Securities industry
Play
Securities business tends to recover in 3Q12.
FSS is top pick UNDERWEIGHT
Since the end of 2Q12 until yesterday (5 September), SET Index has
rallied 5.2% to close at 1,233.8 pts comparing to during 2Q12 in which
the Index was volatile and closed down 2% from end-1Q12.
Consequently, profit from portfolio of the sector in 3Q12 would rise
significantly, while other revenue would stabilize from 2Q12. Revenue
from securities trading commission has begun to stabilize as securities
companies have already prepared for the commission fee liberation,
reflected from the commission fee rate of the sector that has risen from
0.156% in 1Q12 to 0.158% in 2Q12. Accordingly, the pressure about
the commission fee has declined and the rate would be steady or
increase slightly from 2Q12. Meanwhile, average trading volume per day
(QTD in 3Q12) stayed flat from 2Q12 at B24.7bn. Revenue from
investment banking business in 3Q12 would soften a little from 2Q12 as
financial advisory revenue from IPO stocks of 3-4 companies that have
been traded in 3Q12 has already been recognized mainly in 2Q12, but
this would be compensated by underwriting revenue.
SET likely reaching year’s high; profit in 4Q12 might
weaken from 3Q12
We project that SET Index is nearly touching the year’s high because
according to past statistics when the Index reached high it usually stood
equivalent to the market’s PER at the end of the year at no over 14x,
which is equal to the current SET Index of 1,246. Consequently, we
believe that in 4Q12 there is a slim chance for the Index to rally and
higher risk for the Index to correct base. Accordingly, profit from
portfolio in 4Q12 would decline substantially from 3Q12 and profit of the
sector in 4Q12 would weaken from 3Q12. Overall, net profit of the
securities sector in 2012 should have already passed the year’s high in
1Q12 and net profit in 2H12 would drop from 1H12. FY2012’s net profit
is expected to decrease by 16.2%yoy.
Maintain “Underweight” to reflect likely decreasing profit.
FSS is top pick
In order to reflect lower profitability, we maintain “Underweight” for the
sector. The securities companies that are anticipated to be able to
maintain their earnings are those with good distributing revenue bases,
not volatile investment portfolio, and promising investment banking
business. We recommend buying FSS([email protected]) as its profit growth in
FY2012 is estimated at 97%, the highest among peers, while the current
share price is equivalent to PBV of only 0.7x. We recommend “Hold” for
good profitability and attractive dividend yield of 8%. We also
recommend holding TNITY([email protected]). Despite being a small securities
company, it could generate regularly stable profit in every quarter and
the current share price is substantially lower than the book value so it is
a securities company that might be taken over by foreign company for
doing transactions after the AEC liberalization.
