Benefits Expected from Launch of Financial Data Exchange
The authors are analysts of Shinhan Investment Corp. They can be reached at jongseon@shinhan.com and sh.kim@shinhan.com, respectively. -- Ed.
1Q20 results exceed forecasts at sales of KRW108.7bn and OP of KRW15.3bn
NICE Information Service's 1Q20 results exceeded our estimates at sales of KRW108.7bn (+7.8% YoY) and operating profit of KRW15.3bn (+11.3% YoY).The credit bureau (CB) division posted sales of KRW70.8bn (+7.2% YoY) as the use of credit data services and solutions increased on rising demand for loans amid the COVID-19 pandemic. Despite concerns over a possible slowdown in demand for corporate credit information, the corporate intelligence division posted decent sales of KRW19.3bn (+15.4% YoY) for 1Q20. Meanwhile, subsidiary NICE ZiniData is increasingly expected to contribute toward full-year operating profit with the company's operating margin reaching 14.6% in 1Q20. For now, we recommend focusing on the visible improvement in profitability instead of the absolute amount of earnings added by the subsidiary. On a consolidated basis, operating margin improved by 0.4%p YoY to 14.1% in 1Q20.
Benefits expected from launch of financial data exchange
Difficulties remain in predicting the end of the pandemic, but the financial sector will nevertheless continue to extend funds to individuals and businesses to minimize the damage. With sales from CB services for individuals (63% of total sales) closely related to the lending attitudes and total loans of banks (correlation coefficient of 0.9387), we expect CB business earnings to remain strong in the near term.
Meanwhile, NICE Information Service stands to benefit from the launch of the financial data exchange. Instead of offering processed/converged data sets for sale, the company will be able to sell de-identified base data to a broader range of data users through the exchange. As a result, NICE Information Service should enjoy growth in customer base and top-line earnings from credit data services for individuals and businesses. Bargaining power may be limited for sellers in the exchange with the companies operating under CB licenses granted by the government, but data sales are nonetheless expected to emerge as a new growth driver going forward.
Retain BUY and raise a target price to KRW24,000
Reflecting expectations for growth, we raise our target price for NICE Information Service by 26% from KRW19,000 to KRW24,000. Target valuations at the upper end of the historical band do not seem out of reach. Shares traded at a PER high of 34x in 2015 ahead of the launch of internet-only banks, backed by upbeat forecasts for growth on the rise in demand for credit information. With conditions turning favorable on multiple fronts, expectations for further growth should continue through the year.