20170717-三星证券-Fundamentals_solid_19页_552kb

Sector Update Summary: Securities Brokers (Overweight)

Core Content

This document provides a detailed analysis of the performance and outlook for Korean securities brokers in the second quarter of 2017 (2Q17), focusing on earnings trends, target prices, and key regulatory developments. It highlights the sector's strong fundamentals and the potential for growth, especially as brokers prepare to expand into new business areas such as investment banking and digital finance.

Main Points

2Q17 Earnings Preview

• The combined net profit of covered brokers in 2Q17 is expected to reach KRW534.1b, 27.1% above the consensus estimate of KRW420.1b.
• Earnings polarization is deepening, with some brokers outperforming others significantly.

Individual Broker Performance

• Mirae Asset Daewoo: Expected to report a net profit of KRW113.3b, up 3% q-q and 19.2% above the consensus. The strong performance is attributed to improved brokerage and IB commission income, as well as increased bond and stock trading gains.
• Korea Investment Holdings (KIH): Likely to post a net profit of KRW150.4b, 58.3% above the consensus. Strong results come from ELS hedging gains, principal investment income, and improved performance from its subsidiaries.
• NH Investment & Securities: Projected to report a net profit of KRW100.5b, 18.6% above the consensus. The firm is benefiting from a bull market, improved trading gains, and the IPO of Netmarble Games.
• Kiwoom Securities: Expected to report a net profit of KRW55.9b, 22.2% above the consensus. Despite a decline in retail trading, the firm is seeing growth in brokerage and stock trading gains.
• Meritz Securities: Anticipated to report a net profit of KRW90.1b, 16.3% above the consensus. The firm's performance is boosted by the recognition of Meritz Capital as a fully owned subsidiary.
• Daishin Securities: Likely to report a net profit of KRW23.8b, in line with the consensus. The firm is focusing on diversification and real-estate development.

Target Price Adjustments

• Mirae Asset Daewoo: Target price raised to KRW13,500 (up 12.5%).
• KIH: Target price raised to KRW95,000 (up 31.6%).
• NH Investment & Securities: Target price raised to KRW17,000 (up 15.6%).
• Kiwoom Securities: Target price raised to KRW100,000 (up 8.9%).
• Meritz Securities: Target price raised to KRW6,000 (up 19.5%).
• Daishin Securities: Target price raised to KRW16,500 (up 11.5%).

Key Issues

Regulatory Reforms and Mega-IB Policy

• The Financial Services Commission (FSC) announced amendments to the Financial Investment Services and Capital Markets Act (FISCMA) and the Investment Banking Act on May 2, aiming to promote the development of mega investment banks.
• These amendments include:
  • Raising the cap on real-estate investments from 10% to 30% of deposits.
  • Introducing a new regulation on the current ratio to improve liquidity risk control.
  • Increasing the net capital ratio for OTC derivatives trading to 150%, which could enhance the room for risky investments.
  • Potential increase in the corporate lending cap to 100% of equity, which may impact corporate financing operations.

Company-Specific Issues

• Korea Investment & Securities: May not be eligible for CP operations until 2020 due to the bankruptcy of its subsidiary in 2015.
• Mirae Asset Daewoo: Faces potential issues from the FSC warning on advisory CMA products, though the firm may still qualify for a mega-IB license.
• KB Securities: May be ineligible due to illegal cross trading in 2016, but it's unclear if the regulations will be enforced.

Differentiated Business Strategies

• Mirae Asset Daewoo is forming strategic partnerships with Naver, aiming to enhance its position in digital finance and AI-driven services.
• Daishin Securities is diversifying through M&A, including the acquisition of Daishin F&I, and expanding into real-estate development.

Key Takeaways

• Earnings polarization is a growing trend, with some brokers significantly outperforming others.
• Regulatory changes are creating opportunities for brokers to expand into new business areas, especially investment banking and digital finance.
• Company-specific issues could hinder some brokers from accessing new opportunities, but the overall government support for mega-IBs suggests these are unlikely to be major obstacles.
• Stock picking is emphasized over sector-wide gains, as the market is shifting towards firms with strong differentiation and growth potential.
• Bond trading has become more conservative due to rising interest rates, but the sector is adapting with better duration management.

Outlook

• The sector is expected to benefit from favorable market conditions and regulatory reforms.
• Target prices have been raised for most brokers, indicating positive expectations.
• The government's push for mega-IBs is a key driver for future growth, though implementation and regulatory clarity remain critical.