Securities Firms Set to Sail Smoothly in Q3 Earnings Riding the 'Liquidity' Wave

Q2 Earnings Surprise Followed by Q3 Performance Increase YoY
Five Securities Firms Expect Q3 Operating Profit to Rise 51.71% on Average YoY

[Asia Economy Reporter Oh Ju-yeon] The third-quarter earnings of domestic securities firms are expected to continue to show strong performance following the second quarter. This is because the inflow of individual investors into the stock market, supported by abundant liquidity, is expected to persist. Attention is focused on whether securities firms that recorded an 'earnings surprise' due to increased brokerage fees in the second quarter amid a liquidity-driven market will once again benefit from the 'Donghak Ants' (individual investors).

According to financial information provider FnGuide on the 28th, the operating profit of five domestic securities firms, estimated by three or more securities companies, is expected to reach 1.0192 trillion KRW in the third quarter of this year, a 51.71% increase from 671.8 billion KRW in the third quarter of last year. Notably, the earnings estimates slightly increased compared to September 9th, just before the resurgence of COVID-19. On September 9th, the estimated operating profit for the same five securities firms was 974.1 billion KRW, but despite the COVID-19 resurgence, the estimate rose by 4.63%. This contrasts with other industries where earnings estimates declined due to concerns over COVID-19 impacts.

Among securities firms, Kiwoom Securities showed the largest increase. Thanks to a significant rise in individual investor trading volume in the second quarter, brokerage revenue increased by 177% year-on-year to 120 billion KRW. This upward trend is expected to continue into the third quarter, with operating profit estimates at 171.4 billion KRW, nearly doubling the 85.8 billion KRW recorded in the same period last year (a 99.8% increase). Earlier this month, the estimate was 144.7 billion KRW but was revised upward to 170 billion KRW on the 9th, showing a steady rise in expectations this month.

NH Investment & Securities is also expected to see a 55.3% increase from 117.4 billion KRW in the third quarter last year to 182.3 billion KRW this year. This is a 0.2% increase compared to the estimate on the 9th. Mirae Asset Daewoo's third-quarter operating profit estimate is 248.3 billion KRW, up 44.8% year-on-year, while Korea Financial Group is expected to increase by 40.9% to 250 billion KRW, and Samsung Securities by 39.6% to 167.2 billion KRW. Compared to the estimates on the 9th, Samsung Securities and Korea Financial Group's estimates increased by 10.6% and 9.7%, respectively.

The positive outlook for domestic securities firms' third-quarter earnings is due to expectations that the spread of COVID-19 will increase volatility in the domestic stock market, leading to a massive inflow of individual investors' funds into the stock market. Already, investor deposits surpassed 50 trillion KRW in the first half of this year, pushing brokerage revenues of securities firms to record highs. Additionally, with forecasts that the KOSPI will reach the 2800 level by year-end and analyses suggesting investor deposits could exceed 100 trillion KRW, investor sentiment toward the securities sector is gaining momentum. The stock prices, which had stalled after the second-quarter earnings announcements due to fading positive factors, have started to rise again for these reasons.

The securities sector index reached a record high of 1880.99 on the 11th but fell 12.42% to 1647.35 on the 20th. Securities stocks showed strong momentum due to earnings but then entered a lull. However, as securities stocks began rising again recently, the securities sector index stood at 1721.02 as of 10:15 AM on the day, up 4.52% from the 20th.

Jeon Bae-seung, a researcher at Ebest Investment & Securities, said, "The average daily trading volume until late July and August was about 27 trillion KRW, a 25% increase compared to 22 trillion KRW in the second quarter, and in August, it exceeded 30 trillion KRW. Brokerage revenue in the third quarter is expected to expand further compared to the second quarter."