Mirae Needs to Focus on Risk Management
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
We expect Mirae to report consensus-beating 4Q22 earnings, considering: 1) the reflection of one-off factors and gains from asset revaluations; and 2) a likely modest level of PF-related provisioning. That said, we note that the firm’s ownership of many alternative investment assets amid tough business conditions presents a burden.
Reiterate Hold; maintain TP of W7,000We reiterate a Hold rating on Mirae Asset Securities (Mirae). Although its real estate PF business is sized at a mere W1.8tn, the total investment asset size reaches the W8tn level when including overseas alternative investments. While slow earnings at its main business have likely been offset by asset revaluation, the sustainability of gains from asset revaluation is being called into question amid a prolonging stock market downturn. At this juncture, we believe that Mirae needs to focus on risk management, rather than on making investments.
To achieve an annual shareholder return ratio of 30%, Mirae will need to repurchase and cancel more treasury shares or pay out more dividends. Mirae Asset Capital’s purchase of common stocks in Mirae Asset Securities is underway (around 70% of target amount). Its share price has upped as of late on both a rebound following the ex-dividend date and supply-demand effects.
4Q22 preview: Earnings to arrive sound, backed by one-off factors
We expect Mirae to register consolidated 4Q22 NP (excluding minority interest) of W170.9bn (-5.5% y-y, +65.0% q-q).
Brokerage: We size brokerage gains at W106.8bn (-42.0% y-y, -17.4% q-q). Despite proactive sales efforts (eg, market share growth in the overseas stock domain, the adoption of daytime trading for overseas stocks), related brokerage gains still likely fell short of offsetting the reduction in domestic brokerage fees.
We estimate 4Q22 IB commission income of W30bn (-31.4% y-y, +4.3% q-q). Earnings likely remain tepid at the real estate PF division. We believe that the ECM market also needs time to recover.
Trading/other: Divisional OP should prove around W60bn. Given market yield changes, we expect the firm’s trading business to report bond valuation losses. Mirae’s other businesses arm will likely book one-off gains of around W90bn on recovery of US$250mn in funds from a capital reduction. Margins were also likely helped by a revaluation of other investment assets.