[비즈한국] All eyes are on Meritz Securities008560 as its net income saw only a marginal increase last year despite significant revenue growth.
According to the Financial Supervisory Service’s Data Analysis, Retrieval and Transfer System (DART), Meritz Securities’ 2020 consolidated operating revenue (equivalent to revenue for manufacturing firms) reached 16.6048 trillion KRW, a 39.3% surge from 11.9125 trillion KRW the previous year. During this period, operating profit also rose by 21.7% to 827.9 billion KRW, compared to 679.9 billion KRW the year prior. However, net income only increased by 1.9% to 565.1 billion KRW, up from 554.5 billion KRW the previous year.
According to the Financial Supervisory Service’s Data Analysis, Retrieval and Transfer System (DART), Meritz Securities’ 2020 consolidated operating revenue (equivalent to revenue for manufacturing firms) reached 16.6048 trillion KRW, a 39.3% surge from 11.9125 trillion KRW the previous year. During this period, operating profit also rose by 21.7% to 827.9 billion KRW, compared to 679.9 billion KRW the year prior. However, net income only increased by 1.9% to 565.1 billion KRW, up from 554.5 billion KRW the previous year.
Looking at the standalone performance, both operating profit and net income actually decreased. Operating revenue reached 15.9437 trillion KRW, up 39% from the previous year, but operating profit and net income fell to 652.2 billion KRW and 423.8 billion KRW, representing declines of 9.7% and 28% respectively compared to the previous year.
The insolvency of alternative investments is being cited as the cause for the decline in net income. Meritz Securities’ consolidated non-operating expenses last year totaled 142.35845 billion KRW, a 447.3% surge from 26.0086 billion KRW the previous year. This is due to losses from companies accounted for using the equity method. Meritz Securities recorded 129.98921 billion KRW in equity method losses—a 1028.8% increase from the 11.51545 billion KRW recorded the previous year. Given that Meritz Securities' annual net income typically ranges between 400 billion and 500 billion KRW, the impact of these equity method losses last year is interpreted as significant.
Companies accounted for under the equity method by Meritz Securities are associates. Associates are companies over which the investing firm can exercise influence but lacks controlling power. A look at Meritz Securities' associates reveals a large number of alternative investment firms.
Korea Investment Aircraft Fund No. 5 and No. 6, which invest in aircraft assets, recorded net losses of 115.1 billion KRW and 111.7 billion KRW respectively last year. Heungkuk Flight Specialized Investment Private Equity Fund No. 12 and No. 13, which invest in similar assets, also posted net losses of 36.4 billion KRW and 19.6 billion KRW. The Mastern Europe Specialized Investment Private Real Estate Trust No. 5, which invests in real estate assets, recorded a net loss of 101.6 billion KRW. The real estate developer Gongpyeong 156 PFV also recorded a net loss of 57.1 billion KRW.
Consequently, there were a significant number of associates for which Meritz Securities had to record substantial impairment losses on book value. For Korea Investment Aircraft Fund No. 5, the acquisition cost was 38.1 billion KRW, but the book value was lowered to 13.8 billion KRW. For Korea Investment Aircraft Fund No. 6, the acquisition cost was 10.1 billion KRW, but it was almost entirely impaired down to a book value of 1,000 KRW. Heungkuk Flight Specialized Investment Private Equity Fund No. 11 also saw its book value mostly impaired to 1,000 KRW, despite an acquisition cost of 10.2 billion KRW. The acquisition cost for Heungkuk Flight Specialized Investment Private Equity Fund No. 12 was 72.5 billion KRW, but its book value was reduced by over 10 billion KRW to 58.1 billion KRW.
As a result, concerns regarding Meritz Securities are rising. A credit rating agency official stated, "We are continuously monitoring the potential insolvency of Meritz Securities, which is heavily involved in overseas alternative investments such as real estate funds," adding, "If such negative cash flow persists, it will act as a negative factor for their credit rating."
Meritz Securities explained, "We believe it was a quite successful performance. The decline in standalone net income last year was because the previous year's performance included dividends received from Meritz Capital."