Revival of IPO market boosts 2002 earnings to Bt112mn

ASSET yesterday reported 2002 earnings of Bt112mn. This was 8% higher than our forecast of Bt104mn and a massive increase from its Bt12mn net profit in 2001. Earnings came purely from ASSET’s investment banking and brokerage operations. The company also announced its interim dividend of Bt1/share for 2H02 results, representing a yield of 3.8%. The stock will go XD on March 31 with payment on April 24.

ASSET was the biggest underwriter for IPOs last year, accounting for 57% of the Bt10.24bn raised for new share offerings. As a result, its fee and service income surged 169% yoy to Bt215mn. In 4Q02 ASSET had a 2.14% market share – the second highest among the 10 new brokers upgraded last year. Its rising market share resulted in a 528% jump in 2002 brokerage fees to Bt116mn.

For 2003, we expect ASSET’s earnings to grow 33% to Bt149mn (Bt2.49/share) on the back of a 10% rising in fee-based income from new IPO issues and a 90% increase in brokerage fees. This year will mark ASSET’s first full year as a broker, a status it only achieved last June.

The stock is trading at a 2003 PER of 10.9x with a projected ROE this year of nearly 20%. Given its well-diversified revenue structure and strong balance sheet, we believe ASSET should trade at a PER of 15x, which would lift its share price to Bt37.30/share, an upside of 38%. With no need for major investment expenditure, we expect ASSET to pay out all of its profit in dividends in 2003 and 2004, resulting in yields of 9-10% over the next two years. BUY

• ASSET reported 2002 net profit of Bt112mn, beating our forecast of Bt104mn. The final quarter was particularly strong, with earnings up 80% qoq to Bt42mn. This was due to a 91% qoq surge in fee-based income to Bt85mn following increased activity in the IPO market. For FY02, ASSET’s brokerage fees soared 5.3x to Bt116mn, aided by the introduction of a 0.25% fixed commission rate in January last year and the company’s upgrading to full brokerage status last June. Among the 10 new brokers upgraded last year, ASSET ranks second in terms of market share, trailing only Bualuang Securities.

Share comparison among ten new brokers (4Q02)

 

• Unlike most listed brokerages, which are heavily dependent on stock market turnover, ASSET has a well-diversified revenue structure. About 59% of revenue comes from investment banking, with 32% from its brokerage business and 9% from investment income (interest & dividends). It has become the leading underwriter in the IPO market due to its reputation, expertise and strong network of business connections. Last year there were 23 IPOS, with 17 companies listed on the SET and 6 on the MAI. Combined capital raised was Bt10,240mn, with ASSET responsible for 57% of the underwriting proceeds. Among its biggest IPOs last year were ITV, MAJOR, FNS, AH, GMMM and LALIN.

• We expect ASSET to post earnings growth this year of 33% to Bt149mn. Strong economic growth and tax incentives for companies seeking a SET or MAI listing should lead to more IPOs despite the threat of a US-Iraq war. The stock market authorities are aiming for 60 new listings this year, divided equally between the SET and MAI. ASSET is expected to win at least eight major underwriting deals including R.S. Promotion (1992), the second largest entertainment company. We expect ASSET to record 10% growth in fee-based income this year to Bt236mn. For its brokerage business, we are assuming market share of 2%, commission rates of 0.25% and average daily market turnover of Bt9bn. Accordingly, ASSET’s brokerage fees are projected to grow 90% to 220mn while its cost-to-income ratio is expected to edge higher to 55% this year versus 52.3% in 2002.