20161028-三星证券-Looking_toward_real_estate_21页_647kb

Sector Update Summary

Core Content

This document provides an update on the performance and strategy of securities brokers in South Korea, focusing on their role in the real-estate financing market and their overseas real-estate investments. It outlines the financial performance of several major brokers for the third quarter of 2016, their target prices, and their strategic moves to diversify profit sources.

Main Points

3Q Performance Overview

• Combined Net Profit: The covered securities brokers are expected to report a combined net profit of KRW231.1b for 3Q16, a 2.8% decrease from the previous quarter, but in line with the consensus.
• Performance Drivers: The decline in net profit is attributed to a 6.1% drop in average daily trading value, but improved trading gains due to:
  • A surge in early redemptions of ELSs and DLSs.
  • Decline in ELS/DLS hedging costs.
  • One-off gains, such as NH Investment & Securities' KRW40b gain from the disposal of a Korea Exchange stake.

Investment Strategy

• Recommendation: The document recommends selecting stocks based on viable investment themes rather than taking a sector-wide approach.
• Target Prices:
  • NH Investment & Securities: KRW11,500 (upside: 12.2%)
  • Mirae Asset Securities: KRW28,000 (upside: 22.8%)
  • Daishin Securities: KRW14,000 (upside: 32.1%)
  • Merit Securities: KRW4,200 (upside: 24.1%)

Real-Estate Financing

• Role of Brokers: Brokers are increasingly involved in real-estate financing, moving from mere commission earners to full-scale service providers.
• Market Shift: Since the 2008 financial crisis, the role of securities brokers in the real-estate financing market has grown significantly, while the share of constructors has declined.
• Structured Financing: Brokers are offering structured financing services, which involve securitization of underlying assets and systematic credit enhancement.
• Meritz Securities: A leader in structured real-estate financing, Meritz has demonstrated strong risk management capabilities through loan commitments linked to poor pre-sales.

Overseas Real-Estate Investment

• Return Potential: Overseas real-estate investments offer 6–7% returns, which are 4–5% points higher than KTB yields.
• Examples of Investments:
  • Mirae Asset Securities: Acquired the So Ouest Tower in Paris and the KMPG Plaza in Dallas.
  • NH Investment & Securities: Invested in the Woolworths headquarters in Sydney.
• Strategic Advantages: Brokers with strong overseas networks and established know-how are well-positioned to benefit from this trend.

Key Information

Financial Performance

Earnings Forecast and Target Price Adjustments

Real-Estate PF Market Trends

• Market Share: The market share of securities brokers in real-estate PF has increased from 2.7% in 2013 to 28.3% in 2015.
• Credit Facilitation: Credit facilitation services have grown significantly, reaching over 65% of real-estate PF deals in 2014–2015.
• Contingent Liability: The contingent liability of the top seven brokers increased from 48.9% in 2010 to 65.5% in 2015.

Risks and Challenges

• Forex Risk: High forex-related risk remains a concern.
• Interest Rate Risk: Real-estate prices could fall if the US Federal Reserve hikes interest rates.
• Earnings Volatility: The agency model remains intact despite increased earnings volatility.

Investment Strategy

• Diversification: Brokers are focusing on diversifying profit sources, particularly in real-estate financing and overseas real-estate investments.
• Risk Management: Brokers are adopting strategies to manage credit and liquidity risks, such as using collateral and covenants.
• Hybrid Models: Wealth management models are evolving from an agency model to a hybrid one, involving PI (Principal Investment) and securitization approaches.