Fixed rate structure fails to trigger turnaround

Unlike other brokerages, which have bounced back from losses in 2001 to net profits last year following the introduction of a 0.25% commission rate a year ago, Adkinson Securities (ASL) is continuing to bleed red ink. In 4Q02 ASL suffered a net loss of Bt35mn (versus a loss of Bt51mn the previous quarter), bringing its total loss for the year to Bt26mn.

ASL’s negative earnings are the result of a significant increase in operating expenses following its takeover last year of the Thai branch of W.I Carr Securities which it later renamed IB Securities (IB).

Given the intensive competition in the securities industry, we don’t expect much improvement in ASL’s performance this year and are expecting it to report a loss of Bt18mn. Even though the stock is currently trading at a 14-month low, we are maintaining our SELL rating on ASL.

• ASL reported a net loss of Bt35mn in 4Q02, better than our forecast of a Bt48mn net loss. Despite an increase in market share from 3.25% in 3Q02 to 3.57% in 4Q02, resulting in a 9% increase in brokerage fees, ASL’s expenses of Bt126mn outstripped its revenue of Bt86mn. Operating expenses accounted for 0.506% of the company’s trading turnover while total revenue accounted for just 0.343%. ASL made a net profit of Bt60mn in 1H02 but its Bt86mn net loss in the July-December period resulted in another year of negative earnings.

• We expect ASL to report a loss of Bt18mn this year, assuming that operating expenses account for 0.30% of the company’s trading turnover (versus 0.50% in 2H02).

Revenue & Expenses