Best-positioned Among Peers
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Affected by a roughly W120bn loss at the PI business, Kiwoom posted sluggish 1Q20 results. In 2Q20, however, a portion of the PI losses should be recovered, and profits at the retail business should rise on the back of greater stock market trading value. Against this backdrop, Kiwoom now appears to be a solid investment choice.
1Q20 review: Logs sluggish earnings due to loss of PI business
Kiwoom Securities (Kiwoom) posted 1Q20 NP (excluding minority interests) of W9.4bn (-94% y-y), a figure significantly below both our estimate (W58bn) and consensus (W37.8bn). As market volatility increased due to Covid-19, the PI division recorded a loss of W119.8bn, significantly hurting overall performance. However, brokerage fees, a key source of profit for the company, climbed sharply to W89.1bn (+130.6% y-y). The firm’s share of the retail brokerage market came to 29.5%, a solid level. Of note, the daily average number of new accounts opened jumped from 2,127 in 1Q19 → 2,497 in 4Q19 → 8,999 in 1Q20 (March: 15,519 accounts). In 1Q20, IB fees income totaled W110.6bn (+35.9% y-y) and WM revenue reached W74.3bn (+29.9% y-y). Thanks to sound debt guarantee and M&A-related revenue, the IB division posted revenue of W31.1bn (+49.5% y-y). In addition, with the firm adopting back-to-back hedging (rather than internal hedging) for derivatives, no hedging-related losses were booked in the quarter.
Best-positioned among peers
Unlike in 1Q20, Kiwoom is expected to post sound earnings in 2Q20, with NP of W140.5bn (+153% y-y). 1) Affected by a rise in stock market volatility in March, the PI division suffered losses, a factor which resulted in overall sluggishness in 1Q20. For comparison, the PI division recorded 1Q19 revenue of W81.5bn, amid bullish stock market conditions. In 2Q20, retail income (brokerage, financial product sales, margin loans) should expand amid customer base growth and rising daily average trading values. Having averaged W18.5tn in March and W20.8tn in April, daily average transaction value for May stands at W16.9tn as of today.
While Covid-19-related concerns (ELS hedging losses, uncertainties in the IB business, etc) should be minimal for Kiwoom, potential advantages (soaring retail investor numbers/rising trading value) look more significant than for peers. Given such, at this point, Kiwoom appears to be a solid investment option. From a mid/long-term perspective, however, the PI division’s high earnings volatility needs to be resolved.