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 2005, the Company ranked No. 8 with a 3.72% equities brokerage market
share. To trade 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       | 2005  | %    | 2004   | %   | 2003   | %    |
+----------------------+-------+------+--------+-----+--------+------+
| SET (Baht million)*  | 16,6  |      | 20,    |     | 19,    |      |
|                      | 00.71 |      | 647.39 |     | 030.24 |      |
+----------------------+-------+------+--------+-----+--------+------+
| The Company (Baht    | 1,2   |      | 1,     |     | 1,     |      |
| million)*            | 36.51 |      | 868.32 |     | 990.01 |      |
+----------------------+-------+------+--------+-----+--------+------+
| The Company’s market | 3.72% |      | 4.52%  |     | 5.23%  |      |
| share (%)            |       |      |        |     |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| Breakdown by types   |       |      |        |     |        |      |
| of clients           |       |      |        |     |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| - The Company’s      | 1     | 9.88 | 106.74 | 5   | 65.71  | 3.30 |
| portfolio            | 22.11 |      |        | .71 |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| - Fund               | 66.27 | 5.36 | 79.82  | 4   | 48.15  | 2.42 |
|                      |       |      |        | .27 |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| - Retail client      | 9     | 7    | 1,     | 74  | 1,     | 8    |
|                      | 15.20 | 4.01 | 383.04 | .03 | 608.58 | 0.83 |
+----------------------+-------+------+--------+-----+--------+------+
| - Foreign client     | 1     | 1    | 298.72 | 15  | 267.57 | 1    |
|                      | 32.93 | 0.75 |        | .99 |        | 3.45 |
+----------------------+-------+------+--------+-----+--------+------+
| Total                | 1,2   | 10   | 1,     | 100 | 1,     | 10   |
|                      | 36.51 | 0.00 | 868.32 | .00 | 990.01 | 0.00 |
+----------------------+-------+------+--------+-----+--------+------+
| Breakdown by types   |       |      |        |     |        |      |
| of account           |       |      |        |     |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| - Cash account       | 1,1   | 9    | 1,     | 93  | 1,     | 9    |
|                      | 36.94 | 1.95 | 750.19 | .67 | 893.91 | 5.17 |
+----------------------+-------+------+--------+-----+--------+------+
| - Credit balance     | 99.57 | 8.05 | 118.13 | 6   | 96.10  | 4.83 |
| account              |       |      |        | .33 |        |      |
+----------------------+-------+------+--------+-----+--------+------+
| Total                | 1,2   | 10   | 1,     | 100 | 1,     | 10   |
|                      | 36.51 | 0.00 | 868.32 | .00 | 990.01 | 0.00 |
+----------------------+-------+------+--------+-----+--------+------+

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 2005,
the Company had 19 branches locations throughout the country; 7 branches
are located in the Bangkok area and 12 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.  | Nakhon Sawan                 |
+----+---------------------------+-----+------------------------------+
| 5. | Ratchadaphisek            |     |                              |
+----+---------------------------+-----+------------------------------+
| 6. | Changwattana              |     | North East                   |
+----+---------------------------+-----+------------------------------+
| 7. | Rama II                   | 4.  | Nakhon Ratchasima            |
+----+---------------------------+-----+------------------------------+
|    |                           | 5.  | Pakchong                     |
+----+---------------------------+-----+------------------------------+
|    |                           | 6.  | Udon Thani                   |
+----+---------------------------+-----+------------------------------+
|    |                           |     |                              |
+----+---------------------------+-----+------------------------------+
|    |                           |     | Central                      |
+----+---------------------------+-----+------------------------------+
|    |                           | 7.  | Samut Sakhon                 |
+----+---------------------------+-----+------------------------------+
|    |                           | 8.  | Suphan Buri                  |
+----+---------------------------+-----+------------------------------+
|    |                           | 9.  | Nakhon Pathom                |
+----+---------------------------+-----+------------------------------+
|    |                           | 10. | Phetchaburi                  |
+----+---------------------------+-----+------------------------------+
|    |                           | 11. | Ayutthaya                    |
+----+---------------------------+-----+------------------------------+
|    |                           |     |                              |
+----+---------------------------+-----+------------------------------+
|    |                           |     | South                        |
+----+---------------------------+-----+------------------------------+
|    |                           | 12. | Hat Yai                      |
+----+---------------------------+-----+------------------------------+

Policy in accepting Clients

Clients are categorized as follow:

1.  Individuals (locals and foreigners).

2.  Juristic persons:

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

-   Foreign financial institutions.

-   Juristic persons registered in Thailand that are limited
    partnerships or limited companies.

-   Juristic persons registered abroad.

For individuals, the Company will consider their occupation, place of
residence, years of work, revenues, financial status, and debt service
ability. For juristic persons, the Company will consider financial
status, shareholders, and management as well as their business
prospects.

Account opening procedures

(1) Cash Account

    1.  The marketing officer will request documentary evidence from the
        client in order to find out the client’s investment objectives,
        knowledge and experience of investing in securities, financial
        status and debt service ability. Documentary evidence that must
        be submitted to the Company includes the following: a 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 savings
        book, other evidences of client’s assets, copy of audited
        financial statements for the past 2 years (in case of juristic
        person) together with the 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 operation officer.

    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 that with cash accounts.

(3) Credit balance account

  The Company provides credit balance account with the same credit line
  issuing system as that with cash 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

The Company’s proprietary trading portfolios faced a difficult operating
environment in 2005 due to poor market conditions in both the equity and
fixed income markets. The SET index was very volatile, reaching a high
of 746 in February before falling to hit a low of 630 in July. Finally
the market ended the year slightly higher than it started, closing at
713. For year 2005, bond market sentiment was dampened by inflation
threat and the upward momentum of interest rates. Although the
Proprietary Trading Department and Fixed Income Department paid close
attention to their portfolios, the Company still suffered from volatile
market, and it suffered a loss from trading securities of Baht 13
million.

(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 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.

In 2005, KGI received the MAI Newly Listed STAR Award for its role as
Financial Advisor to Unique Mining Services Plc. (UMS), which was voted
the most successful IPO on MAI in 2004. In addition, IPOs managed by KGI
swept all 3 SET Awards for the MAI market. UMS received MAI Newly Listed
Star and MAI Best Return Star, and Interlink Communication Plc received
the SET Award 2005 for MAI Growth Star.

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 was the first broker to act as a principal and agent assisting
all types of clients who want to lend or borrow securities:
1.Institutional Lenders, 2.Institutional Borrowers, 3.Retail Lenders,
and 4. Retail Borrowers. This new service will help increase liquidity
and price stability to the Thai market, which will benefit all related
parties and help to further develop the Thai equity market.

(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 One Asset Management Limited,
Krungthai Asset Management Public Company Limited, SCB Asset Management,
ING Funds (Thailand) Co., Ltd., TMB Asset Management Co., Ltd., Aberdeen
Asset Magement Co., Ltd., MFC Asset Management Public Company Limited,
Kasikorn Asset Management Co., Ltd., and PrimaVest Asset Management Co.,
Ltd. All clients are advised on the appropriate fund based on their risk
tolerance and investment return requirements.

(H) Derivatives

The company is recognized as one of the leaders in innovation in the
development of derivative products in Thailand. The Company has spent
more than 10 years preparing for derivatives products. The major
shareholder, the KGI Group has also provided valuable assistance 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.

1.  OTC Derivatives

  The Company adopts the same program and software as those 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, the Company focuses
  mainly on institutional clients who have better understanding about
  the risks and rewards of such products.

  1.1 OTC Equity Derivatives

  OTC Equity 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 2005, 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;

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).

  In 2005, we were the first broker to launch an ELN in Thailand. Our
  ELN combines equity derivatives and short-term commercial paper. It
  has been successful with institutional investors who need to enhance
  their yield on investment.

(I) Futures Business

The Company recently received a license to conduct futures business from
the Securities and Exchange Commission (SEC) and also got approval to
act as a futures broker from The Thailand Futures Exchange Pcl.(TFEX)
and the Thailand Clearing House Co.,Ltd.(TCH). Accordingly, the Company
set up a new department, Futures Department, to support this new
business which is expected to start in 2006.

(2) MARKET OVERVIEW AND COMPETITION

Market Overview

After posting loss of 13.5% in 2004, Thailand's bourse managed to offer
a return of 6.8% in 2005, but the market was extremely volatile
throughout the year. In 1H05, SET performance was lackluster on the back
of economic deterioration on rising oil prices, tsunami, and bird flu.
The SET recorded an end of day low of 638 on July 7, 2005. However,
market conditions improved markedly in 2H05 after the government decided
to float diesel prices, which, while admittedly having an abrupt
negative impact, eased the trade deficit and revitalized the confidence
of foreign investors.

Thailand's economy grew only 3.3% in the first quarter of 2005 but
accelerated to 4.4% and 5.3% in 2Q05 and 3Q05, respectively.
Strengthening economic growth has been the major driver for the stock
market's re-rating. Meanwhile, the market still expects 4Q05 GDP, which
will be released in early March 2006, to be strong at above 5%. In 2006,
with less economic risks expected, economic growth should remain
resilient.

In 2005, daily average market turnover was 16.5 billion baht, compared
with 20.4 billion baht in 2004. Foreign fund flow showed net buy of
118.5 billion baht. The market capitalization at the end of 2005 was at
5.1 trillion baht, up 13% from 2004's 4.5 trillion baht.

 Stock Exchange of Thailand 

+--------------------------+--------+--------+--------+--------+-------+
|                          | 2001   | 2002   | 2003   | 2004   | 2005  |
+--------------------------+--------+--------+--------+--------+-------+
|   Total trading value    | 1,5    | 2,0    | 4,6    | 5,0    | 4,03  |
|   (Baht million)         | 77,758 | 47,442 | 70,281 | 35,816 | 1,240 |
+--------------------------+--------+--------+--------+--------+-------+
|   Avg. daily trading     | 6,440  | 8,357  | 18,908 | 20,388 | 1     |
|   value* (Baht million)  |        |        |        |        | 6,454 |
+--------------------------+--------+--------+--------+--------+-------+
|   Total market           | 1,6    | 1,9    | 4,7    | 4,5    | 5,10  |
|   capitalization (Baht   | 07,310 | 86,236 | 89,857 | 21,894 | 5,113 |
|   million)               |        |        |        |        |       |
+--------------------------+--------+--------+--------+--------+-------+
|   SET Index (year-end)   | 303.85 | 356.48 | 772.15 | 668.1  | 713.7 |
+--------------------------+--------+--------+--------+--------+-------+
|   Dividend rate (%)      | 2.06   | 2.72   | 1.81   | 2.75   | 3.37  |
+--------------------------+--------+--------+--------+--------+-------+
|   P/E ratio (times)      | 4.92   | 6.98   | 13.65  | 9.4    | 9.4   |
+--------------------------+--------+--------+--------+--------+-------+
|   P/BV ratio (times)     | 1.29   | 1.36   | 2.71   | 2.0    | 1.91  |
+--------------------------+--------+--------+--------+--------+-------+
|   No. of listed          | 382    | 389    | 407    | 439    | 468   |
|   companies              |        |        |        |        |       |
+--------------------------+--------+--------+--------+--------+-------+

Note : * Not including MAI

There were a number of IPOs coming on board in 2005. However, as
mentioned above, the market was extremely volatile and the re-rating in
late 2005 stemmed from foreign buying which was positive to only big-cap
stocks. As a result, a number of IPOs last year provided negative
returns. There were 53 companies, including MAI, with IPOs in 2005.

IPO stocks in 2005

  -------------------- ----------------------- --------------------------
  Stock                First trading date      Mkt cap (Bt mn)

  YNP                  13 Jan                  4,096

  KPN                  26 Jan                  1,390

  CIG                  27 Jan                  607

  SAT                  31 Jan                  4,440

  BSBM                 1 Feb                   1,393

  SPPT                 17 Feb                  1,080

  TMT                  18 Feb                  1,386

  BLS                  28 Feb                  2,520

  KSL                  7 Mar                   14,570

  CPR                  17 Mar                  442

  SMM                  22 Mar                  434

  SOLAR                30 Mar                  2,670

  SUPER                19 Apr                  1,470

  GLOW                 21 Apr                  35,109

  SALEE                28 Apr                  419

  S2Y                  4 May                   287

  TFUND                12 May                  1,750

  SMIT                 18 May                  1,458

  PHATRA               31 May                  6,619

  TSC                  23 Jun                  2,390

  TIF1                 29 Jun                  505

  PERM                 14 Jul                  1,750

  MCS                  15 Jul                  1,200

  IRP                  2 Aug                   5,183

  MNIT                 11 Aug                  710

  CPNRF                23 Aug                  10,915

  ASK                  25 Aug                  1,024

  STAR                 15 Sep                  476

  SIRIPF               26 Sep                  865

  METRO                26 Oct                  1,575

  EASON                27 Oct                  600

  PRIN                 7 Nov                   1,876

  CAWOW                8 Nov                   1,200

  TWZ                  18 Nov                  912

  UOBKH                22 Nov                  2,015

  UEC                  25 Nov                  1,158

  DRT                  29 Nov                  1,560

  KCAR                 1 Dec                   1,100

  PREB                 2 Dec                   650

  PS                   6 Dec                   8,713

  GC                   6 Dec                   468

  TPAC                 7 Dec                   280

  TUCC                 8 Dec                   683

  MME                  8 Dec                   1,920

  PR124                8 Dec                   320

  KASET                9 Dec                   238

  PTTCH                13 Dec                  90,491

  ACAP                 14 Dec                  700

  TNH                  16 Dec                  315

  STEEL                20 Dec                  145

  IHL                  22 Dec                  1,095

  TRC                  22 Dec                  255

  CSP                  22 Dec                  1,500
  -------------------- ----------------------- --------------------------

Competition in the securities industry

Both consolidation and new entrants continued to be seen in the
securities industry in 2005. Although the commission rate was maintained
at 0.25%, fierce competition persisted. For the year 2005, total market
share of the top 10 leading brokers decreased slightly, from 51.6% in
2004 to 50.1%.

Top 10 securities brokers (2005)

+--------+----------------------------------+----------+--------------+
|   Rank | Company Name                     | Name     | Market       |
|        |                                  |          | Shares (%)   |
+--------+----------------------------------+----------+--------------+
| 1      | Kim Eng Securities (Thailand)    | KIMENG   | 10.19        |
|        | Plc.                             |          |              |
+--------+----------------------------------+----------+--------------+
| 2      | Asia Plus Securities Plc         | ASP      | 7.15         |
+--------+----------------------------------+----------+--------------+
| 3      | SCB securities Plc               | SCBS     | 5.18         |
+--------+----------------------------------+----------+--------------+
| 4.     | Phatra Securities Plc.           | PHATRA   | 5.01         |
+--------+----------------------------------+----------+--------------+
| 5      | Seamico securities Plc           | ZMICO    | 4.27         |
+--------+----------------------------------+----------+--------------+
| 6      | CSFB securities (Thailand) Ltd.  | CSFB     | 4.07         |
+--------+----------------------------------+----------+--------------+
| 7      | UBS securities (Thailand) Ltd.   | UBS      | 4.03         |
+--------+----------------------------------+----------+--------------+
| 8      | KGI Securities (Thailand) Plc    | KGI      | 3.71         |
+--------+----------------------------------+----------+--------------+
| 9      | Bualuang Securities Plc.         | BLS      | 3.28         |
+--------+----------------------------------+----------+--------------+
| 10     | BFIT Securities Co.,Ltd          | BFIT     | 3.19         |
+--------+----------------------------------+----------+--------------+
|        | Others                           |          | 49.92        |
+--------+----------------------------------+----------+--------------+
|        | Total                            |          | 100.00       |
+--------+----------------------------------+----------+--------------+

Source: The Stock Exchange of Thailand

Industry trend in 2006

The outlook for Thailand's stock market is better in year 2006,
alongside stronger economic conditions. Actually SET has been rallying
since the beginning of 2006. Going forward, regional trend of East Asia
to posit a resilient economy and the cheap valuations of Thailand's
market is poised to draw foreign funds flow, resulting in bright market
performance and higher trading turnover.

We still expect to see more newcomers and broker consolidation in 2006
as the competitive environment remains.

(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 loans, maturing in March 2007. The Company made partial payment of
the loans during the period, and as at 31 December 2005, the outstanding
balance amount to Baht 2,045 million.

(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 2005, the
Company’s NCR was 265.14%.

(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 forecasted.