The author is an analyst for NH Investment & Securities. She can be reached at yd.yoon@nhqv.com -- Ed.
Kiwoom recently announced that it will reflect provisions of W433.3bn for Youngpoong Paper receivables in 4Q23, putting the issue to rest. Recently, stock market trading has become active again. A decline in market share due to customer churn is inevitable, but earnings should be defended by stock trading value increase.
Environment friendly in many ways
After the announcement on Oct 25 of its plan to acquire W70bn in treasury shares and a temporary ban on short selling by financial authorities on Nov 6, Kiwoom Securities’ share price has been rising every day. The firm should continue to benefit from: 1) the ongoing share buyback; and 2) the prospects of increased brokerage profits amid active stock trading.
After recovering part of Youngpoong Paper receivables of W494.3bn, provisioning is scheduled to be booked in 4Q23 for the remaining W433.3bn. Kiwoom plans to make further efforts to recover additional receivables through litigation. Of note, the reversal of the W80bn in CFD provisioning reflected in 2Q23 is ongoing.
In our view, the stock already reflects current negatives, and upside expectations are growing thanks to expanding trading volume. To achieve a shareholder return rate of over 30%, the firm has purchased W9.8bn under its W70bn share buyback program, and purchases will continue over the next six months.
Looking forward to 4Q23 results
Kiwoom booked 3Q23 consolidated NP (excl minority interest) of W202.8bn (+64.3% y-y, +52.2% q-q), exceeding consensus. Overall revenue streams were sound, except for a principal investment (PI) operating loss. Low-base effect was present, with minimal provisioning in 3Q23.
Some investors abandoned the firm after its recent receivables crisis, and while a decline in its market share seems inevitable, related losses should be limited, as the entire industry is expected to benefit from greater stock trading value.