Largest PE shareholder G&A could consider exit next year

When Nam Sam-hyun joined Etrade Korea as its chief executive officer four years ago, he was in deep sorrow at seeing the company, the first online brokerage firm to be established in Korea, fall behind Kiwoom Securities.

Nam, the former CEO of Woori Futures, said he has since vowed to improve everything about Etrade’s image and operations by first investing in not only its electronic systems but also human capital.

“When I first came to this company, our operation cost was 600 million won ($530,000) a month, but now that has jumped more than 10-fold, meaning that we have been making unprecedented investment in people,” Nam said during a recent interview in Yeouido, Seoul.

The company is investing some 30 billion won to set up next-generation IT systems including mobile trading to meet today’s fast-changing mobile technology landscape where Etrade could immediately respond to its customers’ needs.

Besides boosting sports marketing to promote its brand, Nam said he saw the need to put Etrade on a par with the Korean securities industry.

He said that Etrade shares have been performing below their value, despite sound financials.

To this end, the firm began buying back shares to stabilize its stock price, which is below 11,000 won to 12,000 won hoped for at a 10 to 20 percent discount when comparing with the securities industry’s price-earnings ratio.

Its share buyback is also part of efforts to pursue “responsible management,” he said. Its shares ended flat at 8,870 won on the KOSDAQ Friday.

“Our share price is not being reflected by the company’s growth even though all of Etrade’s businesses, including wholesale and investment banking, have been operating in the black,” he said.

Since early this year, it has bought back shares worth 8 billion won, and Etrade plans re-sell them to “true institutional investors” that can see its long-term potential.

The online securities firm, which has a market cap of 340 billion won, will not issue new shares to boost its stock trading.

Etrade posted a net profit of 30.7 billion won for fiscal 2011 ending March 31 this year, up 2 percent from 30 billion won a year earlier, according to financial statements. It aims to reach net profit of 45 billion won in 2012, the CEO added.

“We will maintain growth by doing something we can only do, not do what everyone else can do easily,” Nam said. “Our niche service is what makes us different from others.”

Over the next two to three years, it will boost investment banking services, especially to the KOSDAQ-listed companies, while maintaining its wholesale business to fund management firms or institutional investors.

Another priority is to achieve profitability measured by return on equity of above 10 percent, which will continue to put Etrade among the top three in the securities market.

Etrade is the only securities company in Korea listed on the tech-heavy KOSDAQ. Nam said although the company had considered very carefully and thoroughly to re-list on the benchmark KOSPI, it decided to remain on the junior exchange to be close to KOSDAQ-listed small and medium-size enterprises, which are the “real driving force” of the Korean economy.

“We will seek organic growth,” Nam said, adding that pursuing acquisition is not up to him, but to Etrade’s largest shareholder G&A Private Equity, which has an 84.5 percent stake, even though the online brokerage is cash rich.

Nam has a 0.3 percent stake in Etrade, which has cash and cash equivalent of 103 billion won, according to a regulatory filing.

The PE fund, whose limited partners include LS Group, invested in Etrade as its former owner Japan-based SoftBank exited in 2008, after the online brokerage listed on the KOSDAQ in 2007.

Nam said G&A agreed to hold onto its ownership in Etrade for 10 years, and review its holdings after five years. Thus, G&A could consider an exit option prior to July 2013, he said.

Etrade was initially a joint venture between LG Investment & Securities and SoftBank in 1999, but LG exited the financial business amid a credit card crisis. LG Investment was sold to Woori Investment & Securities.

Etrade’s net asset grew to greater than 2 trillion won in 2011, up from about 370 billion won in 2007, according to a press release.

By Park Hyong-ki and Park Min-young
(hkp@heraldcorp.com)(claire@heraldcorp.com)