Stocks, Securities Sector, Stock Prices Lag Behind Record-Breaking Earnings

KOSPI Securities Industry Index Falls 1.95% This Month
Record-Breaking Q1 Earnings, But Q2 Profit Decline Inevitable

[Asia Economy Reporter Song Hwajeong] Although securities firms posted record-breaking earnings in the first quarter of this year, their stock prices have shown a performance that falls short of these strong results. This is interpreted as reflecting concerns over profit declines from the second quarter onward.

According to the Korea Exchange on the 18th, the KOSPI Securities Industry Index fell 1.95% compared to early this month. During the same period, the KOSPI dropped 0.42%, so the decline in the securities index exceeded that of the KOSPI.

Kiwoom Securities fell 2.36%, and Meritz Securities dropped more than 10%. Korea Financial Group declined 3.29%, and Daishin Securities fell 3.42%. On the other hand, during the same period, Mirae Asset Securities rose 2.47%, NH Investment & Securities increased 5.26%, and Samsung Securities gained 8.32%.

On the previous day, Korea Financial Group announced it recorded the highest quarterly earnings ever in the first quarter of this year. The first quarter net income attributable to controlling shareholders was 401.8 billion KRW, significantly surpassing the market consensus of 344.4 billion KRW, marking an earnings surprise. Despite these results, the stock price has weakened since the beginning of this month, which is interpreted as fatigue from the continuous rise until last month. Korea Financial Group reached an intraday high of 121,000 KRW on the 28th of last month, setting a 52-week high. Junseop Jeong, a researcher at NH Investment & Securities, said, "Korea Financial Group recorded the highest quarterly earnings ever based on favorable business conditions," adding, "With recent stock price adjustments and upward revisions of earnings estimates, the 2021 price-to-earnings ratio (PER) is only 5.2 times, making its valuation very attractive."

Meritz Securities plunged nearly 14% the previous day, dragging down the index. The reduction in dividend payout ratio led to the stock price decline. On the 14th, Meritz Securities announced that it would maintain the dividend payout ratio at 10% of net income on a separate basis and implement shareholder value enhancement measures such as share buybacks and cancellations. Last year, the dividend payout ratio was as high as 52.54% of net income on a separate basis. Accordingly, KB Securities downgraded its investment opinion on Meritz Securities to "sell" and lowered the target price by 16.7% to 4,000 KRW. Seunggeon Kang, a researcher at KB Securities, analyzed, "Although the decline in dividend payout ratio was clearly indicated, there was no explanation regarding the scale and timing of share buybacks and cancellations, which inevitably expands concerns and uncertainties about the shareholder return rate," adding, "Reflecting the confirmed decline in dividend payout ratio, the sustainable return on equity (ROE) is bound to decrease."

The inevitability of profit decline from the second quarter is also a burden on the stock price. Researcher Kang said, "It is inevitable that the securities sector’s second-quarter earnings will decrease compared to the first quarter," explaining, "This is due not only to differences in quarterly trading volume but also to the base effects of proprietary investment (PI) performance, dividends and distributions, and the operating profit and loss of equity-linked securities (ELS)."

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