3Q22 Forecast: Consolidated NP at KRW119.4bn
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY; revise target price down 16.0% to KRW68,000
We revise our TP on KIH down 16.0% to KRW68,000. Our TP reflects KRW143,296 12m fwd BVPS and 0.47x target P/B (sustainable ROE: 9.4%→8.6%; COE: 13.9%→14.5%; g: 3.3%):
(1) We lower 2022E/2023E daily avg. trading value by 8.6%/10.1% to KRW16.2tn/KRW15.0tn.
(2) Sustainable ROE was reduced to reflect a softer IB earnings outlook and lower trading profitability (e.g., promissory notes).
However, we maintain BUY, as (1) KIH has a diversified earnings structure, positioning it to respond effectively to volatile operating conditions, and (2) the firm has a comparative advantage in IB. That said, we are concerned about (1) IB’s high earnings exposure to real estate finance following the surge over the past two to three years and (2) eroding promissory note spreads.
Revise 2022E NP (to control. int.) down 16.7% to KRW716.6bn
We lower 2022E/2023E NP attributable to controlling interests by 16.7%/19.9% to KRW716.6bn (ROE 9.4%)/KRW878.5bn (ROE 10.9%).
3Q22 forecast: Consolidated NP (to control. int.) at KRW119.4bn, below market consensus by 50.3%
We forecast 3Q22 consolidated NP attributable to controlling interests at KRW119.4bn, which is below the market consensus by 50.3%. Consolidated NP should jump 20.0% QoQ but still fall short of expectations given poor 2Q22 results. We are below consensus because we anticipate the booking of (1) bond valuation losses amid rising bond yields (which also affected 2Q22 earnings) and (2) approx. KRW50.0bn in FX translation losses (vs. KRW33.5bn loss in 2Q22) from USD400.0mn in foreign currency bonds. Earnings at IB and Korea Investment Capital should suffer amid a decline in real estate finance-related deals. We see earnings to be highly volatile in 3Q22, much like in 2Q22.