The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. — Ed.
Maintain BUY, target price of KRW77,000
We maintain BUY and TP of KRW123,000 on KIH. 4Q22 earnings were hit by large-scale provisioning and valuation losses for non-marketable assets, such as real estate project financing and negotiable securities. Nonetheless, we maintain BUY given the following:
(1) The stock price declined sufficiently last year, burdened by real estate PF exposure, which is greater than that of competitors.
(2) With Kakao Bank stakes successfully transferred to Korea Investment Securities, KIS’ issuance cap, IB/trading limit and leverage should expand. This should provide room for new investments and opportunity for income normalization. Our TP applies a 0.5x target multiple (8.6% sustainable ROE; 13.4% COE; 3.5% TGR) to KRW150,784 12m fwd BVPS.
4Q22 consolidated NP (attributable to controlling interests) at KRW98.5bn; EBT at -KRW117.2bn
4Q22 consol. NP (to control. int.) of KRW98.5bn (-68.0% YoY) fell far below the market consensus/our estimate. A tax law amendment led to a KRW190bn tax reversal (lowered statutory corporate tax rate; increase in Kakao Bank shares’ exclusion from gross revenue from 30% to 80%; greater exclusion of overseas subsidiaries from gross revenue). KIH suffered an earnings shock, with consol. EBT hitting -KRW117.2bn on (1) provisioning of KRW63bn for real estate PF loans, KRW40bn for adjustment of PD value of Savings Bank and KRW120bn for other alternative assets and (2) KRW70-80bn in valuation losses following a fair value valuation of non-marketable assets. Trading income from KIS rose QoQ with FX valuation gains amid KRW appreciation. However, consol. beneficiary certificates and SPC valuation losses/provisioning burden (real estate PF) were reflected on a consol. basis. Although we are disappointed with the 4Q22 results, we are positive on how future earnings volatility has been reduced via conservative valuation of assets.
