Kiwoom Securities, buoyed by a stock market tailwind, posted strong third-quarter results, but its market share in the retail brokerage (stock consignment trading) institutional sector, where it has long held an unrivaled No. 1 position, was shown to have declined.
Fierce competition in the brokerage market played a role, but the recent market rally led by large-cap stocks also affected Kiwoom Securities' results. Kiwoom Securities' trading system has a high share of individual investors, and individual investors tend to favor small-cap stocks over large caps and KOSDAQ over the main board.
There is also an analysis that Kiwoom Securities' home trading system (HTS) favors short-term investors, who account for a large share of all users.
Kiwoom Securities said its third-quarter operating profit (separate basis) was 359.8 billion won and net profit was 275.8 billion won. The figures rose 38.9% and 32% from a year earlier, respectively. On a consolidation basis, it posted 321.9 billion won in net profit attributable to owners of the parent, marking a record quarterly performance.
Kiwoom Securities' profit increased largely because fee revenue surged. As domestic stock market transaction value expanded recently and the average fee rate for overseas stocks recovered to 9.5 basis points (1 bp = 0.01 percentage point), stock trading fee revenue jumped. Kiwoom Securities' third-quarter stock commission revenue was 185.2 billion won, up 45.6% from 127.2 billion won a year earlier.
However, market share was shown to have declined. Kiwoom Securities' domestic stock market share fell to 27% in the third quarter despite solid results, after 29.7% in the first quarter and 29.4% in the second quarter this year. Despite strong earnings, competitiveness in its core retail brokerage institutional sector has weakened.
Through a conference call, Kiwoom Securities said, "As a transaction flow centered on large-cap KOSPI stocks continued, market share decreased," adding, "Kiwoom Securities has a high proportion of individual investors, so it is more advantageous when the share of KOSDAQ transactions is larger."
As the KOSPI index hits all-time highs, stock investment funds are concentrating on large-cap stocks such as Samsung Electronics and SK hynix. At the same time, the KOSDAQ market transaction share has fallen to a record low of 25%. Although the market is more bullish than ever, Kiwoom Securities is not fully benefiting.
Market share in margin lending also fell. As of the third quarter this year, Kiwoom Securities' margin loan balance stood at 4.2 trillion won, up from 3.8 trillion won in the previous quarter, but the margin lending market share dropped to 15.8%, down 1.3 percentage points from 17.1% in the previous quarter.
A shortage of margin credit limits is cited as the main cause. Margin credit is provided by securities firms within 100% of their equity capital, and Kiwoom Securities' share of margin credit is already close to the internally set equity limit. Although retail demand for margin has increased sharply amid the recent market boom, the lack of additional limits means it has not kept pace with the overall market's growth.
Researcher Lim Hee-yeon at Shinhan Investment & Securities said, "As margin credit reaches the limit, further top-line growth may be constrained," adding, "Given the past history of issuing RCPS and the need to maintain a shareholder return stance, flexibility in capital policy is not great."
Margin lending is a system in which investors borrow funds from a securities firm using their holdings as collateral to buy stocks, and the securities firm receives interest on it. Earlier, in March, Kiwoom Securities cut its margin lending interest rate by 0.2 percentage point in a bid to defend market share.
Researcher Yun Yu-dong at NH Investment & Securities said, "Domestic stock market share is expected to recover if the KOSDAQ market rebounds in the future," adding, "However, despite increased transaction value, the overseas stock institutional sector also saw market share decline due to rivals' aggressive sales efforts."