ETF Fund Plans to Buy Large Amount of FTS Shares After Strong Gain

FPT Securities Joint Stock Company's shares continue to trade at the highest valuation in the industry, but are still added to the VNM ETF fund and can buy more than 3 million new shares.

FTS stock valuation is not cheap

Contrary to the recent slight increase and sideways trend of stocks, FTS shares of FPT Securities Joint Stock Company have continuously increased sharply, becoming a phenomenon on the HoSE. From August 21, 2023 to March 8, 2024, FTS shares increased by 95.1%, from VND 30,400 to VND 59,300/share. In contrast, during the same period, the VN-Index only increased slightly by 5.7%, to 1,247.35 points.

After a strong increase, if we consider the P/E valuation, FTS shares are trading at a valuation of 28.6 times, higher than the average of 6 stocks in the securities group listed with high liquidity on the floor (18.74 times). If we consider the group of securities companies with similar asset size to FPT Securities Joint Stock Company such as Bao Viet Securities Joint Stock Company (code BVS), Rong Viet Securities Joint Stock Company (code VDS), then the valuation of FTS shares is much higher (the above two stocks are 11.93 times and 13.82 times respectively).

Thus, after experiencing an increase of nearly 7 months, FTS has become a highly valued stock in the securities group despite being of the same size as the small and medium securities group, and at the same time maintained a much higher valuation than large companies such as SSI Securities Corporation (code SSI), VNDirect Securities Corporation (code VND), Ho Chi Minh City Securities Corporation (code HCM)...

In fact, the hot growth of FTS shares does not have much information to support changes or help to expect a new boom for the business. In 2023, the Company recorded a total revenue increase of 11%, up to VND 944.17 billion, pre-tax profit increased by 22.7%, up to VND 541.9 billion and completed 129% of the profit plan of VND 420 billion in 2023. In 2024, the Company plans to go backwards with revenue of VND 845 billion, down 8.29%, pre-tax profit is expected to be VND 420 billion, down 17.65% compared to the implementation in 2023.

As of December 31, 2023, the asset size of FPT Securities Joint Stock Company increased by 55.7% compared to the beginning of the year, equivalent to an increase of VND 2,946.7 billion, to VND 8,234.7 billion. Of which, the main assets are VND 5,394.1 billion in loans, accounting for 65.5% of total assets; financial assets recorded through profit/loss (FVTPL) are VND 1,349.3 billion, accounting for 16.4% of total assets; cash and cash equivalents recorded VND 1,253.4 billion, accounting for 15.2% of total assets...

In fact, the loans are mainly related to securities brokerage activities when lending for margin trading, as well as sales advance transactions. In contrast, FVTPL assets are mainly VND 348.2 billion invested in shares of Song Hong Garment Joint Stock Company (code MSH), VND 474.2 billion in government bonds, VND 120 billion in bank bonds and VND 403.8 billion in fixed-term deposits and certificates of deposit.

Except for MSH stock trading, most of FPT Securities Joint Stock Company's assets are in securities brokerage when providing margin loans, as well as advance sales to investors investing in securities on the market. In terms of revenue structure, brokerage and margin lending in 2022 recorded revenue of VND 928.3 billion, accounting for 109.2% of total revenue; in 2023 recorded VND 740.6 billion, accounting for 78.4% of total revenue.

Thus, FPT Securities Joint Stock Company is dependent on stock market developments, especially market liquidity.

ETF will spend about 195.5 billion VND to buy FTS shares

Contrary to concerns about FTS shares rising, investors are afraid of risks and limit their purchases, the index fund has made a move to buy a large amount of FTS shares. According to the announcement of the review list for the first quarter of 2024 on March 9, 2024, MarketVector Indexes will add FTS shares to the MarketVector Vietnam Local Index - the reference index for the VNM ETF Fund.

Accordingly, based on data on March 8, 2024, BSC Research forecasts that FTS shares may be purchased with an additional 3,296,733 shares into the VNM ETF Fund during this review. Thus, if calculated based on the closing price on March 8 of VND 59,300/share, the index fund will have to spend about VND 195.5 billion to buy nearly 3.3 million FTS shares.

According to research, VNM ETF funds are index funds based on quantitative criteria, passive investment form, stock selection criteria based on liquidity, market capitalization and free float (remaining foreign investor ownership ratio). The fact that the stock selection criteria are purely based on quantitative criteria, without exceptions for hot stocks, leads to index funds often buying hot stocks, then these stocks often return to decline deeply.

For example, at the end of 2015, HHS shares were added to the VNM ETF after a series of hot increases, but then began a long decline cycle, by September 16, 2016, they were only VND3,050/share, 74.4% lower than the peak on October 27, 2015. In early 2018, the MSCI Frontier Markets Index Fund added ROS shares after a series of hot increases, and then the shares also plummeted.

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