[Click eStock] "Securities Industry, 3Q Earnings Better Than Expected"

Uncertainty Still Exists in Real Estate Finance

Planning_Yeouido Securities District, Park One, LG Twin Towers. Photo by Hyunmin Kim kimhyun81@

Shinhan Investment Corp. forecasted that the securities industry's third-quarter earnings could be better than expected.

Researcher Im Hee-yeon of Shinhan Investment Corp. stated, "The average daily trading volume in the third quarter reached 24.1 trillion KRW, up 14.1% from the previous quarter, marking the highest level in the past two years."

Researcher Im explained, "There is a tendency for interest in securities stocks to increase when the KOSPI rises or trading volume increases," adding, "In terms of profit and loss, the increase in trading volume is more significant than the rise in the KOSPI." This implies that if provisions are limited, an upward revision of the recurring profit consensus is expected.

Regarding the resumption of Contracts for Difference (CFD) trading, although market contraction is inevitable due to strengthened regulations, it was positively evaluated from the perspective of business diversification. Researcher Im pointed out, "Securities firms must include the scale of CFD handling within the credit extension limit and operate within 100% of their own capital," noting, "Both demand and supply are bound to decrease."

However, the recovery of the business scope allowing diversified services to be provided again to investors was viewed positively. Researcher Im analyzed, "Due to strengthened qualifications for professional investors, securities firms that resumed services early by providing differentiated services to high-net-worth individuals (HNWI) are expected to attract inflows of high-income individuals."

Uncertainties related to real estate finance still exist. Concerns are greater overseas than domestically. Large securities firms hold sufficient capital to absorb potential future losses and are already responding proactively, according to the assessment. However, exposure to overseas commercial real estate remains a burden.

Researcher Im said, "The decline in overseas real estate values and the rise in delinquency rates are likely to be prolonged, making future profit and loss impacts inevitable," adding, "It is estimated that concerns related to real estate finance have already been largely reflected in valuations."

Based on the 2024F price-to-book ratio (PBR), Korea Financial Group stands at 0.29x, Mirae Asset Securities at 0.37x, Samsung Securities at 0.45x, NH Investment & Securities at 0.43x, and Kiwoom Securities at 0.44x. Researcher Im stated, "We present Samsung Securities, which has relatively low exposure to real estate finance and high sensitivity to brokerage profit and loss, and Korea Financial Group, which is close to the bottom level seen at the early stage of COVID-19, as the top picks in the sector."