Review

• N2N’s FY19’s core net profit of RM14.2mn (-22.2%) came within our fullyear estimates at 95.8%.

• YoY. FY19’s revenue and core net profit fell 2.8% and 22.2% to RM105.1mn and RM14.2mn. The weak earnings was mainly due to: 1) lower one-time implementation revenue which command better margins, 2) lower transaction revenue alongside softer trading volume from Malaysia, and 3) one-off expenses amounting to RM1.3mn which arose from the exercise to harmonise the group’s products in Hong Kong and Malaysia (RM0.7mn) and the settlement of a lawsuit (RM0.6mn).

• QoQ. 4QFY19’s core net profit declined 60.7% to RM1.9mn mainly due to higher provision for expected credit losses and higher taxes. Revenue however grew 3.1% to RM26.2mn, driven by higher implementation and subscription revenue.

Impact

• Our FY20/FY21 earnings estimates are revised by -0.9%/-4.6% to RM18.3mn/RM22.2mn upon imputing FY19’s figures into our model. We also introduce our FY22 earnings estimates of RM25.5mn.

Outlook

• Despite N2N’s weak FY19 results, we remain positive on its near-to-medium term prospects with growth opportunities present from: 1) market share gains for its trading platform across its key markets in Asia (Hong Kong, Indonesia, Malaysia, Philippines, Singapore, Thailand, & Vietnam), and 2) the replacement of brokerages aging legacy back office settlement systems.

• We believe that more brokerages and investment banks will be allured by N2N’s trading platform, which has just started to feature enriched cross border trading capabilities via its Asia e-Broker and Asia Trading Hub platforms. The platforms were recently launched in Malaysia on 7 November 2019 and will soon be available for customers in Hong Kong and Singapore.

Valuation

• Following our earnings revision, we arrive at a slightly lower TP of RM0.82 (previously RM0.83) for N2N, pegged to 25.0x CY20 EPS which is close to - 1SD to the stock’s 3-year mean of 30.0x. We like the group for its robust earnings growth profile and niche as the largest financial information and trading platform provider in Asia. Reiterate Buy. Key downside risks include poor demand for new system implementation and slower capital market activity.

Source: TA Research - 2 Mar 2020