Asia Plus Securities

- 3Q14 beat on higher non-brokerage fee income and lower opex than anticipated

- Raise 2014F by 6% and 2015F by 4% and TP to Bt5.5 with upside risk for 2014F from continued hefty market turnover.

- Buy in now for a 10% dividend yield ahead of the dividend season.  

Beat: 3Q14 profit up 4% YoY and16% QoQ to Bt295mn vs. our forecast of Bt260mn, primarily from higher non-brokerage fee income and lower opex than expected. 

Key points: 

1. Brokerage income: +23% YoY and +38%QoQ. Brokerage market share rose 5 bps YoY and 12 bps QoQ to 4.16%. Average daily market turnover (excluding proprietary trading) rose 35% YoY and 36% QoQ to Bt50.2bn. Brokerage commission rate slipped by 1 bps, reflecting rising competition.  

2. Non-brokerage fee income: -37% YoY and -36% QoQ to Bt152mn, mainly due to no IPO deals. However, in 3Q14 non-brokerage fees were higher than expected, reflecting stronger income from asset management than expected. 

3. Investment gain: +35% YoY and -7% QoQ to Bt88mn.   

4. Cost to income ratio: Better than expected, down 423 bps QoQ at 53.8%.  

Raise forecast and TP. We raise our forecast by 6% for 2014F and 4% for 2015F, mainly on a raise in non-brokerage fee income from asset management fees and a slight cut in opex to fine tune with 3Q14 results. The adjustment in forecast and change to 2015 base leads to a lift in target price to Bt5.5/share (11.3x PER, derived from an 8% required return from dividend) from Bt4.4/share. 

Upside risk for 2014F on higher market turnover than expected. We conservatively forecast a QoQ slip in 4Q14 earnings on a QoQ decrease in daily market turnover to Bt45bn (Bt49bn including proprietary trading) in 4Q14 from Bt50bn (Bt54bn including proprietary trading), bringing 2014F to Bt40bn (Bt44bn including proprietary trading). October average daily market turnover of Bt46bn (Bt50bn including proprietary trading) was higher than our assumption of Bt45bn, giving upside risk to our 2014F earnings. We forecast 12% earnings growth in 2015F, driven by a continued rise in non-brokerage fee income (mainly asset management) at 5% and assuming an 8% increase in daily market turnover to Bt43bn (Bt47bn including proprietary trading) and based on expectation of a 10% increase in SET market capitalization from rising profit growth for listed companies to 15% in 2015F from 8% in 2014F.  

Buy ahead of dividend season. With an attractive 9.9% 2014F dividend yield (7% for 2H14) expected, we strongly encourage Buy ASP now, ahead of the dividend season in 1Q15. We prefer ASP to MBKET, as it has greater diversification of revenue with a balance between brokerage income and non-brokerage income provided by its active investment banking activities, recurring income from asset management, and sizable investment portfolio, which has a high leverage to the stock market rally.