Despite strong profits, securities companies face risks in the second half of the year

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Many securities companies achieved record profits in the first six months of 2021

Record profit

In the financial statements of the second quarter of 2021, VNDirect Securities Company recorded operating revenue 2.7 times higher than the same period last year, hitting VND 1,091 billion. After deducting expenses, VNDirect's net profit reached VND 389 billion, 2.9 times higher than the result of the second quarter of 2020.

In the first half of 2021, the company recorded VND 2,154 billion in revenue and VND 904 billion in profit after tax, up 148% and 368% respectively over the same period in 2020.

The profit after tax in the second quarter of 2021 of Saigon - Hanoi Securities Company increased by more than 41%, reaching approximately VND 310 billion. Across the six months, the company's net profit was VND 581 billion, 2.2 times higher than the first half of 2020.

Everest Securities even achieved a profit growth of nearly six times in the second quarter of 2021, reaching nearly VND 104 billion (only VND 15 billion in the same period last year). Accumulating in six months, the net profit reached 178 billion dong, a very high growth compared to the profit of only 3.8 billion dong in the first half of 2020.

At SSI Securities Company, profit before tax in the second quarter reached VND 703.5 billion, an increase of 8% compared to the second quarter of 2020; accumulated for six months, pre-tax profit reached VND 1,232 billion, up 84% over the same period in 2020.

Similarly, many other securities companies recorded very high growth such as KIS securities with net profit of VND 133 billion in the second quarter of 2021 and VND 237 billion in the first six months of 2021, 3.3 times higher, respectively and 3.2 times higher than the same period in 2020. Rong Viet Securities recorded a profit after tax of VND 149 billion in the second quarter of 2021, up 47%; accumulated six months net profit reached 247 billion dong, 19 times higher than the same period last year.

However, not all securities companies enjoyed the positivity of the general market, as EuroCapital Securities Company recorded a loss of VND 1 billion in the second quarter of 2021 and a loss of VND 2.2 billion in the first half of 2021.

Slow down at the end of the year

In the report analysing the securities industry's outlook for the second half of 2021 and 2022, SSI Research estimates the pre-tax profit of the first 6 months of 2021 of the four largest listed securities companies is estimated to have excellent growth of about 155.3% year-on-year from a six-month low of 2020 due to the impact of the pandemic. This result is due to the average daily trading value of VND 22.8 trillion (USD 889 million), an impressive increase of 375% compared to the same period last year.

As of June 2021, the VN-Index surpassed the resistance level of 1,400 and closed at 1,408.55 points - an all-time high. Since the beginning of the year, the VN Index has recorded an increase of 27.6%, making Vietnam's stock market one of the strongest gainers worldwide.

However, SSI Research estimates profit growth of these four companies will return to normal with an increase of only 7.7% in the second half of 2021 compared to the high in the second half of 2020. Estimated profit growth is 66.8% for full year 2021 and will normalise at 21.4% in 2022. Although revenue is expected to continue to grow through 2022 thanks to brokerage fees and margin lending momentum, the market may decelerate in the second half of 2021 after a strong increase in the first half – putting downward pressure on earnings from proprietary trading.

The industry's main risk is falling profit margins for its core businesses, including lending and securities brokerage, due to competitive pressure. Rising inflation, rising interest rates, and falling stock prices can lead to reduced market liquidity and profits.

Currently, securities companies are promoting digitisation (especially in the top five securities companies) in operations, products and sales channels to improve profit margins. The ratio of operating expenses to securities brokerage income has improved significantly in many companies.

Securities firms have launched many asset management products to meet the needs of investors, especially individual investors, such as corporate bonds, deposit instruments, life insurance, etc. open fund.

In particular, in the battle for market share, the brokerage market share on the Ho Chi Minh Stock Exchange of the five largest securities companies has increased from 44% in 2020 to 46.4% in the first six months of 2021. Large securities firms have the advantage of scale and the ability to provide innovative solutions to expand their market share.