Securities Sector

Securities Sector

 

- 2Q15 profit to weaken qoq 

Profit of the securities sector in 2Q15 is projected to shrink significantly from the prior quarter (qoq). Brokerage fee revenue has declined sharply because daily trading value (prop-trade excluded) since the beginning of the quarter until present (qtd) has decreased 27.2%qoq to B36.3bn, while the proportion of trading by retail investors to total trading has dropped from 64% in 1Q15 to 53%, possibly resulting in significantly lower market share of securities companies that focus on retail traders (11 companies under coverage). Other revenues have also weakened; capital gain from propriety trading would lower as SET Index has risen only 0.1%qtd in 2Q15, versus 5.5% in 1Q15, while fee revenue from IPOs (underwritten by securities companies under our study) has dropped 75%qoq in 2Q15. 

 

- 2015 forecast reiterated; 6.3%yoy decrease projected 

Negative political factors, especially the amendment of and vote on the interim charter that might delay a general election from a schedule, would affect the sector’s profit in the rest of the year, possibly lowering investor confidence in 3Q15. Trading value would revive in 4Q15 after the amended interim charter is approved and when the market starts to reflect 2016 market EPS growth that is estimated at 14.8%yoy. Consequently, although year-to-date (ytd) trading value of B44.4bn is already 7% higher than our forecast, total trading value of the year would remain close to our estimate of B41.5bn. We therefore maintain our forecast, projecting net profit to decrease 6.3% from the same period last year. 

 

- Downgrade to UNDERWEIGHT 

As the sector’s profit is anticipated to weaken in 2Q15 and stay low in 3Q15, possibly causing FY2015 profit to lower from the prior year, we downgrade the sector from NEUTRAL to UNDERWEIGHT. However, some securities stocks still have good fundamental factors, with low P/E ratio and dividend yield of above 7%p.a., we recommend buying them on price weakness. Top pick is KGI([email protected]) for its dividend yield of 9.8%p.a., P/E ratio of 9.3x, and 28.5% upside. We also reiterate to buy MBKET([email protected]) for its dividend yield of 7.5%p.a. and 32% upside and UOBKH([email protected]) for its lowest PBV among peers and 39.1% upside.