Securities Firms' Q1 Earnings Exceed Market Expectations
Strong Performance Expected to Continue Through Second Half
However, Real Estate PF Provisions Pose a Risk to Earnings
As securities firms recorded better-than-expected earnings in the first quarter of this year, the favorable performance trend is expected to continue into the second half. However, provisions related to real estate project financing (PF) are likely to act as a variable affecting the results.
According to financial information provider FnGuide on the 16th, all six securities firms with consensus estimates (average securities firm forecasts)?Korea Financial Group, Mirae Asset Securities, NH Investment & Securities, Samsung Securities, Kiwoom Securities, and Daishin Securities?posted first-quarter results that exceeded consensus.
Samsung Securities, which disclosed its results on the 14th, recorded an operating profit of 331.6 billion KRW and a net profit of 253.1 billion KRW in the first quarter. Operating profit decreased by 2.93% year-on-year, but net profit increased by 0.21%. Both turned positive compared to the previous quarter. Samsung Securities’ consensus forecast had projected an operating profit of 221 billion KRW, down 35.3% year-on-year, and a net profit of 173.9 billion KRW, down 31.16%.
Mirae Asset Securities, which announced its results earlier, posted an operating profit of 270.5 billion KRW and a net profit of 170.5 billion KRW in the first quarter. These figures represent decreases of 4% and 28.4% year-on-year, respectively, but still exceeded consensus.
Korea Financial Group recorded an operating profit of 381.6 billion KRW and a net profit of 342.4 billion KRW in the first quarter, marking increases of 17.97% and 13.73% year-on-year, respectively. Its subsidiary, Korea Investment & Securities, led the earnings surprise by posting the highest quarterly results ever.
NH Investment & Securities also posted strong first-quarter results with operating profit rising 10.1% year-on-year to 276.9 billion KRW and net profit increasing 22.4% to 225.5 billion KRW.
Kiwoom Securities recorded an operating profit of 337.7 billion KRW and a net profit of 244.8 billion KRW in the first quarter. Although these represent decreases of 13.2% and 16.3% year-on-year, respectively, both turned positive compared to the previous quarter.
Daishin Securities posted an operating profit of 73 billion KRW, up 33.9% year-on-year, and a net profit of 53.1 billion KRW, up 1.5%, exceeding consensus.
The recovery in securities firms’ earnings was driven by increased brokerage revenue due to rising trading volumes and a rebound in the corporate finance (IB) sector. Samsung Securities analyst Jung Min-ki explained, "The factors behind the first-quarter results exceeding consensus include generally increased trading volumes and revenue related to financial product sales, resulting in strong retail segment performance. Additionally, the scale of cost recognition related to PF and overseas real estate, which was a major cause of last year’s poor performance, has been reduced in most securities firms. Some firms have also seen a recovery in IB segment earnings through acquisition financing and PF refinancing arrangements."
The favorable earnings trend is expected to continue into the second half. Daishin Securities analyst Park Hye-jin said, "Trading volumes, which were sluggish in the fourth quarter of last year, have improved overall due to various events such as the early-year value-up programs and expectations of interest rate cuts, consistently exceeding 20 trillion KRW daily. Not only domestic but also foreign currency trading volumes have reached record highs, driving brokerage earnings growth. The corporate bond issuance market (DCM) is also performing well, recording a combined 37.5 trillion KRW in the first quarter, with bond issuance hitting record highs in January and February. The number of initial public offerings (IPOs) has also increased, suggesting that traditional IB revenues will be solid, and securities firms’ annual earnings are expected to increase by more than 50% compared to last year," she said.
However, provisions related to real estate PF are expected to be a variable affecting earnings. KB Securities analyst Kang Seung-gun said, "The brokerage business environment remains favorable, and IB earnings also showed signs of turnaround in some companies in the first quarter, so the second-quarter results are likely to maintain a positive trend. However, it is judged that there is a high possibility of recognizing provisions related to real estate PF in the second quarter, which will act as a determining factor for second-quarter results." On the 13th, financial authorities announced "Future Policy Directions for the Orderly Soft Landing of Real Estate PF." Meritz Securities analyst Jo A-hae said, "Since securities firms have a high proportion of bridge loans, monitoring the scale of provision accumulation will be necessary. The criteria for evaluating the viability of PF project sites are being subdivided, and the provision accumulation rate may increase due to progress in auctions and public sales." She added, "However, the loss scale relative to capital is considered manageable, taking into account the amount of provisions already accumulated."
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