Macroeconomic Environment Unfavorable, but Liquidity Still Ample
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
The macroeconomic environment for the securities sector is likely to be somewhat unfavorable next year, given the slowdown in stock trading value and interest rate hikes. However, we believe that current share prices already fully reflect related concerns. It is time to focus more on valuation merit than NP decline concerns.
Macroeconomic environment unfavorable, but liquidity still ample
The macroeconomic environment for the securities sector is likely to be somewhat unfavorable next year. Korea’s base rate increased twice in 2021,and the Kospi has fallen below 3,000p.
However, liquidity remains ample. We expect daily average trading value for domestic stocks to stay above W20tn in 2022. M2 totaled W3,504tn at end-September, and stock turnover ratio is unlikely to fall further.
MTS competition between fintech-based and legacy securities firms to heat up in 2022
With Toss Securities launching its MTS in March, MyData business set to start in December, and Kakaopay Securities due to release its MTS over end-2021~early-2022, MTS competition between fintech-based and conventional securities firms is expected to heat up in 2022. As conventional securities players have already enhanced their MTS competitiveness, such competition should prove challenging for fintech-based firms.
Securities shares already reflect all market concerns
Combined 2022NP at the four securities under our coverage is to decline 27.2% y-y to W3,345bn (-19.3% excluding equity-method gains from Kakao Bank at KIH), due mainly to drops in brokerage and trading income. Amid reduced earnings expectations, we lower our TPs for securities players by 3~20%. That said, we expect IB income and interest income to remain sound.
We also believe that current share prices already fully reflect market concerns. Moreover, we point out that securities firms’ earnings have exceeded expectations in recent years. In our view, it is time to focus more on valuation merit than NP decline worries. We recommend KIH as our sector top pick, given its high IB earnings portion.