2Q22 Preview: To Report Solid IB Competitiveness
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
Although we lower our TP on Samsung Securities to reflect the difficult macro environment, we maintain a Buy rating considering the mid/long-term growth potential of the firm’s major income sources (IB and brokerage). Due to the recent excessive share price retreat, the company’s 2022E DY sits at 8.1%. We adhere to Samsung Securities as our second-preferred play in the securities sector.
Maintain Buy rating and second-preferred pick status; lower TP from W51,000 to W48,000
We maintain a Buy rating on Samsung Securities. Boasting outstanding mid/long-term growth potential and dividend policy, the firm remains an attractive financial stock. Although stock market fluctuations continue, the potential of its major income sources (ie, IB and brokerage) remains on a steady rise. We note that the IB business has grown rapidly over the past two years, centering on structured finance, and is now defending the firm’s profits amid challenging market conditions.
At the brokerage business, Samsung Securities’ market share in overseas stock trading now reaches about 20%, consolidating its first-tier position. The company is focusing on customer acquisition (Q) rather than commissions (P), for example, by emphasizing decimal point trading in overseas stocks and the start of US stock trading during Korean business hours. While overseas stock trading is still in an early stage and profit amounts are yet insignificant, leverage effects should stand out once the market takes off.
Samsung Securities 2022 DY is projected at 8.1%. Of note, the impact of share price decline has proved larger than the downward revision in earnings estimates. From 2H22, additional downside should be limited, considering Samsung Securities’ superior dividend attractiveness relative to peers.
We lower our TP from W51,000 to W48,000 on: 1) a reduction in 2022E EPS by 9.9% to reflect unfavorable industry conditions; and 2) a change in risk-free rate assumption to 2.5% in calculating our target P/B.
2Q22 preview: To report solid IB competitiveness, disappointing bond trading losses
Samsung Securities is forecast to post 2Q22 consolidated NP of W146.5bn (-44.6% y-y, -3.5% q-q). Thanks to structured finance business, IB commission income should arrive at W52.8bn (+27.2% y-y). Both residential and commercial real estate PF loans should come in sound, and the number and size of deals should both surpass the 1Q22 amounts. However, earnings decline for both brokerage and bond trading businesses will likely contribute to an NP consensus miss.