"Record-Breaking Earnings, But Why?"... Securities Firms See Target Prices Slashed

Securities Firms Post Record-High Results in Both Q1 and Q2
Samsung Securities Sets New All-Time High for Quarterly Earnings in Q2
Target Prices Slashed Across the Board... Reflecting Deteriorating Business Environment
Average Daily Trading

Thanks to a record-setting stock market boom in the first half of the year, securities firms achieved their highest-ever results; however, clouds are gathering over their earnings outlook for the second half. Due to decreasing trading volumes and tightened regulations, expectations for their performance in the latter half are being reduced.

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According to financial information provider FnGuide on August 6, the consensus (average forecast from securities companies) for operating profit in the KOSPI-listed securities sector for the third quarter of this year is KRW 2.5645 trillion, down 1.03% compared to a week ago. The fourth-quarter operating profit consensus was also revised downward by 2.95% from a week earlier, now at KRW 2.0247 trillion.

This sentiment is also affecting analysts’ targets for securities company stock prices, which are being adjusted downward. Samsung Securities and Kiwoom Securities, which both reported all-time high earnings for the second quarter, have seen their price targets lowered by several brokerages.

On August 4, Samsung Securities announced that its consolidated operating profit for the second quarter reached KRW 675.8 billion, up 119.0% year-on-year. The figure is also 10.9% higher than the first quarter of this year, when it had already set a record for quarterly earnings, thus achieving another all-time high in back-to-back quarters.

Nevertheless, after the earnings release, seven securities companies sequentially lowered their price targets. Heeyeon Lim, a researcher at Shinhan Investment & Securities, explained, "Despite robust second quarter results, we have revised our earnings estimates downward to reflect normalization of trading volumes in the second half and accordingly, lowered our price target by 18.6%, from KRW 160,000 to KRW 130,000." NH Investment & Securities also reduced its target from KRW 180,000 to KRW 150,000. Yudong Yoon, a researcher at NH Investment & Securities, explained, "The reason for the price target reduction is the adjustment of earnings forecasts in line with revised estimates for average daily trading volume in the second half of the year."

Previously, Kiwoom Securities announced that its second-quarter operating profit was KRW 788.9 billion, a 93.2% increase year-on-year. Kiwoom Securities also posted record results, yet 10 brokerages lowered their price targets. Daishin Securities cut Kiwoom's target price from KRW 540,000 to KRW 370,000. Hyejin Park, a researcher at Daishin Securities, explained, "Trading volumes have declined since the start of the third quarter, and, above all, regulations on exchange-traded funds (ETFs)—which had driven increases in trading volumes—have been strengthened, making it inevitable that performance will decrease in the second half. The downward price target revision was due to a reduction in the target price-to-book ratio (PBR) based on these factors." Park added, "This is not an issue unique to Kiwoom Securities; the entire securities sector will be similarly affected."

As volatility surged in the stock market in July leading to a correction, the average daily trading volume fell noticeably. According to Yuanta Securities, the average daily trading volume in July (combined KOSPI, KOSDAQ, and ETFs) was KRW 99.5 trillion, down 27.6% from the previous month. Specifically, KOSPI dropped 33.2%, KOSDAQ 40.9%, and ETFs 12.6%, respectively. Dohyeong Woo, a researcher at Yuanta Securities, said, "The decline in trading volume was mainly due to reduced turnover among retail investors. Starting in July, semiconductor stocks underwent a correction, increasing market volatility. At the same time, the inflow of individual investors shifted to leveraged single-stock ETFs, meaning that the decline in ETF trading volume was relatively limited despite the broader market correction."

The tightening of regulations on leveraged single-stock ETFs is also expected to contribute to declining trading volumes in the second half of the year. In July, leveraged single-stock ETF trading accounted for KRW 261 trillion, or 36% of total ETF volume. Youngim Jang, a researcher at SK Securities, said, "Due to stricter regulatory oversight of leveraged single-stock ETFs starting in August, the average daily trading volume contribution from ETFs is expected to decrease." Jang added, "On the day the regulation was implemented, July 31, the average daily turnover rate dropped significantly to 52.5%, compared to the previous average of 160%, and trading volume was just KRW 3.2 trillion, a 73% reduction from previous averages of KRW 11.7 trillion. Applying this to July's ETF trading data, we estimate that total ETF trading volume will decrease by about 25% due to regulation, amounting to an average daily volume decline of KRW 8.5 trillion."

This content was produced with the assistance of AI translation services.