"Securities Industry Expected Strong Q1 Performance...Significant Easing of PF Costs"

Securities Firms Face No ELS Compensation Issue
Average Daily Trading Value Surpasses 20 Trillion Won Again

Securities company app, stock trading scene. Photo by Hyunmin Kim kimhyun81@

Daishin Securities on the 9th expected that the first-quarter earnings of five securities firms would exceed consensus by more than 10%. Accordingly, it maintained its investment opinion on the securities industry as 'Overweight.'

Researcher Hyejin Park of Daishin Securities stated, "Costs related to asset quality, such as overseas real estate impairment losses and real estate PF reserves, which had been a drag throughout 2023, have significantly eased." As of the first quarter, among the coverage universe, only Mirae Asset Securities is known to have additionally reflected real estate PF and overseas real estate impairment losses.

Researcher Park explained, "Trading volume, which was sluggish in the last quarter, improved overall investor sentiment early this year due to various events such as value-up programs and interest rate cut expectations," adding, "The average daily trading volume exceeded 20 trillion won again, reaching 21.4 trillion won."

Not only domestic but also foreign currency trading volumes have increased again, driving brokerage performance growth. The combined brokerage (BK) revenue of the coverage universe is expected to reach 868.6 billion won, a 49.4% increase from the previous quarter, marking the highest level in the past nine quarters. Researcher Park analyzed, "Issues related to domestic real estate PF and overseas real estate will continue until interest rates are fully cut, but since most securities firms conservatively reflected reserves and impairment losses last year, additional amounts will significantly decrease."

Corporate bond issuance hit record highs in January and February. Researcher Park forecasted, "With a combined 37.5 trillion won in the first quarter, the DCM sector is performing very well, and the number of IPOs is also increasing, so traditional IB revenues are expected to be favorable."

Considering this, combined IB revenues in the coverage universe are expected to increase by 7.4% from the previous quarter to 247.2 billion won. The interest rate level, which was downgraded once in the fourth quarter of last year, is fluctuating within a range, making it difficult for bond operations and valuation gains and losses to increase significantly. Although issuance of Hong Kong H-Index ELS is inevitably shrinking, securities firms have no issues related to compensation plans.

In particular, the most proactive changes are seen in the financial sector regarding value-up programs, which is also positive. Researcher Park judged, "Specific capital policies are emerging in securities firms where expectations were surprisingly low, such as Mirae Asset Securities, Kiwoom Securities, and NH Investment & Securities," adding, "Mirae Asset Securities and Kiwoom Securities have presented three-year return policies, and NH Investment & Securities is highly likely to regularize share buybacks and cancellations." She further added, "If Samsung Securities, Samsung Life, and Samsung Fire start, it is highly likely they will participate as well."