Securities stocks emerge as top beneficiaries of South Korea's trading boom

Enthusiasm for South Korean equities continues to build, and securities stocks are drawing growing attention as a result. Daily average trading volume on the domestic stock market surged more than 35% quarter-on-quarter in the second quarter, pointing to a meaningful improvement in brokerage commission revenue — the single largest earnings driver for securities firms. Analysts say the investment case for securities stocks remains intact, bolstered further by dividend yields of around 7%.

According to Mirae Asset Securities, daily average trading volume on the domestic market reached about 90 trillion won ($57.9 billion) in the second quarter, a 35.1% increase from the previous quarter. Because higher trading volume translates directly into wider brokerage fee revenue, analysts said second-quarter earnings could come in well above market consensus.

Mirae Asset Securities projected that both Samsung Securities and NH Investment & Securities would post second-quarter earnings more than 20% above market consensus.

Samsung Securities is estimated to report second-quarter net profit attributable to controlling shareholders of 519.8 billion won, exceeding the market consensus of 432.4 billion won by 20.2%, driven primarily by the surge in brokerage commission revenue tied to the spike in trading volume.

Stable trading gains and solid performance in the investment banking division are also expected to support the results. Mirae Asset Securities maintained a buy rating on Samsung Securities with a target price of 178,000 won, implying upside of about 65% from the current share price.

NH Investment & Securities is forecast to post second-quarter net profit attributable to controlling shareholders of 479.5 billion won, beating the consensus of 398.6 billion won by 20.3%. On top of wider brokerage revenue from higher trading volume, improved investment income is expected to be an additional earnings driver.

However, rising interest rates are expected to generate bond-related valuation losses that will partially offset trading gains. The target price was maintained at 44,000 won, with upside of about 52% from the current share price.

The investment appeal of securities stocks lies not only in earnings but also in dividends. Mirae Asset Securities forecast a dividend yield of 7.0% for Samsung Securities this year and 7.3% for NH Investment & Securities. Analysts said valuation pressure remains limited, as both firms are expected to sustain high dividend payout ratios despite recent share price gains.

Samsung Securities is seen as particularly attractive for dividend investors, having announced plans to raise its payout ratio to 50% over the medium to long term. NH Investment & Securities also maintains an annual dividend policy, and analysts said its appeal as a high-yield stock is likely to attract more attention as the year-end dividend record date approaches.

Valuations are still seen as undemanding. Mirae Asset Securities estimated Samsung Securities' price-to-earnings ratio for this year at 5.7 times and NH Investment & Securities' at 6.5 times. Analysts said there is ample room for further share price re-rating, given improving earnings, high return on equity and stable shareholder return policies.

"Samsung Securities is expected to be the biggest beneficiary of the surge in trading volume," said Jeong Tae-jun, an analyst at Mirae Asset Securities. "With a dividend yield projected at 7.0% this year, the valuation appeal is clear," he said.

On NH Investment & Securities, Jeong said that while the high dividend yield may not attract immediate attention given the firm's annual payout schedule, "as the dividend record date draws closer, there is ample potential for differentiated share price gains, just as we saw earlier this year."