Mirae Asset Securities Co., Ltd. (A006800) Earnings Call Transcript & Summary

[Interpreted] Greetings. Thank you for taking part in today's conference call for Mirae Asset Securities. [Operator Instructions] We will now begin Mirae Asset Securities for Full Year Business Results Presentation. For earnings call, we have here with us Mirae Asset Security CEO, Kim, Mi-Seob; as well as CFO and Head of Business Innovation division, [indiscernible], and we will provide English simultaneous interpretation for overseas investors. The agenda for today's conference will consist first, I will walk through Mirae Asset Security 2025 Key Strategies, 2024 business results and performance for different businesses and then Q&A session. 2024 business presentation materials will be uploaded on our regular report menu in our IR website, ci.securities.miraeasset.com. A recorded version of today's conference call will also be uploaded on our IR website as well. The content of this conference call includes forecast information based on the current writing of this data. And please note that the actual business performance may differ due to changes in the business environment and strategy revisions. First, we will invite the CEO. Please refer to Page 2 of the business results.

[Interpreted] Greetings, everyone. I am Mirae Asset Securities CEO, Kim Mi-Seob. Thank you very much for participating in our 2024 earnings call. Mirae Asset Securities 2024 consolidated pretax income posted KRW 1.1845 trillion and net income posted KRW 893.7 billion and grew 217% and 168% Y-o-Y, respectively. In addition, 2024 end, consolidated equity capital posted KRW 12.2 trillion, around KRW 1 trillion increase compared to KRW 11.3 trillion in 2023. A more detailed business results review will be provided by CFO, [indiscernible]. I will walk you through Mirae Asset Securities 2025 key focus strategies. Mirae Asset Securities 2025 key focus strategy are to, first, enhance company's product generation capacity focused on Global WM and pension; second, improve global business profitability; third, strengthen AI competitiveness and enhance shareholder value. First I will touch upon enhancing company's revenue generation capacity centering on Global WM and pension. Last year, we announced corporate value enhancement plans to achieve more than 10% ROE and to generate more than KRW 500 billion global pretax income by 2030. Our company will focus on Global WM and Pension business. We will strengthen IB, PI and trading revenues to pull up our company's overall revenue level. For WM, we will strengthen client customized comprehensive asset management and continuously execute asset growth and revenue expansion. Utilizing AI, we will rapidly and accurately provide high-quality global investment data through m.Stock and strengthen personalized marketing based on data analysis. For ultra high net worth individuals or UHNW, focusing on our newly established PWM business, we'll cooperate with IB and trading to expand private product supply and strengthen differentiated comprehensive consulting and services, including family office. For our pension business, we will accelerate the money-move to our company, utilizing the transfer of retirement pension as an opportunity and strengthen investment portfolio that has long-term stability and growth potential, including robo-advisors, MP subscription and personal pension wrap up -- personal pension wrap to stably manage our profitability. In IB, PI and trading, we will well analyze the performance and risk factors that can be acquired through investment and trading, reduced profit volatility and increase our company's revenue contribution. In addition, we will reshuffle our somewhat downside Global IB business and from our investment perspective, pay more attention to not only U.S. and Indian companies but also to Chinese companies and markets, which has the highest level of manufacturing competitiveness in the world. Second, I will touch upon global business profitability improvement. We are strategically implementing our strategy to expand revenue contribution generated from our global business. In particular, late last year, we completed acquisition of Sharekhan, which has 133 branches all around India as well as 3.1 million customers and secured the next driver for the next 20 years of growth focused on Global WM. Based on the many years, of accumulated our global know-how, we will actively expand our brokerage and asset management business in the Indian market with 1.4 billion population. We will have Global ETF-linked sales and trading businesses in advanced countries, including U.S., Hong Kong, U.K. and Singapore, and focus on online-based brokerage business in emerging countries, including Indonesia, Vietnam, Brazil, and pursue stable revenue growth to enhance global business contribution to the company. Thirdly, we will strengthen our own AI capability and provide global asset allocation strategy -- and we're focusing on AI. Around the world, we are seeing accelerated development of AI. So according to the differences in AI development, we will have a difference in the company's growth. We will strengthen our AI capabilities and provide investment content service in a timely manner and pursue continuous innovation in trading and asset management. In addition, we will establish AI infrastructure and expand diverse solution development to enhance work efficiency and productivity. We plan to connect to our group's AI subsidiary, WealthSpot to provide diverse AI trading products with much lower cost and lower volatility to our customers. We will work hard to bring about ultra gaps in the market using AI as for competitiveness in all businesses and work. Last but not least, I would like to touch upon shareholder value enhancement. In the 3-year shareholder return policy that we established in February, we made detailed plan to have more than 35% or above shareholder returns and cancel at minimum 15 million common stock and at minimum 1 million secondary preferred stocks. In addition, in the corporate value enhancement plan that was announced in August, we set additional goal of canceling a cumulative 100 million shares by 2030. The return size in 2024 will increase in absolute size on the back of profit improvement. We are currently reviewing cash dividends and the amount of share cancellation, and we plan to announce the size of our cancellation of shares and shareholder return ratio in February through our cash dividend disclosure. Regarding our return policy, which was consistently practiced during the past several years, we believe that -- the trust from the market will increase as time passes. In order to enhance value for our shareholders, regarding the policies that we are committed to, we will implement them according to our plans consistently and faithfully. With this, I will end my explanation regarding 2025 key business strategies, Next, CFO, [indiscernible] will explain in detail regarding the performance of each business.

[Interpreted] Good morning. I am the CFO, [indiscernible], Head of the Business Innovation division. Please refer to Page 3 for the business highlights for 2024, and then I will go into more details about the performance. Last year, due to the increased profit contributions by the overseas stock commission revenue, the overall brokerage revenue increased by 28% Y-o-Y. As of the end of November 2024, India Sharekhan acquisition was completed, and Mirae Sharekhan was launched. Going forward, it will serve as the growth engine of our global business. In last year second half, we recognized nonrecurring gain of KRW 340 billion owing to capital reduction gain from Hong Kong subsidiary and gains from sale of an office building. The valuation losses from assets held for investment purposes fell 36% Y-o-Y and contributed to improvement of the company's profit. For your information, Page 4 is a summary of the business performance, please read through them at your leisure. Next on more details on the performance by business segment. First, start off with performance of the brokerage business, please refer to Page 5. Mirae Asset Securities continued a solid growth trend in this segment as we focused on increasing global assets and improving client profitability. In particular, in 2024, the contributions by overseas stocks increased -- overseas stock assets pass the KRW 40 trillion mark for the first time in the industry. The brokerage commission revenue is up 28% Y-o-Y, posting KRW 704.9 billion. In particular, the individual clients, overseas stock trading volume increase significantly and overseas stock assets as of the end of Q4 is up 72% Y-o-Y to post KRW 40.8 billion -- KRW 40.8 trillion and overseas stock commission revenue is up 114% Y-o-Y to post KRW 283.1 billion. The domestic stock trading value since Q1 of last year has shown a steady decline and the domestic stock commission revenue posted KRW 421.8 billion similar to the year before. In Q4, for the first time, the commission revenue from overseas stock surpassed that of the domestic stock and drove the broker's revenue of our company. Next, on wealth management, WM performance, please refer to Page 6 of the presentation material. In 2024, our company's WM commission revenue is up 15% Y-o-Y to post KRW 281.8 billion on the back of pension, trust and wrap account commission revenue growth. The WM assets is up 5% Y-o-Y to post KRW 190.4 trillion. The Pension business of the company is continuing a steady growth in last year as well. In Q4, institutional clients had undertaken ERP and the pension transfer system had been implemented in October, which drove a clear trend toward the money move. The cumulative pension assets passed the KRW 40 trillion mark for the first time in the industry to post KRW 42.7 trillion. In particular, personal pension, DC IRP assets exceeded KRW 10 trillion each, respectively, achieving a pension triple crown. Also, our company is working to leverage the AI technology in all of our business areas. We're working to promptly and accurately convey overseas investment information news, so as to support global asset management and AI-driven pension robo-advisors. AUM, as a result, has exceeded KRW 2 trillion already. Next, on trading performance. Please refer to Page 7 of the presentation material. The trading income in 2024 includes the income gain in bonds, derivatives, S&T and PI. In 2024, in the midst of a volatile interest rate market environment, we have still been able to put stable bond investment returns. In addition, the flow trading and derivatives business performance has also strengthened over the previous year. The overall trading investment returns is up 7% Y-o-Y to post KRW 371.8 billion. Yes, so the overall trading investment returns is up 7% Y-o-Y to post KRW 371.8 billion. As of the end of last year, the bond assets of the company is up 22% Y-o-Y KRW 39.5 billion, although the pace might be a bit slower than initially anticipated as we foresee interest rate cut at both home and abroad, our expectation is of increasing gains from the bond investment. Next is on the performance of IB, please refer to Page 8. In 2024, the IB commission revenue is down 7% Y-o-Y to post KRW 185.8 billion. Last year, unsold assets, some real estate PF issues had to be responded to and under the judgment that a cautious approach is called for in consideration of the market situation, we focused on risk management rather than overly aggressive yield involvement. In 2024, Sanil Electric and Clobot included, a total of 15 IPO lead was undertaken and in case of Sanil Electric, we also took part in the pre-IPO and achieved positive results. In terms of IPO, we were #1 in the league table in 2023 and in 2024, we ranked second, thus continue to maintain a dominant position in the market. In real estate PF, Seongsu-dong K-Project office facility construction project, the Seoul Sewoon district office and Asan Tangjeong apartment housing development businesses were some of the projects for which we provided PF advisory and arrangement services. Also the Busan Osiria Resort Development Project, Hillstate [indiscernible], Hillstate Cheonan for such existing equity investment we realize valuation gains and dividends. The gains on valuation dividends are classified as trading income in our earnings report. Next is performance of overseas subsidiaries, please refer to Page 9. In 2024, in overseas subsidiaries since Q1 recurring profit was recovered. And in Q2 to Q4, on average, more than KRW 50 billion in pretax income was generated. The annual pretax income on a Y-o-Y basis is up 243% to post KRW 166.1 excluding the Q1 fair value valuation loss, which had an impact on the full year performance, the recurring pretax earnings is KRW 230.5 billion. Also, last year, the U.S. subsidiary posted earnings of KRW 94.5 billion, the largest since its inception. The U.S. subsidiary is the only domestic entity to hold a local clearing license and is providing stable U.S. stock brokerage services. Last August, system connection with major local exchanges, such as the New York Stock Exchange and NASDAQ was successfully completed. And through IT and localization strategies, capabilities is being strengthened. Starting from January, in overseas subsidiary segment, we can look forward to increased profit due to the launch of Mirae Sharekhan. Based on full service securities license, we will do our utmost to increase market dominance in the Indian market. With this, we conclude the earnings presentation for the full year 2024 of Mirae Asset Securities.

[Interpreted] [Operator Instructions] From Samsung Securities, we have Jeong Mingi.

[Interpreted] I am Jeong Mingi From Samsung Securities. I have a question related to your Indian subsidiary. Among the overseas subsidiaries you had about KRW 300 billion of increase of capital for Indian subsidiary. And if you have your current pretax income level of the Indian subsidiary and going forward, when you break down the revenue from India subsidiary for brokerage or interest and IB, can you tell us about what will be your guidance for the future? And can you tell us about where you will use the increased capital that was invested?

[Interpreted] I am CFO, [indiscernible], and I will answer your question. Thank you very much for your question. For 2024, the Indian subsidiaries revenue, to give you more details, pretax income was about KRW 16.6 billion. And for Sharekhan that we acquired late last year, it's KRW 64 billion. So it's about KRW 80.6 billion. However, for Sharekhan, the acquisition was completed in late November. So in the 2024 financial statements, only the December numbers are reflected. Also for Sharekhan, after the acquisition, for our revenues and our P&L breakdown, well, we can't really give it to you in detail. So I think you can take into account our Indian subsidiary numbers and the P&L and interest income will be about the local brokerage fee income and interest income will be about 6% to 4% for the breakdown. And for our Indian subsidiary, we will have about $200 billion (sic) [ $200 million ] capital increase, and it will be completed in March. And we will have -- so I mentioned $200 million increase, and our equity capital will go up to fourth or fifth place. And we will have this capital increase for future, and we will have brokerage margin loan business expansion and strengthen our growth and profitability potential.

[Interpreted] Next question is from Baek Doosan from Korea Investments.

[Interpreted] I have a question about pension. So including ourselves, many large securities companies since the pension transfer system, they have strengthened their pension business in terms of the absolute size. And also from last year's growth rate, you are doing quite well. However, because competition is intensifying not only asset growth, how you're going to generate -- profit has become all the more important. So in conclusion my question is increase of customer pension assets, how can it contribute to our profitability both directly and indirectly?

[Interpreted] So in the case of our company, within the group, an affiliate, we have -- as an affiliate, we have Mirae Asset Management. They have nurtured the ETF business for a long time, with a long-term vision, and the steady growth of the AUM has served as the basis for this ETF business becoming a key revenue stream. And I think our pension business is similar to ETF business of Mirae Asset Management. Starting with 2025, we have been investing in pension business back when no other peers were investing as seriously as ours, so we take pride in that. The revenue from pension business is all the still fees as well as other commissions. And in 2022, in the pension business, about KRW 100 billion of revenue was generated related to pension business. And next every year, KRW 30 billion of growth in revenue is being achieved. And so along with the steady growth in the pension assets, in terms of profitability as well, snowballing effect is being generated. And in terms of revenue, it is becoming a key source of revenue stream for the company, especially starting from last year, the retirement pension transfer system was implemented in October. And along with this regulatory change, I think this trend will be more accelerated going forward.

[Interpreted] The next question will be given by [indiscernible] from Kim Securities.

[Interpreted] Hello. I am [indiscernible] from Kim Securities. Looking at your full year earnings results, it seems very positive, congratulations. And for 2025 I'm curious about what your outlook is for 2025 earnings. So can you give us your guidance for 2025?

[Interpreted] Yes. I will elaborate on that. In August of last year, we had our corporate value enhancement plan that we announced, and we mentioned our target is to achieve annual ROE of 10%. When we drew up 2025 business plan last year, we actually thought that we would have a favorable market environment with interest rate cuts. And we mentioned -- as we had mentioned, we have a target to achieve more than 10% ROE each year and we have a sizable fixed income asset or balance so that it is actually favorable for us to improve our performance in a market decline regime. However, we had some political issues domestically. And with the second Trump administration, we are seeing a lot of challenges in the market and economy. However, despite that, we are going to do our best to reach 10% ROE each year.

[Interpreted] Next question is from Daishin Securities, Park Hye-jin.

[Interpreted] I'm Park Hye-jin from Daishin Securities. I have two questions actually. In the case of overseas commercial real estate, I have a question. As of the end of December, what is the total exposure for overseas commercial real estate? And up until now, I'm sure a lot of impairment losses have been reflected in Q4. How much of an impairment loss have you recognized? And my second question is starting from 2025. Are there any assets that are potentially at issue? So I think there's a lot of D&A, potential depreciation and amortization issues that can come up?

[Interpreted] So let me answer that question. As of the end of 2024, the overseas commercial real estate investment exposure is around KRW 1.4 trillion. The losses that were recognized is around KRW 340 billion in 2024. And in 2025, overseas commercial real estate, that can be an issue. There's about 4 such assets. And these assets will go through restructuring or through other measures. The investment managers that are managing these assets together with ourselves, so we are looking into different options. So at this point, we're not able to disclose any further details, please understand this. However, already sufficiently the losses have been reflected. And also given the interest rate regimes, some of the asset is expected to turn around. And this year, we really think that any additional losses will be quite limited. That is our expectation.

[Interpreted] The next question will be given by Seol Yong Jin from SK Securities.

[Interpreted] In my case, I have a question related to 10% of ROE that you had mentioned. So you would need to have returns coming in from your previously invested assets. So can you actually give us some color on what investment assets will bring you revenues going forward that you had already invested in?

[Interpreted] As you had mentioned, in order for us to achieve higher than 10% ROE, then we would need to have proactive profitability enhancement of our investment assets. And currently, as of late last year, the position of our major innovative companies that we had invested in is about KRW 1.9 trillion. And during our investment, we actually signed NDAs with several companies. So I cannot really give you a detailed breakdown of each company and the numbers. However, in the media, I think there were some estimations of our position. So maybe you can actually refer to it for some information. And regarding our investment assets, well, for corporations they are mostly focused on innovative companies in and out of Korea. So we are looking forward to great results. And we had -- we are actually forecasting valuation gains as well.

[Interpreted] Next question is from NH Securities, Yoon Yu-dong.

[Interpreted] I think we cannot help but talk about overseas stocks starting from Q4, Toss Securities and Meritz Securities have been posting significant results. And so responding to this, do you have any strategies in 2025 with regards to overseas stocks? What kind of strategy do you have in mind going forward?

[Interpreted] Thank you very much for your question. As you said, in the case of Toss Securities, in the overseas stock segment. It is posting very strong results and Meritz Securities is also moving aggressively into this area. Especially in the case of Toss Securities through its very high turnover rate, it is increasing the trading volume value as well as revenue. But in the case of our company, rather than the P&L of the company, increasing the returns of the customers is what we're focusing on. And that's where we're differentiating our investment content and services in that manner. And so we do believe that we can carve out a very strong position for ourselves by pursuing this approach. So as has been reported in the media, in 2024, our overseas stock customers' revenue was KRW 14 trillion, the return rate was 16%. And as a result, despite the strong performance of online specializing securities. In terms of our assets or revenue market share, there wasn't any big impact. Going forward as well, utilizing AI will continue to focus on providing high-quality service and research on blue-chip stocks so that we can secure more returns for our customers. However, Toss or Meritz Securities, these online securities companies, they may have advantages that we do not have. So we will carefully review our business to supplement anything, any aspects that we're lacking.

[Interpreted] Because of time constraints, we will take the last question. The last question is from Yuanta Securities, Woo Do-hyung.

[Interpreted] I am Woo Do-hyung from Yuanta Securities. I have some questions regarding IMA. Compared to your competitors, there are some media coverage saying that you are a little bit passive. So I'm curious about your stance on IMA business?

[Interpreted] I will answer your question. Thank you very much for your question. And for IMA, it will guarantee principle to the customer. And it can also provide high profit at the same time. So it is a very attractive financial instrument or product. However, for Mirae Asset DNA, our core is in trading. So we believe that IMA business will be an opportunity for our company. Regarding the business strategy or the business possibility or potential of IMA, it hasn't been strictly set out yet. So there could be many changes according to the detailed regulatory setting. So when the regulatory authorities come up with the complete setting for IMA. We will come up with responses according to that.

[Interpreted] So we would like to thank everyone for taking part in the 2024 earnings call of Mirae Asset Securities. If you have any further questions, please post your question to the ESG IR team. You will find the website addressed in our homepage. Thank you very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]