Settlement Bank: Growth Potential Becomes Clearer

The authors are analysts of Shinhan Investment Corp. They can be reached at mintz95@shinhan.com and sh.kim@shinhan.com, respectively. — Ed.

3Q21 earnings strong at sales of KRW29.7bn and OP of KRW4.2bn

Settlebank posted operating profit of KRW4.2bn (+28.4% YoY) on sales of KRW29.7bn (+47.6% YoY) for 3Q21. Quarterly sales set a new record high on: 1) sharp top-line growth of the easy payment business (+22.7% YoY, KRW12.3bn) driven by the increase in member merchants; and 2) even growth in sales across the board including the virtual account business. Despite steep top-line growth, however, operating margin fell on a QoQ basis from the rise in sales contribution of the low-margin payment gateway service (25.5% in 2Q21 to 29.2% in 3Q21).

Sales growth to continue on addition of large-size member merchants

Growth in sales from the easy payment business, a key source of revenue for Settlebank, hinges on the addition of large-size member merchants and subsequent increase in total transactions. In 4Q21, the company added major domestic platforms for travel and accommodation reservations, as well as a premium resale platform and an online game company as member merchants for its easy payment service. The addition of big-name platforms should add a boost to the growth of its easy payment service going forward.

We expect earnings to continue on a steep uptrend to sales of KRW28.1bn (+33.1% YoY) and operating profit of KRW4.1bn (+20.2% YoY) in 4Q21. Top-line growth of the easy payment business should accelerate to 29.9% YoY.

Top-line growth to reach full swing

Adoption of easy payment services continues to expand from e-commerce to all sectors, including culture, leisure, and travel. In the process, we expect to see explosive growth in the number of Settlebank’s member merchants to 500 in 2021 and 800 in 2022.

After adding the world’s biggest app store and China’s video-focused SNS platform as member merchants as planned in 2H21, Settlebank has been gradually increasing its market share in easy payment services. Despite upbeat expectations for the diversification of clientele to global companies, Settlebank’s shares are currently trading at lower valuations than global payment service provider PayPal and domestic peers (23.8x) at a 2021F PER of 13.6x. We see ample upside for the shares given the strong potential for further earnings growth and global diversification of sales.


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