call option gives the holder a right to buy the underlying stock at
  the agreed price (strike price) and time. If the stock price increases
  and exceeds the strike price, call option holder can buy the stock at
  the agreed price which is lower than the market price of the stock.

  The Company would in return reduce its risk by hedging its exposure.

Apart from the basic option as mentioned earlier, the Company plans to
provide more complex derivatives to match clients’ risk and return
profiles in the future. The Company will regularly organize
training/seminars to ensure that our clients thoroughly understand the
products before investing in equity derivatives with us and that our
equity derivatives products would help reduce risk and/or enhance return
of clients’ portfolio.

1.2. Structured Products

In 2004, the Company focused on developing structured products which
combines equity derivatives with money market instruments to serve those
clients who want to invest in both equity market and money market. In
this first stage, the Company plans to offer two types of structured
products exclusively to institutional clients who have good
understanding and knowledge of derivatives. The two structured products
are:

  1.2.1 Principal Protected Note: To serve the needs of clients who
  require principal protection on their investment (can not tolerate
  loss), and also a high return from investment in equity market;

  1.2.2 Equity Linked Note (ELN): To serve the needs of the clients who
  prefer investment in short term money market with high yield and who
  can invest in equity market. At present, we provide ELN with maximum
  term of 270 days, whose return is linked to the price of a SET-listed
  stock with good fundamental and high trading volume (Blue chip Stock).

2.  Exchange-traded Derivatives

The Company is presently preparing to participate in TFEX (Thailand
Futures Exchange) which is expected to open in 4Q2005. The Company hopes
to be a key player in any exchange-traded derivatives market that might
be launched.

In the near future, we believe that the equity derivatives market, both
OTC and exchange-traded, will grow very rapidly and that derivatives
will be widely recognized by retail and institutional clients as an
attractive investment alternative. Therefore, the Company has prepared
for a long term expansion into the equity derivatives business by
recruiting capable personnel, acquiring efficient computerized systems
and software, and providing regular training to our staff in all related
divisions in order to enhance our service in this area.

(2) MARKET OVERVIEW AND COMPETITION

Market Overview

After giving the highest return in the world at 117% in 2003, Thailand’s
stock market consolidated throughout 2004 except for a slight
improvement in 4Q04. The index rose to the highest point at 802 in the
beginning of January and closed the year at 668, down 104 pts or 13.5%,
when compared to 772 at the end of 2003. This was due to negative
factors, including bird-flu epidemic, concern of China economy’s slowing
down, high oil prices, rising interest rates trend and southern Thailand
violence, all of which resulted in negative sentiment toward the stock
market.

However, the Thai economy is still healthy despite the negative factors
mentioned above. In the first three quarters of 2004, the economy grew
at a satisfactory rate of 6.3%. Even though the economic growth rate in
2005 might be slightly lower than the previous year, it is still
forecasted to grow by at least 5.5%.

In 2004, daily average market turnover was Baht20.4bn, compared with
18.9 billion baht in 2003. Foreign fund flow was volatile with net sell
of Baht57.8bn in the first eight months before becoming net buyer in the
last 4 months, pushing cumulative net buy to Baht5.75bn. The market
capitalization at the end of 2004 was at Baht4.52trn, down 5.6% from the
previous year of Baht4.79trn.

 Stock Exchange of Thailand 

+--------------------------+--------+--------+--------+--------+-------+
|                          | 2000   | 2001   | 2002   | 2003   | 2004  |
+--------------------------+--------+--------+--------+--------+-------+
|   Total trading value    | 1,6    | 1,5    | 2,0    | 4,6    | 5,03  |
|   (Baht million)         | 09,698 | 77,758 | 47,442 | 70,281 | 5,816 |
+--------------------------+--------+--------+--------+--------+-------+
|   Avg. daily trading     | 6,570  | 6,440  | 8,357  | 18,908 | 2     |
|   value* (Baht million)  |        |        |        |        | 0,388 |
+--------------------------+--------+--------+--------+--------+-------+
|   Total market           | 2,1    | 1,6    | 1,9    | 4,7    | 4,52  |
|   capitalization (Baht   | 93,067 | 07,310 | 86,236 | 89,857 | 1,894 |
|   million)               |        |        |        |        |       |
+--------------------------+--------+--------+--------+--------+-------+
|   SET index (year-end)   | 481.92 | 303.85 | 356.48 | 772.15 | 668.1 |
+--------------------------+--------+--------+--------+--------+-------+
|   Dividend rate (%)      | 0.61   | 2.06   | 2.72   | 1.81   | 2.75  |
+--------------------------+--------+--------+--------+--------+-------+
|   P/E ratio (times)      | 14.7   | 4.92   | 6.98   | 13.65  | 9.4   |
+--------------------------+--------+--------+--------+--------+-------+
|   P/BV ratio (times)     | 1.72   | 1.29   | 1.36   | 2.71   | 2.0   |
+--------------------------+--------+--------+--------+--------+-------+
|   No. of listed          | 392    | 382    | 389    | 407    | 439   |
|   companies              |        |        |        |        |       |
+--------------------------+--------+--------+--------+--------+-------+

Note : *not including MAI

In 2004, many companies wanted to list on the SET and MAI because the
shares of new listed companies in 2003 had produced attractive returns,
as well as to take advantage of tax incentives that were expected to end
in September 2004. However, due to the negative situations mentioned
earlier, the shares of most new listed companies in 2004 did not enjoy
high returns. Altogether, a total of 50 companies listed in the market
in 2004 as follows:

IPO stocks in 2004

  -------------------- ---------------- ---------------------------------
  STOCK                FIRST TRADE      IPOs Proceeds ( Baht million)

  Q-CON                6 Jan 04         3,200

  SCG                  7 Jan 04         3,056

  GRAND                10 Feb 04        2,914

  AOT                  11 Mar 04        60,000

  ECL                  22 Mar 04        521

  NCH                  29 Mar 04        20,000

  SPACK                30 Mar 04        1,020

  AREEYA               1 Apr 04         3,411

  CSL                  8 Apr 04         1,426

  PICO                 20 Apr 04        404

  BOL                  21 Apr 04        285

  NNCL                 18 May 04        2,318

  SIS                  21 Jun 04        830

  LVT                  14 Jul 04        210

  UMS                  16 Jul 04        557

  PRO                  23 Jul 04        1,200

  AMC                  13 Aug 04        5,625

  ML                   19 Aug 04        1,155

  ILINK                20 Aug 04        340

  L&E                  24 Aug 04        330

  OISHI                25 Aug 04        3,563

  DM                   25 Aug 04        286

  KTECH                1 Sep 04         1,645

  SEAFCO               3 Sep 04         840

  AI                   9 Sep 04         4,800

  SAM                  15 Sep 04        1,100

  CMO                  16 Sep 04        413

  DE                   17 Sep 04        2,064

  DCON                 21 Sep 04        700

  WORK                 29 Sep 04        3,000

  TKT                  30 Sep 04        853

  GBX                  5 Oct 04         2,450

  FOCUS                5 Oct 04         563

  SLC                  8 Oct 04         275

  GL                   13 Oct 04        540

  SWC                  18 Oct 04        600

  SNC                  21 Oct 04        760

  TOP                  26 Oct 04        65,281

  SYRUS                27 Oct 04        2,585

  PONG                 5 Nov 04         2,051

  PAP                  8 Nov 04         2,939

  KH                   10 Nov 04        3,610

  PPM                  11 Nov 04        488

  MCOT                 17 Nov 04        15,116

  TAPAC                2 Dec 04         230

  GFM                  7 Dec 04         930

  BLISS                13 Dec 04        1,850

  TNX                  14 Dec 04        16,800

  PTL                  15 Dec 04        5,520

  UTP                  16 Dec 04        1,235
  -------------------- ---------------- ---------------------------------

Competition in the securities industry

Although the commission rate was maintained at 0.25%, fierce competition
persisted in the industry. In 2004, the total market share of top
leading brokers changed only slightly, from 51.14% to 51.57%. However,
the competition was fierce especially among the leading brokerage firms.

Top 10 securities brokers (2004)

+--------+----------------------------------+----------+--------------+
|   Rank | Company Name                     | Name     | Market       |
|        |                                  |          | Shares (%)   |
+--------+----------------------------------+----------+--------------+
| 1      | Kim Eng Securities (Thailand)    | KIMENG   | 11.70        |
|        | Plc.                             |          |              |
+--------+----------------------------------+----------+--------------+
| 2      | Asia Plus Securities Plc         | ASP      | 8.08         |
+--------+----------------------------------+----------+--------------+
| 3      | Seamico Securities Plc.          | Zmico    | 5.96         |
+--------+----------------------------------+----------+--------------+
| 4.     | KGI Securities (Thailand) Plc.   | KGI      | 4.52         |
+--------+----------------------------------+----------+--------------+
| 5      | SCB securities Plc               | SCBS     | 4.05         |
+--------+----------------------------------+----------+--------------+
| 6      | Phatra securities Plc.           | PHATRA   | 3.99         |
+--------+----------------------------------+----------+--------------+
| 7      | TISCO Securities Co.,Ltd.        | TSC      | 3.52         |
+--------+----------------------------------+----------+--------------+
| 8      | Bualuang securities Plc          | BLS      | 3.32         |
+--------+----------------------------------+----------+--------------+
| 9      | Capital Nomura Securities Plc.   | CNS      | 3.26         |
+--------+----------------------------------+----------+--------------+
| 10     | Finansa Securities Co.,Ltd       | FINANSA  | 3.20         |
+--------+----------------------------------+----------+--------------+
|        | Others                           |          | 48.4         |
+--------+----------------------------------+----------+--------------+
|        | Total                            |          | 100          |
+--------+----------------------------------+----------+--------------+

Souce: The Stock Exchange of Thailand

Industry trend in 2004

Due to negative factors, Thailand’s stock market dropped by 13.5% in
2004, making it relatively cheaper compared to other regional markets.
However, taking into account that the Thai economy is still growing at
an impressive rate (even after the Tsunami tragedy), as well as having
political stability since the government was reelected with a large
majority, the Company believes that market performance in 2005 is likely
to be better than in 2004.

As for the securities business in 2005, competition is likely to remain
extensive due to more players coming into the market.

(3) Funding of Products and Services

(A) Source of funds

If the Company requires new funds, the Company’s policy is to try to
procure the cheapest source of funds available, and to match the
duration of any loan to its needs. As far as possible, the Company will
not depend upon one source of funds.

(B) Subordinated Loans from Subsidiary

As at 31 December 2004, the Company has subordinated loans from its
overseas subsidiary companies (HOLDCO and KTHL) of approximately Baht
2,068 million which was made to partially finance the Company’s capital
reduction to its shareholders. These loans are interest-free unsecured
Baht denominated loans.

(C) Net capital adequacy ratio

The Office of Securities and Exchange Commission requires that all
securities companies should maintain a Net Liquid Capital Rule (NCR)
ratio of at least 7% of total liabilities. Currently, the Company’s NCR
ratio exceeds the SEC’s requirement. As of 31 December 2004, the
Company’s NCR was 223.93%.

(D) Liquidity management policy

The Company analyses its cash flow needs on a daily basis and tries to
match its funding and investment in money market instruments to its
needs as forecast.