Securities Industry: "Add More Securities Stocks to Boxpi"

Undervalued Stock Price Despite Solid Performance
High Dividend Yield Also Attractive for Investment

[Asia Economy Reporter Park Jihwan] Despite the sluggish performance of key indicators such as the stock market trapped in a box range, rising interest rates, and declining trading volume, the securities industry is recommending an increased weighting in securities stocks. Even amid generally unfavorable market conditions, the relatively strong earnings trend, undervalued stock prices, and high dividend yields are cited as investment factors.

According to the Korea Exchange on the 26th, the KOSPI, which had risen to the 3300 level in July, dropped to the 3000 level on the 28th of last month and has since been moving sideways for a month. As individual investors’ sentiment froze, trading volume also shrank significantly. On the 22nd, the KOSPI trading volume recorded 9.05 trillion won, the lowest this year. Additionally, with the Bank of Korea’s additional base rate hikes expected in the second half of the year, there are assessments that market volatility could increase further.

Although market conditions are moving in the opposite direction, securities firms’ recommendation to expand investment in securities stocks is interpreted as due to their more robust-than-expected profitability. The net income of Korea Financial Group, Mirae Asset Securities, NH Investment & Securities, Samsung Securities, and Kiwoom Securities for the third quarter of this year is projected at 6.5996 trillion won, a 49.7% increase compared to 4.4078 trillion won in the same period last year. Jang Hyoseon, a researcher at Samsung Securities, said, “Although it decreased by about 20% compared to the previous quarter, this is largely due to the base effect from one-time gains from the sale related to KakaoBank by Korea Financial Group in the second quarter and the recognition of marketable asset valuation gains by some large firms,” adding, “Despite unfavorable conditions such as base rate hikes, the overall performance is evaluated as favorable.” The opinion is that attention should be paid more to the improved earnings resilience rather than concerns about market slowdown. While it is inevitable to see a decline in brokerage commission income, which has driven earnings so far, the diversification of business centered on investment banking (IB) such as equity capital markets (ECM) and real estate project financing (PF) is bearing fruit.

Currently, the undervalued stock price level and high dividend attractiveness are also emerging as strengths. The expected price-to-earnings ratio (PER) of the securities sector for 2022 is 5.2 times, the lowest among financial sectors, indicating that the expected earnings decline for next year is already reflected in the stock price. Lee Hongjae, a researcher at Hana Financial Investment, said, “The decline in market indicators is weakening, and due to the strong performance of IB and others, the multiple and dividend attractiveness are highlighted more than market concerns,” adding, “The stocks of securities firms with high dividend yields are expected to show a favorable trend from the fourth quarter.”