April 19, 2024

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[THE INVESTOR] Profits at South Korea’s major securities firms declined in 2016 mainly due to weaker stock transactions and losses from derivatives and bond investments, amid rising bond yields, industry data showed on Jan. 31.

According to regulatory filings on the Financial Supervisory Service, Samsung Securities’ net profit declined 36.6 percent on-year to 174.4 billion won ($149.9 million) and operating profit plunged 43.8 percent to 211.7 billion won in 2016.

HMC Investment & Securities also saw its net profit fall 21 percent to 39.8 billion won last year from a year earlier, with operating profit dropping 22.6 percent to 52.8 billion won.

SK Securities’ net profit plummeted 49.5 percent on-year to 11.6 billion won in 2016 and its operating profit nose-dived 61.8 percent to 7.7 billion won.

Kyobo Securities's net profit fell 21 percent to 62.2 billion won in 2016 from a year earlier and operating profit shrank 25.8 percent to 72.1 billion won.

Kim Ji-young, analyst at IBK Investment & Securities, estimated that combined net profits of six brokerages -- Samsung Securities, Mirae Asset Daewoo Securities, NH Investment & Securities, Korea Investment Holdings, Meritz Securities and Kiwoom Securities -- fell 39.3 percent in the fourth quarter from the previous quarter.

“I expect their net profits have declined in the fourth quarter because an 11.8 percent reduction in the volume of daily transactions will lead to a decline in commission income. I also expect their losses in bond investments after bond yields rose in the wake of the US presidential election in November,” Kim said in a report.

The main bourse Kospi and tech-heavy Kosdaq went especially bearish in the fourth quarter as uncertainties in the global stock markets increased with the victory of Donald Trump on the Nov. 9 presidential election in the US.

In addition, foreign and institutional investors tend to reduce trading in the fourth quarter ahead of the December book closing.

“However, stocks of the six securities firms have about 20 percent room to rise from the current level, considering their low PBR (price-to-book ratio) at 0.67 as of Jan. 24,” she said.

A low PBR of a company generally signals its stock price is undervalued.

By Kim Yoon-mi/The Korea Herald (yoonmi@heraldcorp.com)