Investment Highlights

• We maintain our HOLD recommendation on N2N Connect (N2N) with an unchanged fair value of RM0.70/share. We are keeping our earnings forecast, while our fair value is pegged to an FY19F PE of 25x.

• During a recent meeting with N2N, the group indicated that revenue for 2HFY19 is expected to improve compared with 1HFY19. We also learnt that the company is ready to launch its Asia Trading Hub (ATH) platform in October 2019.

• In line with company’s aim to move away from the one-off sale model, pricing of the new platform will be based on a subscription model plus profit sharing on matched trades.

• Upon its launch, roadshows will be carried out throughout 4QFY19 with early adoption beginning only in 1QFY20. While the management is hopeful for ATH to be well received, we foresee it facing some teething problems before any meaningful contribution. We have yet to price in any significant impact from ATH.

• The ATH platform will enable cross-border trading in Asian countries, allowing even more retailers to participate in regional equity markets. This will help propel trading volume for broking houses, especially local ones which are facing declining trade volume. The first phase of ATH will cover Malaysia, Singapore and Hong Kong while phase two will incorporate the Philippines Thailand and Indonesia. Vietnam and Taiwan will be included in the final phase.

• Given the infancy of blockchain adoption and the lack of regulatory framework, N2N’s plan for a blockchain exchange will take a back seat for now. The company is working with SBI Group to include Japan in its ATH platform first before continuing with the blockchain exchange. N2N is working to introduce its platform and back office system (BOS) in Japan.

• Currently, the company is in the midst of securing more BOS contracts with local and regional brokers. Earnings contribution from this will be spread out until FY2020, depending on the time of implementation.

• We continue to like N2N due to: 1) its leading position in the online trading solutions space; and 2) the affordability of TCPro Global. However, we remain cautious on N2N’s revenue from transaction fees, which may remain subdued, owing to lacklustre trading activity in the equity market.

Source: AmInvest Research - 18 Sept 2019