04/05/2020 - 16:53
SSI: 1Q20 Trading losses drive breakeven result
SSI’s 1Q20 earnings declined -96% QoQ and YoY as net brokerage fees were effectively zero and realized and unrealized proprietary trading losses blossomed. This breakeven result puts our full-year earnings estimate of VND1.1trn at downside risk.
Details —
SSI posted a net brokerage loss of –VND0.2bn (-98% QoQ / -101% YoY). Brokerage revenues net of expenses has been essentially zero over the past four quarters. Based on SSI’s market share of 12.3% on the HOSE, 8.4% on HNX, and 8.2% on UPCom, we estimate gross commissions of 19bps. That is in line with the same calculations for HSC and VCI, but peers posted positive net brokerage commissions of 7bps and 11bps, respectively.
Worst quarter historically for prop trading, which posted a net loss of -VND354bn. Specifically, SSI reported VND44bn in realized losses and VND310bn in unrealized mark-to-market losses. SSI’s FVPL assets totaled VND6.5tn as of 1Q20 (+50% QoQ / +203% YoY and 23.6% of total assets).
Margin lending revenues (-7% QoQ / -11% YoY) declined along with a 25% QoQ fall in margin loans. The bulk of the margin loan decline probably occurred in March, but based on the average of 4Q19 and 1Q20, we estimate VCI’s gross lending yields were 12.4% in 1Q20.
Our view —
Proprietary trading = A two-way street. SSI’s reliance on HTM assets (i.e., bank deposits) has reduced its quarterly earnings volatility in the past, but this failed to counteract the trading losses of 1Q20. However, net unrealized trading losses of VND310bn in 1Q20 may transition back to unrealized/realized gains in 2Q20 if the market strength of April (i.e., the best monthly performance since May 2009) holds up in May/June.
Did SSI double down in March? SSI’s trading book soared in 1Q20, indicating that they were adding to positions during the market rout of March. SSI is currently trading on a 2020 PB multiple of 0.7x.
