20170926-三星证券-Meritz_Group__Stand-out_investment_skills_36页_1mb

Meritz Group Sector Update Summary

Core Content

Meritz Group is a Korean financial services company that has evolved from a spin-off of the Hanjin Group. It is the only insurer-led financial group in Korea, with a diverse business portfolio that includes insurance, securities, and merchant banking operations. The group has achieved significant market presence, surpassing its rivals in the past decade, due to its streamlined corporate governance structure, aggressive growth strategies, and reliance on professional managers.

Main Points

• Market Presence: Meritz Group has grown to become a major player in the financial sector, outperforming its competitors.
• Corporate Governance: Meritz Group has a streamlined governance system that enables fast decision-making and supports long-term strategic goals.
• Business Diversification: The group has diversified its operations to include insurance, securities, and merchant banking, with a balanced business model.
• Growth Strategies: Meritz Group has focused on M&A, recapitalization, and talent acquisition to drive growth.
• Financial Performance: The group's subsidiaries, Meritz Financial Group, Meritz Fire & Marine, and Meritz Securities, have shown strong financial performance and share price growth.
• Valuation: Despite trading at higher valuations, the firm's fundamentals and long-term vision justify the current price levels.
• Risk Factors: The group faces several long-term risks, including high leverage, exposure to real-estate, liquidity concerns, and potential talent loss.

Key Information

Meritz Financial Group

• Target Price: KRW15,950 (25.4% upside)
• Net Profit Attributable to Controlling Interests: Grew significantly over the years, with an average of KRW3.3t in shareholder equity.
• Share Performance: Outperformed the Kospi index, showing strong growth over the past few years.
• Subsidiaries: Includes Meritz Fire & Marine and Meritz Securities, with a clear hierarchy and strong leadership.

Meritz Fire & Marine

• Target Price: KRW23,950 (25.3% upside)
• Performance: Achieved sector-best ROEs and dividend yields, averaging 19.7% and 4.4%, respectively.
• Underwriting & Investment: Focused on improving enterprise value, reducing loss ratios, and leveraging synergies with group affiliates.
• Liquidity & Capital: Has a double leverage ratio of 130%, and its capital efficiency is a key strength.

Meritz Securities

• Target Price: KRW6,300 (41.3% upside)
• Growth Strategy: Merged with Meritz Investment Bank in 2010, leading to significant growth in corporate financing and investment banking.
• Core Operations: Dominates in real-estate financing, corporate loans, and other financial services.
• Recent Developments: Raised shareholder equity to KRW3.2t to obtain a mega-IB license and is diversifying into new areas such as aircraft financing and overseas property securitization.
• Risk Management: Implements strict risk controls, particularly in real-estate financing, and has not experienced any defaults since 2010.

Meritz Capital

• Integration: Fully integrated into Meritz Securities, enhancing synergies and operational efficiency.
• Growth: Paid-in capital increased from KRW200b to KRW525.7b, with strong quarterly net profits.
• Performance: Shows consistent growth in operating income and net profit, driven by interest income and fee income.

Valuation and Risk Factors

• Valuation: Despite high valuations, the firm's fundamentals and long-term growth potential justify the current prices.
• Dividend Yields: High and stable dividend yields are a key factor in its valuation.
• Risk Factors:
  • High Leverage: The holding company's double leverage ratio is near 130%, which could be a risk.
  • Real-Estate Exposure: Meritz Securities and Meritz Capital have significant exposure to real-estate, which could pose systemic risks in a market crash.
  • Liquidity Concerns: Group affiliates have thin trading volumes, indicating potential liquidity issues.
  • Talent Risk: There is a risk of mass defection of high-quality talent, which could impact performance.

Summary of Investment Outlook

• Bullish Outlook: The firm is bullish on all of Meritz Group's affiliates due to their strong fundamentals and strategic positioning.
• Earnings Power: The group's earnings power is strong, with Meritz Securities expected to exceed KRW400b in earnings this year.
• Future Growth: The firm is expected to benefit from expansion into new areas, such as overseas real estate securitization and aircraft financing, and from improved cost efficiency in its retail operations.

Conclusion

Meritz Group is a differentiated player in the Korean financial sector, with a strong corporate governance structure, aggressive growth strategies, and a focus on long-term value creation. While it faces certain risks, including high leverage and real-estate exposure, its strong fundamentals and strategic moves make it an attractive investment opportunity.