[Click eStock] "Meritz Securities, Difficult Growth and Returns... Investment Opinion 'Neutral'"

[Asia Economy Reporter Minji Lee] Yuanta Securities maintained a neutral investment rating on Meritz Securities on the 7th and lowered the target price to 5,000 KRW. This is because both growth and returns have become uncertain, making the investment points ambiguous.

The reason growth has become unclear is due to the changed dividend policy, which continues dividends at the 10% level but uses the reduced dividends to repurchase treasury shares. Since the strategic direction presented after the real estate PF regulation was a transformation into a comprehensive securities firm, if more capital had been used for equity investments or retail credit extension, growth could have been presented as an investment point. However, maintaining the outflow of capital while changing the method makes it difficult to view this as a growth strategy.

The repurchase plan for treasury shares is not specifically stated, making returns uncertain as well. Meritz Securities has previously shown a dividend payout ratio in the 30% range, and although it was lowered to 20% in 2019 to respond to real estate PF regulations, it paid 40% last year as compensation, showing a predictable dividend policy. However, this recent decision is judged to have significantly undermined the transparency of the shareholder return policy.

Researcher Taejun Jung of Yuanta Securities said, “After Meritz Securities lost an investment point once due to the real estate PF regulation in 2019, it strengthened its retail and trading divisions and actively improved its capital ratio,” adding, “However, the recent abrupt change in dividend policy has made the company’s business strategy direction more ambiguous, making it difficult to determine investment points.” He further added, “While the expected ROE is maintained when dividends are used for treasury share repurchases, this is also uncertain, reflecting the decision to downgrade the investment rating.”