Securities sector

Securities sector  

 

- Still facing fierce competition 

The securities brokerage business would remain in fierce competition in 2015. One new brokerage company, LHS, was opened in late 2014 and other three companies are obtaining licenses from the Securities and Exchange Commission (SEC) and may start the business around 2H15; these will lessen market shares of existing companies. Moreover, one of the three new companies focuses on online trading, which has lower brokerage fee rate than usual, so it would decrease average brokerage fee rate of the sector. Previously, average brokerage fee rate in 2014 was 0.127%, down from 0.136% in 2013. 

 

- Profit to show flat growth 

Apart from fierce competition in the brokerage business, other businesses are also facing limitations. For the IB business, only 17 companies have submitted filings in 2015 and combined IPOs value is projected to be substantially lower than that of 2014, so fee revenue may decline from last year. For the margin loan business, the government’s anti-speculation measure taking effects since January 1, 2015 is an impediment. However, we maintain our assumption for daily trading value (prop-trade excluded) of B41.5bn on average in 2015; although YTD daily trading value is B51.5bn on average, which is 24% higher than the assumption, we believe Fed’s benchmark interest rate increase, which is likely at the end of this year, would depress trading value since 2H15 onward. Overall, we estimate FY2015 net profit at B4.12bn. 

 

- Maintain NEUTRAL 

We maintain NEUTRAL for the sector and select MBKET([email protected]) as a top pick for its biggest market share and biggest IB filings value among peers, low P/E ratio of only 10.66x, high dividend yield of 7.5%, and an upside of 31.4%. Another pick is KGI([email protected]) for its dividend yield of above 8.4% and an upside of 10.4%.