[Click eStock] "NH Investment & Securities, Bond Management Profit Deteriorates... Target Price Down 12%"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on NH Investment & Securities on the 14th and set a target price of 14,500 KRW, down 12%.

First-quarter controlling net profit is expected to be 122.3 billion KRW, which is 37% below market expectations. This is because asset market returns have generally been sluggish compared to early-year forecasts, leading brokerage and operating profits to fall short of expected levels.

By segment, first-quarter brokerage fees are estimated at 109.4 billion KRW, down 20% from the previous quarter. Baek Doosan, a researcher at Korea Investment & Securities, stated, “The market’s average daily trading value was 19.8 trillion KRW, a 13% decrease over the same period, and the decline in high-margin overseas stock contracts was taken into account,” adding, “WM-related interest income is expected to decrease by only 1% from the previous quarter to 66.3 billion KRW, considering the industry-wide gradual reduction in credit extension.”

Operating profit and interest income are estimated at 118.9 billion KRW, a sharp 61% drop compared to the same period last year. This is due to a significant decline in earnings mainly from foreign currency bonds amid rising domestic and international market interest rates. Additionally, profit reductions in PI and domestic bond sectors are inevitable. ELS hedge profits appear to have stabilized due to a reduction in ELS balance and proprietary hedge ratios. Derivative operations are estimated to have performed well. Researcher Baek Doosan said, “IB and other fees decreased by 30% from the previous quarter, but due to the concentration of first-half IB deals including Easytronics and BCNC IPOs, the quarterly average is expected to show a solid trend.”

With lowered earnings forecasts for this year, ROE is estimated to decline from 11% to 9.9%. However, the low sensitivity of derivative operating profits and the expansion of the book business scale based on capital increases are positive factors. Researcher Baek Doosan analyzed, “Strong performance in ECM, DCM, acquisition financing, and PF profits will partially offset the decline in operating profits, and net profit in the second and third quarters is expected to improve compared to the first quarter,” adding, “Negative factors have been pre-reflected, and the price-to-book ratio (PBR) is low at 0.5 times.”