Meritz leaves door open for an M&A, to stay shareholder friendly

Meritz Financial Group Inc., boasting the fourth-biggest market capitalization among South Korean financial holding companies, will look into an acquisition opportunity for economies of scale, its chief said after the company reported its first-quarter earnings on Tuesday.

“Economies of scale are important in enhancing shareholder value,” Meritz Financial Group Chief Executive and Vice Chairman Kim Yong-beom said during the group’s earnings conference call. “M&A has been on our radar as a primary means to achieve economies of scale, and the company will keep hunting for any good M&A opportunity.”

The last acquisition made by Meritz Financial was I’M Investment & Securities Co. in 2015. Since the deal, the company has not been able to find an attractive target due to high M&A price tags, which could diminish shareholders’ value, Kim said.

Over the last decade, the company has achieved economies of scale by bulking up its existing businesses even without an M&A, he added.

“I expect we will find a good opportunity like I’M Investment & Securities in times of financial market turbulence in the future. We will wait patiently while brushing up on our pricing strategy,” the Meritz CEO said.

FIRST-QUARTER EARNINGS DROP 

Earlier today, Meritz Financial Group reported 591.3 billion won ($432.1 million) in net profit on a consolidated basis for the January-March period, down 2.1% from the same period last year.

Its operating profit also lost 4.5% on-year to 770.8 billion won, while revenue dropped 28.2% on-year to 12.6 trillion won.

The weak earnings were mainly driven by the poor performance of its flagship securities unit Meritz Securities Co., reporting a 36.7% loss in net profit to 126.5 billion won over the same period with an operating profit of 155.7 billion won, down 35.0%.

Another core unit Meritz Fire & Marine Insurance Co., however, delivered stellar results in the first three months of this year.

Its net profit jumped 23.8% on-year to its record high of 490.9 billion won, while its operating profit added 21.5% to 660.6 billion won on revenue of 2.9 trillion won, up 7.7% over the same period.

The two flagship units were merged last year for greater synergy and the financial holding parent was relisted in April last year with the united units under its wings.

UPBEAT ABOUT FUTURE GROWTH

The CEO presented a rosy outlook for the company’s future growth despite somewhat weak results, citing the financial group’s aggressive attempts and fast implementation process under a mid-term growth plan, which is amended every three years depending on macro and micro conditions.

“We can’t foresee what will come 10 years later but I expect the company will experience bigger growth than other financial holding companies in a different way,” said Kim.

Meritz Financial Group has grown fast to take on its bigger rivals over the past decade, ascending to the fourth-largest market value behind the country’s long-time top three financial groups – KB Financial Group Inc., Shinhan Financial Group Co. and Hana Financial Group Inc. – after elbowing out Woori Financial Group Inc. last year.

It stayed fourth with a market capitalization of 16.3 trillion won based on Tuesday's closing price of 85,400 won. The stock added 1.4% from Monday.

GENEROUS SHAREHOLDER RETURN POLICY

Meritz Financial has not set a return on equity (ROE) target but it vows to keep ROE above 10% at the lowest, Kim said.

Meritz’s five-year average ROE stood at 22.4%, about 14 percentage points higher than those of other financial holding companies.

Of its affiliates, Meritz Fire and Meritz Securities’ ROE remained in the mid-to-upper 20% range and the mid-10 % range on average, respectively, over the same period. Both are the best in their sector.

With healthy financial results, the company has pledged to continue to offer generous shareholder-friendly packages, including handsome dividend payments and share buyback and retirement programs, by spending more than 50% of its net profit until the fiscal year 2025.

Write to Hyo-Sung Jeon at zeon@hankyung.com


Sookyung Seo edited this article.