Securities sector
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Unattractive. Only dividend plays recommended Underweight
Securities sector
- 4Q14 earnings to weaken
4Q14 earnings are projected to decline from 3Q14. Although QTD daily
trading value (excluding proprietary trading) stays unchanged qoq at
B52bn, brokerage fee income is projected to plunge due to introduction of
new rivals (AEC, AWS, and APPLE) and growth in other brokerage-related
income would be restricted. Interest income from margin loan would be
limited as loan issuance ceiling has already peaked in 3Q14. Margin Loan to
equity ratio was 0.83x in 3Q14, the same level as 1Q13 (record-high
trading value). Proprietary trading value would also plunge as market P/E
ratio is as high as 17.4x (FY2014 EPS projected at B91.7). However, income
from investment banking business is projected to grow because QTD IPO
value surges by 1530%qoq.
- Maintain FY2014-2015 earnings forecast
YTD trading value is B41bn, 17% higher than our projection of B35bn.
However, brokerage fee income might drop to meet the forecast due to
fiercer competition after a new rival (LHS) is introduced. We maintain the
securities sector's earnings forecast in 2014 and 2015, but FY2015 market
EPS forecast might be revised down from B106.57 as global crude oil price
has plunged by over 50% since the beginning of 2014, pressing PTT, PTTEP,
and petrochemical sector. Market expected P/E ratio of over 15x shows a
limited upside, depressing profit from proprietary trading. Overall, we
estimate the securities sector's earnings to drop by 27.6%yoy to B3.56bn in
2014 and stay flat in 2015.
- UNDERWEIGHT
As the securities sector’s earnings have been declining, we downgrade our
recommendation to UNDERWEIGHT. However, securities stocks' dividends
are usually as high as 70-90% of their earnings. Top pick is
MBKET([email protected]) for its steady market share and brokerage fee income,
with 7.9% dividend yield (B0.75/share in 1H14, B1.10/share expected in
2H14) and 12.6x expected P/E ratio; its share price has 10.6% upside.
