Banking
The author is an analyst for Shinhan Securities. He can be reached at kw.eun@shinhan.com -- Ed.
2Q23 earnings preview
KB Financial Group is expected to post net profit of controlling interest of KRW1.33tr for 2Q23, meeting the market consensus. Margins are likely to come in strong as in the previous quarter, with net interest margin (NIM) projected to have improved by 2-3bp on asset repricing effect and easing of low-cost deposit outflows. Meanwhile, loan growth appears to have remained sluggish at around 0.5%. Non-interest income should have dipped from a quarter earlier, as the high base created from securities-related gains likely offset the relatively decent performance of the card business. The group is also expected to set aside additional provisions in light of growing economic uncertainties. We believe additional provisioning will not be as burdensome as some might worry, since the amount should be smaller than roughly KRW320bn in provisions booked conservatively in 1Q23 and a portion of provisions set aside for Hanwha Ocean could be reversed. The current balance of Hanwha Ocean-related provisions is around KRW150bn.
KB Financial Group seen as the safest bet for now
Despite extremely cheap valuations, banking stocks have been sidelined by investors due to absence of momentum and uncertainties over regulations and earnings. Foreign ownership has been on a downtrend, and demand from institutions and individuals has been largely concentrated on growth stocks and specific themes. The upcoming announcement of 2Q23 earnings results may come in line with market expectations in terms of numbers, but it would fail to trigger a share price rally because of falling margins, slowing growth, and additional provisioning. All in all, we believe KB Financial Group is the safest bet among banking plays for now, given its solid capital standing, earnings fundamentals, and stronger margins vs. peers.
Retain BUY for sector top pick
For FY2023, KB Financial Group is forecast to earn net profit of KRW4.9tr, up 11% from a year earlier. We estimate full-year dividend at KRW3,550 per share with a dividend yield of 26.5%, based on the quarterly dividend of KRW510 paid out in 1Q23. Last year, the group recorded a shareholder return rate of roughly 33% with a dividend yield of 26.2% and share buyback and retirement amounting to KRW300bn. In order to achieve a shareholder return rate of 33-35% this year, it will need to carry out share buyback and retirement programs worth KRW300-400bn. As of end-1Q23, it is the only listed domestic bank whose common equity tier-1 ratio is above 13%. Although the capital ratio gap with other banks has not translated to a higher shareholder return rate, we believe KB Financial Group has a clear advantage over peers and will be able to play a leading role going forward. Keeping an eye on the possibility of additional share buyback and retirement, we continue to recommend KB Financial Group as our sector top pick.