We initiate coverage on N2N Connect Bhd, the largest Asian based financial information and trading platform provider, with a BUY recommendation and TP of RM1.70/share. Key highlights include:

Largest Asian Based Financial Information and Trading Platform Provider. N2N operates in 8 countries across Asia with a brokerage network of over 100 panel brokers and ~20,000 information and trading terminals deployed.

Regional Ambitions. N2N is in the midst of forming an Asia Trading Hub that will see all its panel brokers connected via a single financial network so as to facilitate cross border trading seamlessly across the related exchanges and at lower cost. This will eventually create a new revenue stream for the group.

Strategic Partnerships. N2N is currently in talks with its strategic and substantial shareholder SBI Holdings Inc, a financial conglomerate in Japan, to enter into business alliances that will catalyse the formation of the Asia Trading Hub.

M&A. Backed by a robust net cash pile of RM124.4mn (2QFY18), N2N is in a comfortable position to pursue merger and acquisition. It has been exploring similar businesses abroad and even FinTech start-ups.

Robust Earnings Growth. For FY18/FY19/FY20, we project earnings growth of 39.7%/22.5%/13.9% (CAGR: 24.9%) underpinned by: 1) full year contributions from AFE, 2) traction with the Asia Trading Hub, and 3) cost synergies from the harmonisation of TC and AFE’s suite of products and services.

Deserves a Rich Multiple. In all, we opine that our target PE of 35.0x is warranted premised on N2N’s 1) double-digit earnings growth prospects, 2) new revenue stream arising from the formation of the Asia Trading Hub, 3) synergies from strategic partnerships and merger and acquisition, and 4) the latent potential from the government’s plans to introduce an Alternative Trading System.

Source: TA Research - 26 Sept 2018