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.
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.