Salty Rental Income... Yuhwa, Top Substitute in Revenue and Highest Dependence

Daishin Securities, Annual Real Estate Income Exceeding 20 Billion Won as a Profitability Safeguard
Yuhwa Securities, Rental Income Accounts for 36% of Total Net Profit

[Asia Economy Reporter Park Jihwan] It has been revealed that domestic securities firms are generating considerable income from real estate rentals in addition to their core businesses such as commission revenue. Daishin Securities has secured a reliable profitability safety net by earning more than 20 billion KRW annually from real estate rentals. In the case of Yuhwa Securities, rental income accounts for 36% of its total net profit, demonstrating a significant presence.

According to the Korea Financial Investment Association on the 25th, among domestic securities firms, Daishin Securities earned the highest rental income up to the third quarter of this year, amounting to 14.5 billion KRW. Daishin Securities acquired the Myeongdong Central Theater site in 2016 and completed the Daishin Finance Center, a building with 7 basement floors and 26 above-ground floors, with a total floor area of 53,328 square meters. Since then, it has been earning rental income exceeding 20 billion KRW annually. Currently, the Daishin Finance Center houses Daishin Securities, Daishin Savings Bank, Daishin F&I, and other Daishin Group affiliates, as well as premium tenants such as WeWork Euljiro branch.

Kyobo Securities, Shinhan Financial Investment, and KB Securities also earned rental incomes of 7.5 billion KRW, 6.7 billion KRW, and 5.5 billion KRW respectively up to the third quarter of this year. These securities firms boast annual rental income on the order of 10 billion KRW. Following them were Yuanta Securities with 4.4 billion KRW, Shinyoung Securities with 4.1 billion KRW (based on March fiscal year-end and cumulative third quarter conversion), Yuhwa Securities with 3.2 billion KRW, NH Investment & Securities with 3.1 billion KRW, Kiwoom Securities with 2.6 billion KRW, and Hana Financial Investment with 1.7 billion KRW.

The securities firm with the highest dependency on rental income relative to its overall performance was found to be Yuhwa Securities. Of the 8.8 billion KRW net profit recorded by Yuhwa Securities up to the third quarter, 3.2 billion KRW, or 36.3%, came from rental income. Yuhwa Securities’ rental income is more than 1.5 times higher than its commission revenue, a major source of income in the securities industry, which stands at 2.1 billion KRW. An industry insider said, "Within the industry, Yuhwa Securities is perceived more as a real estate company because its income from real estate rentals exceeds that from securities operations. It is considered a high-quality company due to its strong performance relative to its size."

There is also a possibility that Yuhwa Securities’ absolute reliance on rental income for its performance will deepen. According to the real estate industry, about five floors of Yuhwa Securities’ 20-story headquarters located in Yeouido, Seoul, are currently vacant. Assuming full occupancy, an additional annual rental income of up to 2.4 billion KRW is possible, which could increase the rental income ratio to net profit to as much as 50%. Additionally, the rental income to net profit ratios for Daishin Securities, Kyobo Securities, Shinyoung Securities, and Bookook Securities were 9.6%, 5.7%, 4.5%, and 2.7% respectively, more than three times the industry average of 0.85%.

Although rental income is not part of the securities firms’ core business, it is preferred as a way to stabilize company revenue structures that can fluctuate significantly depending on market conditions. An industry official said, "Recently, securities firms have been increasingly considering strategies to utilize their owned real estate to prepare for expanded earnings volatility and peak-out (passing the high point). Especially with the rise of non-face-to-face transactions, there is growing concern about securing rental income by utilizing office buildings held in provincial areas where usage has declined."