[Click eStock] "Kiwoom Securities Lowers Operating Profit Estimate... Target Price Down 13%"

Korea Investment & Securities Report

[Asia Economy Reporter Minji Lee] Korea Investment & Securities maintained a buy rating on Kiwoom Securities on the 11th, while lowering the target price by 13% to 130,000 KRW. This adjustment was due to the expectation of reduced operating profits amid worsening market conditions.

The first-quarter net income attributable to controlling interests was 140.9 billion KRW, falling 14% short of market estimates. Brokerage performance was better than expected, but operating profits were weak, and the effective tax rate was high due to seasonality, resulting in a negative impact.

By subsidiary, Capital recorded 15.1 billion KRW, a 152% increase from the previous quarter, and the Savings Bank also rose 6% to 22.2 billion KRW during the same period. However, other operating losses (investment association funds and funds) reflected in the consolidated results worsened to a loss of 24.1 billion KRW due to market influences compared to the previous quarter.

On a standalone basis, securities net revenue by segment showed that commission from brokerage decreased 8% quarter-on-quarter to 179 billion KRW. The decline in individual trading proportion and reduced market trading volume led to a 20% drop in domestic stock revenue to 83.8 billion KRW, which was negative. However, overseas stock revenue decreased by only 10% during the same period due to increased market share, and overseas derivatives commissions actually grew by 24%.

Corporate finance fees also fell 19% quarter-on-quarter due to decreased revenue from structured and project financing advisory services. Interest income and expenses remained at the previous quarter’s level as increased funding costs were offset by balance growth.

Operating profits from asset management were 4 billion KRW, down 78% from the previous quarter. Baek Doosan, a researcher at Korea Investment & Securities, stated, “Despite receiving 20.2 billion KRW in dividend income from Woori Financial Group, other operating profits declined by 32.7 billion KRW during the same period,” adding, “Losses occurred in stocks and mezzanine due to deteriorating operating conditions.”

Korea Investment & Securities revised down Kiwoom Securities’ operating profit estimates by 11% for this year and 15% for next year. Researcher Baek said, “Although the target price was lowered due to earnings downgrade and lack of momentum, we maintain a buy rating considering the unique earnings visibility of the brokerage business and the low price-to-book ratio of 0.52.”