[Click eStock] "Meritz Securities, Expecting Recovery in Operational Performance in the Second Half"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities changed its investment opinion on Meritz Securities from neutral to buy on the 9th, maintaining the target price at 6,500 KRW. This decision is based on the expectation that performance will improve from the second half of the year.

Meritz Securities' consolidated net profit for the second quarter was 159.6 billion KRW, in line with the market expectation of 161 billion KRW. Although trading and product profit and loss deteriorated significantly due to a sluggish stock market and interest rate environment, IB fee income exceeded expectations. Other income also remained at a good level along with asset soundness.

Pure fee income grew 11.6% year-on-year on a consolidated basis, due to better-than-expected IB fee income. The ratio of debt guarantees to capital (91%) fell by 5 percentage points compared to the previous quarter due to large-scale repayments but was higher than expected, and advisory fees also increased.

Interest income increased by 18.1% on a consolidated basis. Although interest income from loan receivables decreased due to a reduction in credit extensions and the disappearance of special factors, interest income from securities increased significantly due to rising interest rates. Trading and product profit and loss recorded a consolidated loss of 101.5 billion KRW, attributed to rising interest rates and a sluggish stock market.

Although the risk of real estate PF (Project Financing) defaults has recently emerged among securities firms, the company's asset soundness indicators remain stable. Taejun Jeong, a researcher at Yuanta Securities, explained, “It is true that the exposure relative to capital is higher than others because the company grew through high growth in real estate PF,” but added, “It does not mean that all of the company’s exposure is risky just because local real estate non-support is increasing and some PFs are experiencing defaults.”

Researcher Jeong further analyzed, “There is no need for excessive concern as operational performance recovery is expected in the third quarter,” adding, “This is because interest rates have been falling and the stock market has been showing signs of recovery since the second half of the year.”