OT/Celestial Asia Securities Holdings Ltd. (CAAFF)
Heard in Asia
Celestial Asia Securities Bets
On Computer-Based Trading
By ILAN GREENBERG
Staff Reporter of THE WALL STREET JOURNAL
HONG KONG -- Diplomats have a saying when discussing the prospects of Brazil: It has a promising future. And it always will.
The same might be said of Celestial Asia Securities, an up-and-coming Hong Kong retail brokerage firm that is betting heavily on new technologies to gain market share and lead the way to sustained profitability.
While the company has nine brick-and-mortar outlets to serve customers who prefer a traditional offline approach to discount equities investing, along with two cybercafes, its big bet is on computer-based trading via its CASH Web site, which has 18,000 active users, according to the company.
But Celestial's investment in technology goes beyond the personal computer. Few fail to notice Hong Kong's love affair with the mobile phone -- certainly not Celestial's executives, who are betting that Hong Kong retail investors will jump at the opportunity to trade via their cellular phones and other portable devices.
While only 10% of Hong Kong's individual stock investors trade online, "as people travel, they'll increasingly see that they want to be connected," says Ken Khoo, a Celestial managing director. "Which is why, even if they're not computer literate, it makes sense for us to offer trading services over a variety of technology platforms." The company hasn't released the number of its mobile customers.
Furthermore, Celestial is about to launch a financial-services Web site aimed at a more financially sophisticated clientele. The site will combine content, such as information about golf and luxury cars, with comparative buying services linked to bank and insurance partners. Celestial will take a slice of revenues from the products sold.
In a Swoon
All this investment in technology (and marketing -- Celestial has peppered Hong Kong with print and billboard advertising) has produced some tangible results. For the six months ended June 30, the company banked net profit of HK$174.4 million (US$22.4 million), boosted by asset sales. It concedes more-sustainable profit is potentially "several" years away. Revenue more than tripled to HK$292.7 million from HK$79.9 million, with online trading volume increasing more than 14-fold, albeit from a small base.
Still, sometimes promising isn't good enough, and investors in Celestial's Hong Kong-traded stock are baring their teeth. A year-long swoon has dropped the stock's price to 30 Hong Kong cents from a high last year of HK$1.30. The stock has been suspended from trading since last week, pending an announcement of an acquisition.
One problem for the company is that it has lost its entire following of analysts. In a report in August, ING Barings labeled Celestial the leading choice for Hong Kong's emerging population of online investors, crowing that the broker "is in the best position on growth in online trading ahead due to its leading technology, strong financial resources, diversified product range and strong management." Barings no longer covers the company, and neither do the handful of other houses that used to follow Celestial.
Competition Looms
Celestial's Mr. Khoo attributes the stock's decline (and neglect) mostly to the global malaise of technology stocks. But strong competition is another red flag. Charles Schwab is aggressively targeting the Hong Kong investing market. Schwab is trying to appeal to a more upscale, and therefore more lucrative, customer base than Celestial, requiring a significantly higher account minimum than Celestial does.
Meanwhile, banks and mutual funds, though still only getting started in online trading in Hong Kong, represent a serious threat to Celestial, especially as the company moves away from broad advertising toward direct marketing to reel in costs.
It may be a very different kind of technology investment that propels Celestial to prosperity. The company has taken a one-third stake in a Hong Kong fiber-optics manufacturing plant that will produce the pipes the city needs to fulfill its aspirations for greater bandwidth. More bandwidth has the potential to translate into more online stock traders. It's a synergy Celestial badly needs.
Write to Ilan Greenberg at ilan.greenberg@awsj.com
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