Securities Firms to Maintain Robust Performance in Q3... 'Overweight' Rating Maintained

Daishin Securities expects the combined net profit of the top five major securities firms in the third quarter to exceed consensus by more than 10%, and forecasts that a favorable environment for the securities industry will continue going forward.

On October 14, Park Hyejin, a researcher at Daishin Securities, stated in a report, "Although there were concerns about a peak-out after record-breaking results in the second quarter, robust performance is expected to continue in the third quarter," maintaining an "Overweight" investment opinion on the securities sector.

According to Daishin Securities' analysis, the combined net profit of the five securities firms under coverage in the third quarter is estimated at 1.51 trillion won, a 25% increase compared to the same period last year. This figure exceeds the consensus estimate of 1.37 trillion won. The five securities firms covered by Daishin Securities are Korea Financial Holdings (the top pick, with a target price of 188,000 won), Kiwoom Securities (285,000 won), NH Investment & Securities (23,000 won), Mirae Asset Securities (23,000 won), and Samsung Securities (91,000 won).

Researcher Park explained, "Although the transaction amount, which peaked in the second quarter, began to decline from July, raising concerns about a peak-out, it started to rise again from September as the major shareholder transfer tax threshold was restored to 5 billion won. The average daily transaction amount increased to 25.8 trillion won, up from 23.6 trillion won in the second quarter," adding, "Accordingly, brokerage commission income will increase quarter-on-quarter, and both investment banking and trading income remain strong."

In particular, Park expects Korea Financial Holdings, the parent company of Korea Investment & Securities, to remain the standout performer in the third quarter, stating, "Although the size of provisions is a key factor, it is expected to continue delivering strong results, exceeding consensus by more than 25%." Korea Investment & Securities has already recorded impressive results in the first half of this year, becoming the first in the industry to surpass 1 trillion won in semiannual net profit.

Park commented, "This is truly the golden age of investment banking," and evaluated that, "Following the aftermath of real estate project financing, recent investment banking results in the first-tier financial sector, including securities firms, have been driven by refinancing and acquisition finance." Citing media reports that refinancing accounted for more than 60% of cumulative M&A acquisition finance in the third quarter, she explained, "Refinancing, including acquisition finance, contributes to securities firms' investment banking fees and interest income, and recently, large-scale deals worth hundreds of billions of won have been prevalent."

However, trading income is expected to inevitably decrease compared to the second quarter. Park noted, "This is because the macro environment for interest rates, indices, and exchange rates was exceptionally favorable in the second quarter." Nevertheless, she forecast that the combined trading income for the firms under coverage would reach 905 billion won (down 28.6% quarter-on-quarter, up 8.4% year-on-year), which is still a solid performance compared to normal levels. She added, "If we look only at recurring operating income from bonds, stocks, and derivatives, the results are still robust."

Since September, the combined transaction amount of NextTrade and the Korea Exchange has consistently exceeded 30 trillion won daily. On October 10, it even reached a record high of 29.2 trillion won. Park diagnosed, "With the interest rate cut cycle and expanded liquidity, the favorable environment for the securities industry continues, so there is no need to worry about performance."

However, she cautioned, "It will be difficult for the second half to outperform the first half, and since stock prices have already factored in performance, a sharp rally like in the second quarter is unlikely." She advised, "It would be advantageous to invest in companies that maximize their performance among securities stocks." She also noted, "The net profit of the five major securities firms is expected to increase by an average of 35.3% year-on-year, with Korea Financial Holdings projected to see the largest improvement at 61.2%," maintaining Korea Financial Holdings as the top pick in the securities sector.

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