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Monday, May 16, 2022

Securities firms tread with caution

By Dang Linh

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The stock market has been forecast to experience a tough 2022 as the VN-Index and liquidity will find it hard to report as strong growth as last year. Therefore, securities firms have worked out cautious business plans.

Taking caution in line with the market’s developments

The Vietnamese stock market passed the booming year 2021, helping many securities companies reach outstanding business results. The financial reports last year of 10 largest stock brokering firms on the Hochiminh Stock Exchange showed that their revenue and profit hit new records since their establishment. Among them, five securities companies obtained revenue growth of over 100% each. FPT Securities JSC and KIS Vietnam Securities Corporation even reported growth of up to 240% each. Stock brokerage and margin lending are still two key pillars of enterprises’ two- or three-digit growth over last year.

However, in 2022, the market has been projected to experience a tougher year as the VN-Index and liquidity will find it hard to reach as strong growth as last year. Securities enterprises have drawn up cautious business plans. In specific, following the impressive pre-tax profit of VND534 billion in 2021, Viet Dragon Securities Corporation (VDS) has set a pre-tax profit target of VND504 billion for this year, down 5.5%. The plan was formulated based on the forecast that the VN-Index will hover around 1,340-1,750 points and the average liquidity will stay at VND25-30 trillion per session.

According to the chairperson of VDS’s board of directors, the plan is positive in the context of the current situation and VDS’s capacity. In the coming time, VDS’s charter capital is expected to rise to VND2.1 trillion and its return on equity will reach 20%—triple the average deposit rate.

Similarly, shareholders of FPT Securities JSC (FTS), at its general meeting, have approved a revenue target for this year at VND1.09 trillion and a pre-tax profit target at VND680 billion, down 3.7% and 6.3%, respectively, year-on-year. Meanwhile, Viet Capital Securities Joint Stock Company (VCI) expected its revenue to reach VND3.24 trillion, down 13%, and its pre-tax profit to increase a slight 2.7% to VND1.9 trillion. Thanh Cong Securities Company (TCI) has also set a modest profit target at VND222 billion this year, inching up 2.3% year-on-year, despite a record profit last year.

On the other hand, some securities companies have been more optimistic and have set two-digit growth targets. Typically, Smart Invest Securities JSC (AAS) looks to earn revenue of VND1.2 trillion and after-tax profit of VND480 billion, rising 25% and 27%, respectively.

Phu Hung Securities Corporation (PHS) has drawn up a plan to generate VND604 billion in revenue and VND160.5 billion in after-tax profit, up 19% and 14% over the figures recorded last year. After the restructuring and strong growth, Tien Phong Securities Corporation (ORS) has set its revenue and pre-tax profit targets at over VND1.98 trillion and VND500 billion, surging 46% and 85%, respectively, over the figures in 2021. According to ORS stakeholders, the targets are modest as ORS’s profit reached an estimated VND300 billion last quarter.

According to ORS, its board of directors has agreed that after the company completes increasing its charter capital in June, it might ask shareholders for approval to adjust its profit plan. Besides the revenue from bond issuance consulting services, ORS will enhance other segments, such as stock brokerage, warrant sale, derivatives and proprietary trading.

As for leading securities companies, VNDirect has set a pre-tax profit target at over VND3.6 trillion this year, picking up 32% against the profit earned in 2021. All of its activities are expected to bring higher revenue, such as securities services with nearly VND2 trillion, financial investment with VND598 billion, investment banking services with VND371 billion and capital investment services with around VND2.5 trillion, up 20%, 60%, 41% and 35%, respectively.

Strong charter capital hike

Last year witnessed the enormous growth of both the VN-Index and the liquidity. Liquidity soared 258% over 2020 to reach VND26 trillion per session on average and the outstanding loans in the market totaled some VND193 trillion, equivalent to US$8.4 billion, rising by VND100 trillion versus the end of 2020. Due to the increasing demand for using margin of investors, many stock brokers have drafted ambitious plans to increase their charter capital. In previous years, the number of companies with charter capital of VND1 trillion each is small. However, many companies have raised their capital to keep abreast with medium banks, such as SSI Securities Corporation and VNDirect with VND15 trillion and VND12 trillion, respectively. Many small securities companies have also entered the charter capital hike race, such as Smart Invest which wants to increase its charter capital to VND5 trillion, DNSE Securities JSC, VND3 trillion, and APG Securities JSC, VND4 trillion.

As for Viet Capital Securities JSC (VCI), the equity increase (by VND500 billion in 2017 alone) has helped its return on sales surge. The current situation does not allow VCI to follow that way and forces it to venture into more risky sectors, such as the individual customer segment. Meanwhile, Smart Invest Securities JSC (AAS) has planned to use the money earned from its share issues for its business activities, including margin lending and share issues and guarantees.

In conclusion, securities enterprises have been proactively improving their financial capacity to better the margin provision and open up opportunities in trading other products. In addition, the charter capital hike race to increase their stock brokerage market share still continues but many securities companies do not consider it a key goal of their charter capital rise. They want to consistently increase their market share and ensure the effectiveness of their operations.

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