With South Korea’s stock market heating up in the second quarter, major securities firms are expected to deliver an “earnings surprise” that handily beats market expectations. Daily trading volume approached 90 trillion won (approximately $58.8 billion), causing brokerage commission income to skyrocket, while high dividend appeal has further positioned brokerage stocks as the real winners of the investment frenzy.
In reports published on July 3 and 4, Mirae Asset Securities maintained a “Buy” rating on Kiwoom Securities, Samsung Securities, and NH Investment & Securities, projecting that their second-quarter net profit would exceed market consensus by at least 20%. Kiwoom Securities, in particular, is expected to deliver a standout performance, beating consensus by 29.3%.
Daily Trading Volume Hits approximately $58.8 Billion… Brokerage Income Surges
The primary driver of the second-quarter earnings improvement is the increase in trading volume. According to Mirae Asset Securities estimates, the daily average trading volume on South Korea’s stock market in the second quarter was approximately 90 trillion won (approximately $58.8 billion), a 35.1% increase from the previous quarter. This directly translates into higher brokerage commissions, the most critical revenue source for securities firms. Additionally, the average balance of margin loans increased by 8% compared to the previous quarter, contributing to higher interest income.
Jeong Tae-jun, an analyst at Mirae Asset Securities, stated, “Brokerage income will improve significantly in the second quarter, driven by the over 35% quarter-on-quarter increase in daily average trading volume.” He added, “As high dividend payout ratios are expected to continue based on solid earnings, the appeal of high-dividend brokerage stocks is likely to lead to differentiated share price gains as the dividend record date approaches.”
Q2 Earnings Outlook by Brokerage
Looking at individual firms, Samsung Securities’ second-quarter net profit attributable to controlling shareholders is estimated at 519.8 billion won (approximately $339.7 million), exceeding the market consensus of 432.4 billion won by 20.2%. The improvement in brokerage commission income due to the surge in trading volume is the primary factor, with stable trading profits and a solid performance in the investment banking (IB) division also supporting earnings. Mirae Asset Securities maintained its target price for Samsung Securities at 178,000 won, suggesting an upside potential of approximately 65% from the current share price.
NH Investment & Securities is expected to report a second-quarter net profit attributable to controlling shareholders of 479.5 billion won (approximately $313.3 million), beating the consensus of 398.6 billion won by 20.3%. The expansion of brokerage income from increased trading volume and improved asset management returns are seen as the key earnings drivers. However, some bond-related valuation losses due to rising interest rates are expected to partially offset trading profits. The target price was maintained at 44,000 won, implying an upside of about 52%.
Kiwoom Securities is forecast to post the biggest surprise, with second-quarter net profit of 531.1 billion won (approximately $347.0 million), exceeding the market consensus of 410.9 billion won by 29.3%. This is attributed to a significant quarter-on-quarter increase in trading profits and trading volume, alongside a stock market rally led by the semiconductor sector. Mirae Asset Securities raised its target price for Kiwoom Securities from 516,000 won to 550,000 won (approximately $359). This adjustment reflects an increase in the estimated dividend per share (DPS) for this year from 15,500 won to 16,500 won, based on a target dividend yield of 3%.
Dividend Appeal and Policy Tailwinds… A ‘Double Premium’ Expected
The investment case for brokerage stocks extends beyond the earnings surprise. Their attractiveness as high-dividend stocks is also coming to the fore. Mirae Asset Securities forecasts Samsung Securities’ expected dividend yield for this year at 7.0% and NH Investment & Securities’ at 7.3%. For Kiwoom Securities, the expected dividend yield is estimated to reach 6.4%. Despite recent share price increases, high dividend payout ratios are expected to be maintained, suggesting that valuation burdens are not significant.
Samsung Securities’ management has announced a policy to expand its dividend payout ratio to around 50% over the medium to long term, which is expected to sustain its dividend investment appeal. Its standalone capital base is projected to exceed 8 trillion won (approximately $5.2 billion) starting in the second quarter, and the dividend payout ratio is expected to rise proportionally to near 40% this year. Furthermore, transactions through Interactive Brokers (IBKR) are occurring steadily, supporting expectations for continued growth.
NH Investment & Securities is seen as having the potential for differentiated share price gains as the dividend record date approaches, given its consistent annual dividend policy. Analyst Jeong noted, “With a high dividend payout ratio approaching 50% sustained each year, it warrants a sufficient valuation on its earnings,” adding, “Given its structure of paying annual dividends, there is ample potential for differentiated gains as the dividend record date draws closer.”
Government policy is also expected to create a favorable environment for brokerage stocks. Jeong analyzed, “If the government’s KOSDAQ revitalization policies—such as the planned KOSDAQ segment separation, linked index development, and the creation of a supportive funding environment—gain full traction, Kiwoom Securities’ individual investor trading market share and margin loan balance share, which have been on a downtrend amid the market’s tilt toward the KOSPI, could recover.” As Kiwoom Securities has proposed meeting the requirements for high-dividend companies as its shareholder return policy in its new corporate value enhancement plan, its dividend payout ratio for this year is expected to reach 25.2%.