Sector Top Pick
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
We find Kiwoom’s shares appealing, pointing out its low exposure to real estate PFs, and further noting the relatively stable earnings provided by its brokerage-focused business structure. Expecting its share price to display an upward trajectory upon the confirmation of a stock market rebound, we present Kiwoom as our sector top pick.
Maintain Buy and TP of W120,000
We reiterate our Buy rating for Kiwoom Securities (Kiwoom). Even amid unfavorable business conditions, it has managed to maintain robust retail platform-related capabilities. Despite a q-q earnings decline, Kiwoom enjoys the number-one market shares of the domestic, overseas, and derivatives arenas, with its main brokerage business continuing to boast robust fundamentals. PF-related losses should be modest, given the firm’s PF exposure of less than W1tn.
Backed by a share price uptrend since earlier the year, Kiwoom’s share price has recovered to the level seen before the ex-dividend date. We attribute this rebound to: 1) a higher beta stemming from the nature of the company’s business structure; and 2) the fact that real estate market conditions are not a major factor in the firm’s earnings forecasts. Viewing a recent plunge in the stock market as being excessive, we expect Kiwoom’s share price to display an upward trajectory upon the confirmation of a market rebound.
4Q22 preview: Earnings to remain relatively robust compared to other major securities players
We expect Kiwoom to register4Q22 NP (excluding minority interest) ofW118.9bn (-36.8% y-y, -3.7% q-q).
Brokerage: We estimate brokerage gains of W103.6bn (-28.0 y-y, -10.3% q-q). Daily domestic transaction amount fell slightly to W12.8tn (versus W13.8tn in 3Q22). Overseas stock trading fees also likely dropped. But, the fall in OP was likely partly offset by solid earnings at the derivatives/other division.
Trading/other: Bond valuation profit likely remained sound in 4Q22 amid reduced changes in market interest rates. We believe that valuation losses at the PI division remained similar q-q at W20bn. Our annual earnings estimate for the trading/other division remains unaltered.
IB: We estimate IB commission income at W30bn (-31.3 y-y, +3.3% q-q). Despite its efforts to expand the corporate loan business after obtaining a comprehensive financial investment business entity license in May 2022, the IB division appears to have switched to a risk management mode in response to unfavorable market conditions. This year as well, we believe that Kiwoom’s aim will be to maintain its leading position in the retail brokerage, rather than trying to expand its IB business