Launches Short-term Financing Business
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY and raise TP by 4.2% to KRW12,500
We maintain BUY on Mirae Asset Securities as we lift our TP by 4.2% to KRW12,500. We have revised up 2Q21E consolidated NP (attributable to controlling interests) by 15.0% to KRW319.7bn (34.4% above consensus). We have also increased full-year 2021E NP (attributable to controlling interests) by 7.0% to KRW990.7bn.
Launch of short-term financing business, IPOs to be positive for investments
We maintain BUY, as: (1) some of the large-scale impairment losses booked in 2020 are to be reversed following asset revaluations, which should in part resolve uncertainty regarding investment assets; (2) the company should also see increased valuation gains on its pre-IPO investments (e.g., Didi Chuxing Technology, Grab); and (3) we also deem as positive that the company has launched its short-term financing business (i.e., issuance of promissory notes) as of June. Our TP has been derived by applying a target P/B of 0.81x (sustainable ROE of 7.1%, cost of equity 8.5%→ 8.3%, terminal growth rate of 2.2%) to 12m fwd BVPS of KRW16,018. There may be limits, however, in that gains from asset valuations/disposals are typically non-recurring and KRW800bn in promissory notes issued are not free from NCR restrictions. Meanwhile, management had disclosed in February along with dividends its plans for the retirement of treasury shares (KRW82.3bn)—included in the 34.1% expected shareholder return for 2020 (i.e., shareholder return policy at present decided on the basis of treasury share cancellations as well as dividends). Shares have yet to be retired, and additional announcements regarding the retirement of treasury shares (or normalization of payout ratio) appear likely before Mar 2022, in our view.
2Q21E consolidated NP (attributable to controlling interests) of KRW319.7bn to beat consensus on asset valuation gains and reversal of impairment losses
We expect 2Q21E consolidated NP (attributable to controlling interests) at KRW319.7bn, substantially higher than our previous estimate as well as current market consensus. Like its competitors, Mirae Asset Securities should be affected by the decline in daily average trading volume and rise in interest rates (i.e., decreased bond valuation gains), but the company should see: (1) KRW30-40bn in valuation gains from the Didi Chuxing Technology IPO; (2) asset impairment loss reversals; and (3) a KRW30-40bn increase in earnings contributions from overseas subsidiaries thanks to asset valuation gains.