[Click eStock] "Securities Stocks' IB Division Weakness Evident in Q4 Results"

Maintain Neutral Investment Opinion

Meritz Securities announced on the 17th that it maintains a 'Neutral' investment rating on the securities sector due to weak earnings in the fourth quarter of last year. Samsung Securities was selected as the 'Top Pick' within the securities sector.

According to Meritz Securities, the five major domestic securities firms (Mirae Asset, NH Investment & Securities, Samsung, Korea Financial Group, and Kiwoom) are expected to report a net loss of 149.6 billion KRW in the fourth quarter of last year, significantly missing consensus estimates.

Jo Ahae, a researcher at Meritz Securities, stated, "Although bond trading profits are expected to improve due to falling interest rates, large expenses are anticipated from decreased brokerage fees caused by reduced stock market trading volume, provisions related to real estate project financing (PF), and impairment losses related to overseas commercial real estate."

By segment, brokerage revenue is estimated at 466.4 billion KRW, down 22.5% quarter-on-quarter. Investment banking (IB) related fee income is expected to decrease by 4.6% quarter-on-quarter to 373.4 billion KRW. Net product operation gains and other income are expected to record losses.

Researcher Jo Ahae added, "Since the authorities have presented a restructuring policy for real estate PF in accordance with market principles, additional costs from this are inevitable. However, the average price-to-book ratio (PBR) of covered securities firms is 0.41, indicating that related concerns are already reflected." He further noted, "If asset quality improvement progresses due to interest rate cuts in the second half of the year and a gradual earnings improvement trend among securities firms is confirmed, a revaluation (re-rating) of securities stocks' corporate value can be expected."

Samsung Securities was presented as the 'Top Pick' within the securities sector, citing its high proportion of brokerage revenue and relatively low exposure to real estate PF and overseas alternative investments, which allows for expectations of recognized earnings and dividend income.