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By Kim Tae-gyu
Staff Reporter
Most affiliates of the Samsung Group, Korea's foremost conglomerate, have come up with outstanding performances this year, rebounding dramatically from the global financial crisis.
In particular, its iconic subsidiary Samsung Electronics stands out as the world's No. 1 maker of memory chips, and flat-panel displays are on track to chalk up record annual sales for 2009.
Among the flourishing Samsung Group units, however, there is an ``ugly duckling'' ― Samsung Securities ― over which market observers have raised worries regarding its business strategies and profitability.
The Seoul-based brokerage house netted 58 billion won in profits during the July-September period, down 27.9 percent from the previous quarter. The figure is also substantially low compared to the market consensus of around 75 billion won.
Macquarie Securities said in its recent report that the results are disappointing and warned the equities firm might suffer near-term profitability loss.
``We believe that earnings will likely remain depressed as Samsung continues its overseas expansion and transformation into a wealth management house on the domestic market,'' Macquarie said in a report.
Samsung has tried to strengthen its operations in Hong Kong, which is feared to financially weigh on the firm in the short term. Plus, it has spent heavily on marketing to promote its new wealth management brand ``Pop,'' according to Macquarie.
``We are positive on its strategy to shift its focus to wealth management given that the traditional offline brokerage business is at risk due to increased competition and migration of retail investors to online discount brokerages,'' it said.
``However, we are cautious on the revenue generating power of its wealth management due to the resistance of retail investors to pay fees. Moreover, we think that overseas expansion will likely increase earnings volatility until operations stabilize, which may take several years.''
On such a rationale, Macquarie cut down its earnings estimates on Samsung Securities and revised down its target price by 12,000 won to 50,000 won.
The stock price of Samsung Securities were strong this year, approaching the 80,000-won level in August but it has depreciated of late, tumbling below 60,000 won.
Domestic securities companies are split on the performances of Samsung and its prospects.
Kiwoom Securities recently reduced its target price for Samsung by 23,000 won to 75,000 won, citing unfavorable conditions and capital exodus in the asset management markets.
In comparison, Shin Young Securities said Samsung has put up respectable figures despite a difficult situation and maintained its target price at 92,000 won.
When contacted, Samsung Securities rebuffed the concerns raised.
``The interest rate hike caused appraisal losses in bonds. Excluding the losses, our performance is better than our competitors in both the size of profits and their quality,'' said Lee Ki-hoon, head of the Strategy Planning Division at Samsung Securities.
``The number of big customers who entrust more than 100 million won to us is on the rise thanks to the introduction of advanced wealth management systems such as `Pop.' In this climate, we cannot agree with the analysis that such an approach is leading to more uncertainties,'' he said.
voc200@koreatimes.co.kr
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