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Securities Sector

Trading volume rebounds. Good for short-term Neutral

Securities Sector

SET Index and trading volume has been rebounding as investors

regain confidence. Also, more IPO shares have been issued in 2Q14.

Overall, securities sector’s net profit is expected to improve

gradually. We upgrade our recommendation to NEUTRAL; the

market situation is good for short-term investment. Top pick is MBKET.


- 2Q14 profit to grow due to better market situation

Market share of brokers that focus on retail investors has decreased in

early-2Q14 due to fierce competition. April average daily trading value

(prop-trade excluded) was also as low as B28bn, thus pressing brokerage

fee income. However, thanks to the military takeover by NCPO, investors

have started to regain confidence and SET Index has rebounded by 6% in

one month, boosting QTD trading value by 35.8%yoy to B37bn. Moreover,

the number of newly issued IPO shares has increased by over twofold from

1Q14; raising brokerage fee income, profit from prop-trade and income

from investment banking (IB). Overall, we project securities sector’s net

profit to improve significantly from 1Q14.

- Maintain forecast

YTD trading value of B31.7bn is 9.6% under our forecast. However, thanks

to better market situation, trading value is expected to stay around B38bn

for the remainder of 2014 (in line with FY2014 trading value forecast). We

maintain our FY2014 trading value forecast. The sector’s 2H14 net profit is

expected to stay unchanged from 2Q14. Overall, we maintain our earnings

forecast, projecting the sector’s net profit to fall 31.6%yoy to B3.4bn in

2014, but stay unchanged in 2015 and 2016.

- NEUTRAL

Net profit is expected to improve in 2Q14 and stay unchanged in 3Q14.

Thus, securities stocks are advisable for short-term investment. We upgrade

our recommendation from UNDERWEIGHT to NEUTRAL. We revise up

expected P/E ratio of securities stocks from 10x to 12x but increase

MBKET’s expected P/E ratio to 14x because it possesses the largest market

share. We upgrade our recommendation from HOLD to BUY for

MBKET(FV@B26) and KGI(FV@B3.84) and reiterate BUY for

UOBKH(FV@B5.50). Top pick is MBKET(FV@B26) for 17.5% upside and

8.4% dividend yield.


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