Recommended
More Related Content
More from Thanh Le
Recently uploaded
Recently uploaded (20)
Securities Sector Outlook
- 1. Securities Sector Outlook Thanh Le, Consultant July 12, 2012 Financial Sector
- 2. TABLE OF CONTENTS Securities Sector: Down but not out Harsh competition: Who will be winners? Brokerage Services Investment Advisory and Investment Banking Proprietary trading and other business
- 3. SECURITIES SECTOR: DOWN BUT NOT OUT GDP Growth vs. VnIndex in 5 years HSX Trading Volume in 5 years Stock market led by macro- economic signals (Source: Bloomberg as of July 12, 2012)
- 4. SECURITIES SECTOR: DOWN BUT NOT OUT Market cap to GDP 2003 - 2011 (%) Efforts to overhaul the stock market Request securities companies to sustain a capital 200 adequacy ratio and disclose information as much as a listed company does. 150 Target to reduce number of securities companies from 159 to around 25 – 30 companies 100 Merge Ho Chi Minh Stock Exchange (HSX) and Ha Noi Stock Exchange (HNX) 50 Key dates to follow: from July 2012, the authority - will review the 2nd quarterly business result of 2003 2004 2005 2006 2007 2008 2009 2010 2011 securities companies to urge the consolidation Indonesia Malaysia process Thailand Vietnam Low Mid Income (Source: World Bank)
- 5. HARSH COMPETITION: WHO WILL BE THE WINNERS? Revenue drivers for securities company NFJHED MBLJ BDYVKL EEIFN DJDT From Equity Trading Brokerage fee From Bond Trading IPOs, Listing, Issuing (Private Placement) Investment Banking M&A Advisory Business Restructuring Equity (Listed and Unlisted) Proprietary Trading Bond Interest Income Other Margin Lending
- 6. HARSH COMPETITION: WHO WILL BE THE WINNERS? Agriseco: Agribank Securities Top 20 players – who are they? SSI: Saigon Securities 16,000 ACBS: ACB Securities Total asset in 2011 VPBS: VP Bank Securities 14,000 SBS: Sacombank Securities 12,000 VND billions VCBS: Vietcombank Securities 10,000 BSC: BIDV Securities TLS/MBS: MB Securities 8,000 HSC: Ho Chi Minh City Securities 6,000 KLS: Kim Long Securities VCS: VietCapital Securities 4,000 VNDS: VNDirect Securities 2,000 Vietinbank Securities - FPTS: FPT Securities BSC TVS SSI VPBS PSI KEVS VCS BVSC KLS VDSC FPTS SBS TLS ACBS VCBS HSC VNDS Dong A Bank Sec Agriseco Vietinbank Sec BVSC: Bao Viet Securities PSI: Petrol Securities, VDSC, Dong A Banking Securities, TVS – Thien Viet Securities, KEVS – Kim Eng Securities (Source: Company Financial Statements)
- 7. THE WINNERS IN BROKERAGE SERVICES Equity brokerage market share Q2.2011 Brokerage revenue in 2011 (VND Bn) 120 100 SSI 8% HSC 12% 80 Other ACBS 60 42% 6% 40 KEVS 6% VDSC 20 5% PNS TLS 0 6% 4% BSC SSI PSI VCS BVSC KEVS VPBS VDSC TLS HSC FPTS VNDS SBS ACBS VCBS Dong A Bank Sec Agriseco Vietinbank Sec Golden Bridge FPTS VNDS 3% 4% AGRISECO 4% (Source: HSX, July 2012) (Source: Companies Financial Statements)
- 8. THE WINNERS IN BROKERAGE SERVICES Winners Runner-ups Losers HSC VNDS SBS SSI KEVS ACBS VCS FPTS VDS TLS/MBS VP Bank Sec BVSC Golden Bridge Vietinbank Securities
- 9. THE WINNERS IN BROKERAGE SERVICES What do clients need? High quality research houses Experience No. of Reputation of the head of research Company Head of RSE (Yrs) Analysts Coverage of local companies/ Relationships Fiachra 15 10 HSC with local companies Linh, Phuong 7 14 Dynamic of brokerage team SSI Technology KEVS Michael 15 6 ACBS Anh 5 N.A. VCSC Tu 3 10 Hi-tech companies Online trade Mobile trade No. of companies out of 20 big 20 6 players (Source: Company website and Interview)
- 10. WINNERS IN INVESTMENT ADVISORY & INVESTMENT BANKING SERVICES Companies with high advisory Advisory Revenue in 2011 (VND Bn) revenue can be divided into three 300 groups: Group 1: Successful M&A 250 advisors including TVS, SSI, VCS and HSC 200 Group 2: Bond underwriter: Vietinbank Securities, VPBS 150 Group 3: Revenue from margin lending. FPTS, VDSC. 100 50 - TVS VPBS SSI PSI Vietinbank FPTS VDSC VCS SBS HSC Sec (Source: Companies Financial Statement)
- 11. WINNERS IN INVESTMENT BANKING SERVICES Key factors for success Successful deals in 2011 Solid track record (Successful Company Famous deals Awards deals, Team, Awards) Goldman The Asset AAA TVS Relationships with local companies Sachs, CII Award Relationships with foreign investors (esp. SSI HAG Bond Asia Finance industry investors) The Asset AAA HSC CJ, Galaxy Award VCSC Masan, VCF South East Asia BVSC Kinh Do Merger Local awards
- 12. PROPRIETARY TRADING, MARGINS AND BEYOND – A SOUND STRATEGY? Prop trading and other income in 2011 (VND Billions) 1200 1000 800 600 Prop Other 400 200 0 SBS Agriseco ACBS SSI VCS TVS TLS VPBS BVSC BSC (Source: Companies Statements)
- 13. THANK YOU Contact information: Thanh Le – Email: thanh.banking@gmail.com Mobile phone: + 84 9888 6185
Editor's Notes
- Analysis: For last 5 years, the local stock market was affected heavily by macro-economic factors. The inconsistency in governing the economy made both local and foreign investors mistrust in the ability of the government to grow the economy. A good example is the case in year 2010. From 2008, inflation started hiking and the government was struggling to tame the speedy rate. And after several efforts, the economy did witness a slower inflation growth but the government then became very rushing and the State Bank of Vietnam (SBV) ease the money supply. This consequently caused very high inflation rate in the later year. Fortunately, recently, the officials in government became more cooperative. With a clear target to curve the inflation, they did make the CPI go down significantly. Even, there are arguments that the result came from the lower demand of the economy. And this is an explainable effect after the drop in sales orders of many companies and even bankruptcies. However, it does not change the fact that people now believe the high CPI is over, and it is time to reconstruct a new business. In addition, SBV is now encouraging state-related banks to reduce lending rates. Even the fact that, the lending rate cannot go down soon but with lower CPI, banks will find themselves confident to lend out at lower rate in this year. As a result, the stock market which tends to move 3 months ahead the earning results of companies is more like to recover early next year. Aside from the macro-economic issue, the low liquidity makes investors frustrated. The low liquidity comes from many reasons such as ownership concentration, the perception of investors about the value of holding stocks and eagerness of new investors in the stock market. These issues can be sorted out by more transparent information disclosure, increasing power of minority investors and financial literature. In order to achieve these changes, securities authorities need to take actions. Fortunately, authorities put stricter requirements on securities companies to prevent frauds and urge small securities companies to be consolidated. This is a small step but signaling that the authorities can take further actions to boost the stock market. The action which investors expect to see next is about the regulation on better information disclosure from listed companies and their affiliates. This will remove significantly conflicts of interest, then win the trust of investors and make them invest into stock market.
- Analysis:In long run, the stock market of Vietnam looks bright because low – mid income countries still have Market Cap to GDP of 46.7%. In 2011, Market Cap to GDP of Vietnam was 14.78%, it means the capital market can growth approximately double to reach the above figure. However, actions by local government are needed to grow the stock market. In this transition stage, every positive move of government should be watched and evaluated so that investors can enter the market in the right time.
- The selection of 20 active players are based on both capital and the position in their business segments. For examples, some companies which have smaller capital but are in top 10 brokerage market share list will be in the short list.
- Brokerage services are divided into retail and institutional clients. Even 70% transaction value comes from individual trade but 30% fees from institutional clients benefit significantly some companies such as HSC, SSI, VCSC and BVSC. Even all of these players still serve individual clients, but they always focus on winning institutional clients by investing into facilities such as Bloomberg, Corporate Access, and in-depth investment research in English. For the group of firms serving mainly retail investors, Kim Eng Securities, VnDirect Securities (VNDS), and Thang Long Securities (TLS) are considerably more popular than their peers. However, the strategy of these firms can be categorized into two main streams. For KimEng securities, they invited experience foreign technical analysts to speak to investors. This helps to increase the trading skills of local investors and build an image of professional working style. HSC and SSI are also in this group. For TLS and VNDS, investors see them as market markers who are able to create ‘waves’ and investors can make huge profits if they have good relationships with brokers from these firms. Aside from the above reasons, securities companies which are subsidiaries of banks take advantages of the wide network in order increase their sales. In this group, ACBS, Agriseco and VCBS can be good examples. Besides this, companies with strong technology can provide clients many modern methods of trading and attract a number of retail clients. FPTS can prove that their technology adds significant value into their high brokerage revenue.
- As the rankings change very quickly after three years, and it is not reasonable to choose the most recent market share to depict the position of companies in this business segment. I decided to divided companies into three groups which are winners, runner-ups and losers. Winners are those who can stay in the top 10 for last 3 years and last 4 quarters. It means their position can be sustainable. For runner-ups, companies can maintain its top 10 position in last four quarters. And losers are those cannot meet the above criteria. For the first group, HSC, SSI, ACBS, FPTS and TLS are in. This means all four business strategy mentioned earlier still works. However, there is an argument about the sustainable growth of TLS/MBS after the SBS failure story recently. Two companies share many similar straits such as subsidiaries of banks, using high leverage to act as market leaders, and finally got big loses. But SBS is going to go busted, meanwhile TLS is now saved by Military Bank (MB). Will TLS still be successful after the takeover? The investors consensus show little confident on this business strategy.
- By interviewing investors, I found four key factors affecting the process of selecting brokerage firms. Reputation of head of research or in-house experts are important to investors. Fiachra is a good example about helping HSC to acquire numerous clients. The good relationship between securities companies and listed companies can help to benefit investors by getting internal/or hard-to-access information ahead of the market. SSI and VCSC are in this group. The dynamics of brokerage team can been seen easily by looking at HSC and KEVS model. They successfully built up teams of high capable brokers. For companies which use technology to leverage its sales, FPTS, Dong A Securities, VP Bank Securities and Golden Bridge should be counted.
- In investment banking business, TVS, SSI, VCS and HSC have reputation in advising private placement and M&A deals. Other companies generate revenue from this business segment through underwriting bonds, such as Vietinbank and VPBS. There are a big surprise about FPTS and VDSC who are not famous in the advisory business segment. This revenue can be manipulated by transferring revenues from margin lending or some unofficial derivative services.
- Last year, many companies enjoy high prop trading and other incomes due to the recover of the market and the high interest rate on margin lending. Nevertheless, it is easy to see that SBS, Agriseco and ACBS are maintaining risky financial position with high net debt (cash)-to-equity ratio. In early this year, when there are margin calls, the market declines and loans became bad debts. SBS is a good example on using too much leverage to lend out.