SGML Balance Sheets

Published: 15 September 2023| Version 1 | DOI: 10.17632/5v8ngcgh7m.1
Kevin Mosby


Daishin Securities is a top 10 Korean broker-dealer with its fingers in a number of other businesses (real estate, asset management, savings bank among others). There’s not a lot to say about the business - it’s exactly what you’d expect from a family-run Korean broker/financial conglomerate. It is conservatively run and does not earn its cost of capital. It generally makes net income of between KRW100bln and 125bln (and rising slowly over time) on equity of KRW2.7trln (KRW2.5trl tangible). Daishin has not lost money since 2002. Daishin has 3 share classes: Common, 1st Preferred, and 2nd Preferred. Daishin has repurchased very substantial portions of each. Frustratingly, Bloomberg does not adjust the market cap for the repurchased shares and they seemingly cannot be persuaded to do so. Further, Daishin’s two preferred share issues, which can most simply be thought of as non-voting common shares are excluded from Bloomberg’s market cap calculation. In reality, there are ~66m shares outstanding. In calculating Net Income Blomberg (at a minimum) subtracts preferred dividends despite the fact that the preferred shares participate fully in the earnings of the business and pro-rata in its dissolution/sale. With that in mind here are the valuation metrics with appropriate adjustments for the economic reality: Note: Preferred shares with tickers ending in “5” are entitled to the common dividend plus 1% of “par” value which is almost always KRW5,000 (thus 1% being an additional KRW50). Other preferred issues are generally just entitled to the common dividend. Most importantly, the Company is paying out the bulk of its earnings in dividends providing a nearly 10% yield. In addition, the Company routinely buys back stock (principally the common) so there is additional “current return” benefit (i.e. your valuation-static return is close to the earnings yield than the RoE). In general, I peg the current return (dividends + buybacks) at ~12% (on average - some years they buy back ~5% of the stock, others none) with a further ~1% return from retained earnings. In the intermediate term, the Company is trading ~30-40% cheap vs. its historic dividend yield (though, to be fair, the payout has risen so some discount makes sense - though not this large given the crummy RoE and thus return on retained earnings) so there may be some upside to that ~12% annual return over the coming quarters/years. Longer-term, the brokerage business is arguably sub-scale and a possible acquisition target (past sales of brokers have gone off at a premium to book). That said, I don’t foresee a sale anytime soon as a 42 year old third generation family member recently took over as Chairman.



Financial Analysis