Affiliates' Exposure to PF Loans Amounts to KRW4.6tn
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
Active real estate-related sales operations at KIH’s affiliates in the past will likely now serve to dampen their earnings. We expect them to book additional provisioning, considering the economic slowdown and their PF loan exposure. With sales operations yet to show any clear improvement, we stick to our Hold rating for KIH.
Reiterate Hold and TP of W65,000
We reiterate our Hold rating for KIH. As affiliates (eg, brokerage house, savings bank, and capital company) have a combined exposure of around W4.6tn to PF loans (the largest among large brokerage houses), macroeconomic conditions need to be monitored. Although they have booked provisioning for the W400bn in loans classified as substandard or below (SBLs), there is a chance that they will set aside additional provisioning.
Fortunately, KIH’s short-term financing appears sound. It has preemptively secured funds (since early last year) under its plan to transfer its stake in Kakao Bank to KIS.
In December, KIH’s 27.3% stake in Kakao Bank was transferred to KIS. As this is an internal transaction, no change is to be made to KIH’s consolidated earnings, except for the reflection of transaction costs. Under the deal, which involves rights offering and dividend payouts in an amount equivalent to the Kakao Bank stake value, KIS’s equity capital is to expand. After the deal, no plan has been announced regarding business synergies.
4Q22 preview: Earnings to come in lackluster amid weak stock market conditions
We forecast consolidated 4Q22 NP (excluding minority interest) of W96.6bn (-68.3% y-y, -41.7% q-q).
SG&A expense: The costs of W8.0bn incurred to transfer the Kakao Bank stake to KIS were likely reflected.
Trading/other: Operating losses are estimated at W280bn (RR y-y). We believe that while bond trading losses shrank q-q, bond valuation losses expanded on year-end inventory revaluation. But, foreign-currency bond translation gains of W60bn were likely booked amid dollar/won rate stabilization.
Affiliates: We believe that while the capital company booked provisioning, the savings bank likely recorded a normal level of earnings. At the asset management and VC domains, earnings likely slid y-y in line with tepid investment performance amid weak stock market conditions.