Time Needed for Investor Sentiment to Recover Fully
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
For 4Q22, y-y and q-q earnings drops seem inevitable due to provisioning allocation following asset revaluation and the reflection of valuation losses. Although we positively view securities firms’ selective sales approach and their solid short-term response capabilities, it will take some time for investor sentiment to recover fully.
Impact of real estate market-related adjustments to be reflected in earnings
A slowing in real estate deal sales witnessed since late last year at securities firms is to be reflected in their earnings from 4Q22. Combined NP (excluding minority interest) for the five securities companies under our coverage is likely to come in below consensus at W515.1bn (-39.7% y-y, -5.5% q-q), weighed upon by: 1) provisioning allocations following asset revaluations; and 2) the reflection of likely valuation losses. We expect 4Q22 to mark the most sluggish quarterly earnings for securities players in terms of their 2022 performance.
Since the beginning of the year, securities stocks have outperformed the Kospi, helped by: 1) favorable government real estate market policies; and 2) a rebound from an excessive plunge after the ex-dividend date. That said, it remains to be seen if securities stock prices will maintain an upward trajectory. In our view, it is premature to believe that investor sentiment toward the sector is on its way to a full recovery.
Efforts underway to improve financial health
Amid a challenging real estate market, securities players have been striving to shore up their financial health. Brokerages, in particular large ones, have taken proactive measures since end-2022 to ensure smooth sales operations.
These proactive measures at brokerages include: 1) the suspension of new real estate deals; and 2) pre-emptive management of high-risk projects. Having declined 5.7% q-q to W45.1tn in 3Q22, the combined debt guarantee amount at domestic securities firms will likely show further gradual decrease in the future.
Liquidity ratio, an indicator of brokerages’ short-term response capability, also remains sound compared to the required ratio of 100% under regulation. Although having suffered a short-term capital crunch in November, domestic securities companies were able to raise funds smoothly in 4Q22 via aggressive bond and ELS/ELB issuances. We believe that they are now focused on maintaining a certain level of buffer for critical ratios.