Rising Trading Volume Boosts Investment Appeal of Small and Mid-Sized Securities Firms... "Boom Expected to Continue"

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[Asia Economy Reporter Minji Lee] It has been revealed that the profitability of small and medium-sized securities firms has significantly improved due to increased trading volumes since the COVID-19 pandemic. Although trading volumes have decreased since last month, a favorable operating environment is expected to continue.

According to the financial investment industry and Kiwoom Securities on the 6th, the average controlling shareholder net profit of nine small and medium-sized securities firms?Kyobo Securities, Daishin Securities, SK Securities, Yuanta Securities, Eugene Investment & Securities, eBest Investment & Securities, KTB Investment & Securities, Hanyang Securities, and Hyundai Motor Securities?last year increased by approximately 54% compared to the previous year. This improvement in overall performance is attributed to a significant increase in trading volumes and increased profits in the retail and IB sectors due to the booming real estate market.

Looking at market trading volumes, the average trading volume in the fourth quarter was 27.2 trillion KRW. The average trading volume last year was recorded at 22.7 trillion KRW, marking a 144.6% increase compared to the previous year. Geuntak Yoo, a researcher at Kiwoom Securities, said, “The securities industry greatly benefited from the sharp rise in trading volumes after COVID-19,” adding, “Not only large securities firms but also small and medium-sized securities firms, which had relatively small retail proportions due to limited capital size, showed improved performance compared to the previous year.”

The retail revenue growth rate of small and medium-sized securities firms was 64.6% year-on-year, higher than the 45% of five large securities firms. The IB sector also grew by 15.8%, showing a higher growth rate than large firms (1.7%). This is analyzed as a result of focusing more on profits than scale and on offline markets rather than online. Researcher Yoo explained, “However, due to a weaker retail customer base compared to large firms, the combined revenue share and contract share of the nine firms last year slightly decreased by 0.6 percentage points and 0.3 percentage points, respectively, and the share decline was significant in the overseas sector as well,” adding, “For securities firms with a high IB proportion, profit volatility may increase.”

Kiwoom Securities identified Hanyang Securities and eBest Investment & Securities as the most attractive investment targets among the nine small and medium-sized securities firms. In terms of profit growth rate, the earnings per share (EPS) of eBest Investment & Securities and Hanyang Securities last year showed high growth rates of 144% and 107%, respectively, compared to the previous year. Their price-earnings ratios (PER) are around 3 times and 2.6 times, which are lower than those of competitors. Researcher Geuntak Yoo said, “In the case of eBest Investment & Securities, it has consistently defended its retail revenue share, so profit improvement due to related revenue growth is expected to continue,” adding, “Both companies have relatively high proportions of IB and PI revenues with significant performance fees, but their cost-to-income ratios are relatively low compared to competitors, making them attractive in terms of cost efficiency.”

Although trading volumes have been declining since February, retail revenues are expected to remain strong. The average daily trading volume last month was 32.4 trillion KRW, down 23% from the previous month. This is because the stock market has been sideways, causing turnover rates of all trading participants to drop significantly. The market capitalization turnover rate last month was 314.8%, down 94.8 percentage points from the previous month. The proportion of individual investors’ trading remained similar to last month at around 74%.

Seunggeon Kang, a researcher at KB Securities, said, “Although the average daily trading volume last month significantly decreased compared to the previous month, it is still at a high level compared to last year, so brokerage fees in the first quarter of this year are expected to show a favorable trend,” adding, “Securities firms with diversified revenue structures, including asset management (WM) and IB sectors that can defend against weakening brokerage profit momentum, will deliver excellent performance.”

This content was produced with the assistance of AI translation services.