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Capital
Nomura Securities
CNS <Bt30.00>
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Recommendation
New
: SPECULATIVE
BUY
Previous : SWITCH
Fair Value : Bt34.73
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Poor 1H03
earnings, but share offers rebound potential later this year
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Capital Numura Securities (CNS) will announce its 2Q03
results (Dec-02 to Feb-03) by the end of this month. We
expect the brokerage firm to post a net profit of just Bt8mn
due to the bearish market conditions and the recent decline
in stock market trading volume. With the absence of bonus
payments this quarter, it should still be an improvement
from the meagre Bt3mn reported in the previous quarter. We
are maintaining our full year earnings forecast of Bt61mn
(EPS Bt0.85), even though 1H03 earnings of just Bt11mn would
represent only 18% of the forecast.
We are bullish on the prospects of the Thai stock market
later this year after external worries ease, so we are
bullish on the medium-term return on the leading brokerage
stocks. For investors who are willing to buy and hold for
the rebound, we are upgrading our recommendation on CNS from
“SWITCH” to “SPECULATIVE BUY.” Based on a
conservative price-to-book value (P/B) estimate of 0.70x, we
value CNS at Bt34.73/share.
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CNS:
Earnings Forecast |
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FYE 31
August |
2000/01 |
2001/02 |
2002/03F |
2003/04F |
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Net profit (Bt mn) |
(27) |
91 |
61 |
80 |
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Eps (Bt) |
(0.38) |
1.26 |
0.85 |
1.12 |
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BVps (Bt) |
47.51 |
49.20 |
49.62 |
50.18 |
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Brokerage fees/share
(Bt) |
2.78 |
6.66 |
4.43 |
5.11 |
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Dps (Bt) |
- |
1.26 |
0.42 |
0.56 |
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P/E (x) |
n.m. |
23.73 |
35.36 |
26.74 |
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P/B (x) |
0.63 |
0.61 |
0.60 |
0.60 |
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P/Brokerage fees (x) |
10.78 |
4.51 |
6.78 |
5.88 |
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Div. Yield (%) |
- |
4.20 |
1.41 |
1.87 |
- By the end of this month, we expect CNS to report 2Q03
earnings of only Bt8mn (Bt0.11/share), down 84% yoy. We
estimate that CNS's brokerage fee income slipped 55% from
the previous year due to the prevailing weak market
conditions. Stock market trading volume averaged only
Bt5.8bn over the last three months, approximately one half
of last year's average of Bt11.7bn.
CNS's 2Q03 brokerage fees should also be down by an
estimated 15.2% from the previous quarter even though
average daily market turnover remained relatively flat from
1Q03's Bt5.7bn. In this three-month period, CNS's average
market share shrank from 4.33% to 3.90%. This, however,
should be offset by an expected drop in personnel expenses
from 0.206% of company’s trading turnover in 1Q03 to
0.160%. Traditionally, wage expenses rise in the first and
third quarters during the semi-annual and annual bonus
payment periods. As a result, we forecast personnel and
overall expenses to drop by 34.0% and 20.3% qoq.
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CNS:
Personnel expenses as % of company’s trading
turnover |
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% |
1Q |
2Q |
3Q |
4Q |
| 2002 |
0.178 |
0.147 |
0.152 |
0.140 |
| 2003 |
0.206 |
0.160 |
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CNS:
2Q03’s forecast |
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Bt mn |
2Q03F |
1Q03 |
4Q02 |
3Q02 |
2Q02 |
qoq |
yoy |
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Revenue: |
97 |
108 |
153 |
186 |
217 |
-10.5% |
-55.4% |
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Brokerage |
67 |
79 |
129 |
156 |
147 |
-15.2% |
-54.6% |
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Fees
& service |
10 |
8 |
11 |
11 |
9 |
25.6% |
10.3% |
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Gain
from trading |
0 |
1 |
-4 |
1 |
42 |
n.m. |
n.m. |
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Others |
20 |
21 |
17 |
19 |
19 |
-3.0% |
7.1% |
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Operating
expenses: |
-85 |
-107 |
-126 |
-136 |
-145 |
-20.3% |
-41.0% |
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Personnel |
-42 |
-64 |
-75 |
-93 |
-89 |
-34.0% |
-52.1% |
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Premises |
-33 |
-33 |
-32 |
-33 |
-33 |
-0.1% |
-1.3% |
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Others |
-10 |
-10 |
-19 |
-10 |
-23 |
1.3% |
-56.1% |
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Net
revenue |
11 |
1 |
27 |
50 |
72 |
1052.2% |
-84.3% |
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Net
profit |
8 |
3 |
5 |
37 |
49 |
187.8% |
-83.6% |
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Eps
(Bt) |
0.11 |
0.04 |
0.08 |
0.52 |
0.68 |
187.8% |
-83.6% |
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* fiscal year ends
August 31 |
Since CNS is more of a retail broker, its market share
tends to shrink and expand depending on activity in the
market. Brokers serving foreign institutional clients tend
to generate more stable trading volume. Last year, the most
active month was February with daily turnover of Bt13.2bn.
CNS enjoyed relatively high market share that month of
5.31%. February this year, however, has been quite bearish.
With trading volume shrinking to only Bt5.87bn, CNS's market
share slipped to just 3.75%.
Last month, CNS was the first broker launching
“stock-borrowing & lending" (SBL) service to
retail investors to protect them during a downturn in the
market.
We are bullish on the Thai market's prospects later this
year and recommend leveraged plays on the market. Once the
external concerns ease, CNS is in a good position to benefit
from a pick-up in market turnover and market share, as well
as increasing fee & service income from IB work,
particularly new IPOs.
CNS:
Relationship between trading turnover and CNS’s share
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Analyst: Ratchanok
(Orange) Dandamrongrak Ext.1560
ratchanok.d@kimeng.co.th
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Kim Eng Securities (Thailand) PLC. All rights reserved.
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