Uncertainty Remains Over U.S. Hotel Investments
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Despite the impact of Covid-19, Mirae Asset Daewoo recorded a 1Q20 earnings surprise, with NP exceeding W100bn. However, uncertainty remains in play regarding earnings stability and ongoing investment issues. Thus, we maintain a conservative stance towards the company.
1Q20 results much better than expected
Mirae Asset Daewoo registered 1Q20 NP of W107.8bn (-35.5% y-y), beating both our estimate (W22.5bn) and consensus (W54bn). Increases in dividend income from its fund and equity investments, and overseas brokerage revenue are the main reasons for the better-than-expected results. In addition, WM and IB earnings were relatively sound.
[Brokerage, WM] Brokerage income came to W124.1bn (+62.5% y-y). Average daily trading value grew to W15tn (+58.9% y-y) on the domestic front. And, overseas brokerage income rose to W306bn (+170.8% y-y). WM commissions also expanded, climbing to W42.4bn (+6.3% y-y), as the issuance of wrap accounts rallied on greater interest in financial products from retail investors.
[Trading and others] Trading income plunged to W60.3bn (-61.2% y-y) due to greater stock market volatility and ELS-related hedging losses. However, the continued expansion of investment assets (1Q19: W6.5tn → 1Q20: W8tn) led to greater dividend income (W106.4bn; +42.6% y-y), defending against such losses.
[IB] IB commission income reached W71.7bn (-2.8% y-y). Underwriting income decreased (W37.7bn → W10.9bn), but debt-guarantee-related income increased (W17bn → W25.3bn). IB performance was sluggish in March due to Covid-19, but sound through January~February. [Overseas subsidiaries] Overseas subsidiaries posted pre-tax profit of W44.4bn (+3.3% y-y).
Maintain conservative stance
While dividend income from the firm’s fund and equity investments and overseas stock brokerage income exceeded our estimates, leading to a 1Q20 earnings surprise, uncertainties remain in play, regarding whether: 1) investment-related income will be sustainable in 2Q20, as there was no significant valuation losses for investment assets in 1Q20; 2) IB performance will remain stable; and 3) issues over US hotel investments will be resolved.