[Click eStock] "Samsung Securities Approaches 500 Billion KRW Net Profit This Year... Dividend Levels Also High"

Strength in Personal Asset Management... Steady Performance in Traditional IB Sector
Top-Level Shareholder Dividends Among Major Securities Firms Also Noteworthy

[Asia Economy Reporter Minwoo Lee] Samsung Securities is expected to approach a net income attributable to controlling interests of 500 billion KRW this year, driven by stable profits stemming from its strengths in personal wealth management (WM), long-term growth potential based on competitiveness in the investment banking (IB) sector, and the most shareholder-friendly dividend policy among large securities firms.

On the 24th, SK Securities issued a 'Buy' investment rating and a target price of 50,000 KRW for Samsung Securities for these reasons. The closing price the previous day was 39,800 KRW. They highly evaluated the stable profits derived from strengths in personal wealth management and the long-term growth potential based on competitiveness in the investment banking (IB) sector, as well as the most shareholder-friendly dividend policy among large securities firms. Based on this, net income attributable to controlling interests is forecasted to increase by 27% year-on-year to 496 billion KRW this year. It is expected to grow further to 545 billion KRW in 2021.

Researcher Kyunghoe Koo of SK Securities explained, "Samsung Securities is currently experiencing its best boom since 2007, when it recorded net income of 376.4 billion KRW," adding, "Despite the rapid expansion of hedge operation risks related to equity-linked securities (ELS) due to the global stock market crash caused by COVID-19 in the first half of this year, it greatly benefited from the subsequent stock market boom."

SK Securities identified personal wealth management as Samsung Securities' most representative strength. They analyzed that the results are emerging from a long-term restructuring of the business model under the strategy that the core of the WM business is personal wealth management rather than stock brokerage. Being a subsidiary of the number one large conglomerate in Korea is cited as a factor that instills trust in customers. As a result, as of the third quarter, customer assets exceeding 3 billion KRW totaled 83.7 trillion KRW. Among customer assets, financial products amounted to 66.4 trillion KRW, composed of 22.1 trillion KRW in funds, 20.8 trillion KRW in bonds/repurchase agreements (RP), 9.8 trillion KRW in trusts, 5.5 trillion KRW in retirement pensions, and 8.3 trillion KRW in derivatives and other products. It was evaluated that the assets are well diversified without concentration in any single area. Overseas stock deposit assets also surged from 3.9 trillion KRW at the end of last year to approximately 9.2 trillion KRW as of the end of September.

The IB division also accounted for a significant portion of revenue. As of the third quarter cumulative basis this year, IB income was 111.8 billion KRW, up 27.6% compared to the same period last year. This amount represents 17% of pure fee income during the same period. Traditional IB competitiveness was highly rated, including real estate development finance, debt capital markets (DCM), equity capital markets (ECM), and mergers & acquisitions (M&A). Researcher Koo stated, "As of last year, traditional IB accounted for 33% of total IB income, which is relatively high," and explained, "Samsung Securities is the only domestic securities firm included in the top 10 of the domestic M&A league table, which is dominated by overseas financial companies and consulting firms."

High-level shareholder return policies were also highlighted as a noteworthy aspect. Over the past 15 years (2005?2019), the average dividend payout ratio was 32%. Last year, it reached 39%, a very high figure among large domestic financial stocks. Although Samsung Securities cannot operate an issuance business, the fact that it does not need to continuously retain earnings internally without distributing profits to shareholders can be seen as an advantage. Samsung Securities has steadily increased dividends since 2017. Researcher Koo said, "There are differing opinions on whether securities firms should increase dividends or raise capital to increase potential future profits," adding, "SK Research believes that even if securities firms increase capital, maintaining a dividend payout ratio of about 30?40% to existing shareholders is appropriate."