[Click eStock] Earnings Decline Begins in Securities Sector... Investment Opinion Remains Neutral

[Asia Economy Reporter Lee Seon-ae] Daishin Securities announced on the 22nd that it maintains a neutral investment opinion on securities stocks. This is based on the judgment that the operating environment for securities firms in 2022 will not be easy due to the decline in trading volume and the continuous rise in interest rates.

Park Hye-jin, a researcher at Daishin Securities, said, "Earnings power approaching 200 billion KRW per quarter for large firms will be maintained, but there is little room for further growth." She added, "Therefore, an approach focusing on stocks with momentum is effective. We maintain Korean Financial Group, expected to see changes in KakaoBank’s shareholding structure, and Kiwoom Securities, which has momentum entering the private equity investment sector, as our top picks."

The first-quarter net profit of the five companies under coverage (Mirae Asset Securities, Korean Financial Group, NH Investment & Securities, Kiwoom Securities, Samsung Securities) is expected to be 999.3 billion KRW (QoQ -2.4%, YoY -33.5%), which is 11% below the consensus of 1.12 trillion KRW. Trading volume continues to decline, and with increased interest rate and index volatility in the first quarter of this year, trading profits are inevitably weak. Therefore, it is judged that earnings are likely to decrease compared to the fourth quarter of last year as well.

The average daily trading volume in the first quarter is expected to be 19.7 trillion KRW (QoQ -13.4%, YoY -41%), significantly down from the same period last year. The first quarter of 2021 recorded an all-time high average daily trading volume of 33.3 trillion KRW. The biggest factor in the sharp decline in securities firms’ first-quarter net profit compared to the previous year is the impact of trading volume.

Moreover, overseas stock trading volume, which had offset the decline in domestic trading volume in the fourth quarter, decreased to 79.1 billion USD (QoQ -27.7%) this quarter, leading to brokerage revenue of the five covered companies expected to be 756.5 billion KRW (QoQ -13.2%, YoY -40.4%).

Meanwhile, IB revenue, which performed quite well in 2021, is also expected to be favorable this quarter. Although ECM revenue will decline, steady domestic project financing transactions are expected to continuously generate real estate-related income. In particular, Korean Financial Group, which posted overwhelming IB revenue last year (610 billion KRW YoY +47.9%), is expected to continue performing well in the IB sector.

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