"Securities Stocks Expected to Face Earnings Shock in Q3... Rebound Not Easy"

[Image source=Yonhap News]

[Asia Economy Reporter Hwang Yoon-joo] Hyundai Motor Securities judged on the 12th that although the excessive decline in the securities sector will weaken, the upside potential is not high. Accordingly, it maintained a 'neutral' investment opinion.

Researcher Lee Hong-jae of Hyundai Motor Securities stated, "The third-quarter earnings are expected to fall short of consensus."

He explained, "While the ordinary business conditions continue to slow down, concerns about the soundness and growth slowdown related to real estate PF, as well as the possibility of recognizing losses on non-marketable assets, are high, so the stock price's upside potential in the second half is not expected to be high." However, he predicted that since the stock market is approaching the bottom and the stock price has excessively declined compared to the KOSPI for a long time, the excessive decline trend will somewhat ease following September.

Due to the absence of significant stock price momentum such as regulatory changes, confirmation of a directional signal in interest rates is necessary to upgrade the investment opinion, and the timing to expand interest is around the end of the year. Among securities stocks, he evaluated that Samsung Securities, which is relatively free from asset soundness issues and has high dividend visibility (22F 6.1%), will be defensively positioned for the time being.

Meanwhile, securities firms are expected to record an earnings shock in the third quarter, with net profit falling 71.9% compared to last year. It is expected to decrease by 27.4% from the second quarter to 442.8 billion KRW.

Researcher Lee said, "Not only will the surface profit fall significantly short of expectations, but the content will also be poor," adding, "In the third quarter, the performance of major sectors from brokerage (BK) to investment banking (IB) slowed down." The fourth quarter faces uncertainties in IB performance due to revaluation losses on some assets and a decrease in new real estate PF transactions, making the outlook for all sectors challenging.

The main reason for the third-quarter earnings falling short of expectations is trading-related profits. The researcher stated, "Unlike the second quarter, with limited valuation gains on non-marketable assets and a slowdown in the rise of market interest rates compared to the previous quarter, losses will somewhat decrease, but due to foreign exchange losses from exchange rate fluctuations, price declines of marketable assets, and ELS losses, profits are expected to decrease by 25.5% compared to the previous quarter."

He added, "BK-related revenue is expected to decrease by 15.8% compared to the previous quarter due to continued slowdown in average daily trading volume and credit extension, and IB and other fees are also expected to decline by 23.6% as major sectors such as ECM, DCM, and real estate structuring all slow down."

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