Operating results disappoint in Q1, despite SET rising 4.8%

Operating results disappoint in Q1, despite SET rising 4.8%

Lower net profits and net losses were seen from SET-listed securities firms in the first quarter, with a decline in the average daily trading value and low commission fees key factors. (Photo by Pornprom Satrabhaya)
Lower net profits and net losses were seen from SET-listed securities firms in the first quarter, with a decline in the average daily trading value and low commission fees key factors. (Photo by Pornprom Satrabhaya)

SET-listed Thai securities firms booked lower net profits and net losses in the first quarter as a sharp decline in trading value, low commission fees and a lower proportion of retail investors contributed to disappointing operating results.

Although the return on the Stock Exchange of Thailand (SET) index rose by 4.8% in the first quarter from year-end 2018, the average daily trading value dropped considerably to 41 billion baht from 50-60 billion from last year.

A significant drop in the average daily trading value is a key factor responsible for tumbling first-quarter results of several listed securities companies.

Pattera Dilokrungthirapop, chairwoman of the Association of Securities Companies (Asco), said the bourse's trading volume dropped sharply in the first quarter from last year because of negative sentiment stemming from the Sino-US trade war, global interest rate normalisation and domestic political uncertainty.

These factors are the root cause of pessimism, effectively denting investor confidence.

A continuous decline in trading commission fees because of intense competition in Thailand's securities industry also contributed to growing net losses, said Mrs Pattera.

She said the securities industry's average fee is around 0.15%, but some brokerage firms have offered lower trading fees, subsequently forcing other brokers to compete via discounted rates to retain their customers.

"High competition in the [securities] industry like this is not good in the long run. Competition in offering low commission rates has resulted in many brokers losing profit," said Mrs Pattera.

"They [brokers] cannot survive [going forward] and this will have an impact on long-term service quality."

Asco has asked for cooperation with some securities firms, including online brokers, who have been offering trading fees lower than the industry's average, because competition via a price war will not help the industry develop and survive.

"Asco cannot control the rate of commission fees directly, but we have talked and seen good cooperation [on this issue]. We hope commission fees lower than the 0.15% average will not resurface," she said.

Diversification urged

In the past, an average daily trading value of 30-40 billion baht was high enough for securities firms to reap a net profit because the trading fee was 0.25% per transaction, while the portion of internet trading was relatively minimal.

The commission fee for internet trading is set at around 0.20% for retail investors, while the rate is negotiable for institutional investors and high net worth investors.

Trading value generated from internet trading makes up around 30% of total equity trading on the SET.

The rise on online trading has leeched revenue earned from traditional brokerage fees.

A decline in the number of retail investors is also taking a bite out of securities firms' net profit, said Mrs Pattera.

The proportion of retail investors has dropped to 40% of the total from 60-70% five years ago, while the proportion of foreign investors has climbed to 40% from 25-30%.

Securities firms should diversify their businesses into other areas, such as wealth advisory, investment portfolio management and fund services, to compensate for intense competition for trading fees, she said.

Trading fees are poised to continue declining with the advent of fintech, direct access trading and internet trading.

"We hope fund inflows will return to Thailand's stock market in the second half if a new government can be set up with policy continuity in terms of infrastructure development projects and an economic stimulus package," said Mrs Pattera.

Possible consolidation

Intense competition and net losses in the securities industry have prompted companies to resort to cost management, particularly by reducing research-related costs.

The number of analysts in the securities industry fell from 300-400 persons to 280 at the end of 2018, considered a five-year low, said Paiboon Nalinthrangkurn, chief executive at Tisco Securities and chairman of the Securities Analysts Association.

Securities firms have to diversify operations into other businesses, such as investment banking, taking companies public, proprietary trading and portfolio investment, as they can no longer rely solely on revenue generated by commission fees, said Mr Paiboon.

Thiti Tantikulanan, executive chairman at Kasikorn Securities, said if equity trading value continues to decrease and trading fees remain low, this will eventually be a catalyst for some securities firms to merge and consolidate their operations.

Some companies could even shut down amid deteriorating operating results and ultra-low commission fees, he said.

Stand-alone firms and small companies will find surviving without expanding into new businesses difficult, while securities companies operating under banks have support from their respective parent companies to continue their operations, said Mr Thiti.

Foreign securities firms, meanwhile, can rely on global networks to strengthen their operations, he said.

"Tech disruption is expected to be more contentious in the future," said Mr Thiti.

"Certain investors will opt for person-to-person communication, but others will prefer to trade on their own. The marketing staff [of securities companies] has to consider developing their skills and services for better person-to-person communication."

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