Shares of Domestic and Overseas Stock Trading Increasing
The authors are analysts of KB Securities. They can be reached at cygun101@kbfg.com and scyoo@kbfg.com, respectively. -- Ed.
Maintain BUY; target price raised to KRW185,000
We maintain BUY on Kiwoom Securities and raise our TP by 15.6% to KRW185,000. Our rating remains unchanged given: (1) The possibility of surging daily avg. trading value boosting earnings momentum in 2021 (2) Growth in brokerage fee income thanks to the company’s increasing market shares of domestic brokerage and overseas stock trading.
Our TP was raised based on the following: (1) 2021E NP attributable to controlling interests was revised up 10.1% to KRW557.4bn to accommodate adjustments to 2021 daily avg. trading value projections (KRW18.8tn→KRW22.1tn). (2) Sustainable ROE was bumped up from 10.0% to 11.5%. Our TP was derived by applying 1.44x target P/B (sustainable ROE: 10.0%→ 11.5%; cost of equity: 8.2%→8.5%; terminal growth rate: 1.7%) to 12m fwd BVPS of KRW128,687.
Stock price more susceptible to trading value and stock market performance
The main issue regarding Kiwoom is that its earnings are susceptible to fluctuations in trading value (brokerage fees) and the stock market (performance of PI investments). In other words, the company’s earnings become more volatile when market volatility increases. Hence, this year’s surge in daily avg. trading value (KRW46.5tn as of Jan 15) should heavily influence Kiwoom stock.
4Q20 preview: Consolidated NP attributable to controlling interests at KRW205.3bn (-22.1% QoQ)
We forecast 4Q20 consolidated NP attributable to controlling interests at KRW205.3bn (-22.1%), which is in line with the market consensus. The bullish market, rising daily avg. trading value and growing overseas brokerage fees will have a positive impact on brokerage/trading revenue. Loan loss provisions will unlikely be an issue given the low proportion of IB-related loan extensions. Determining the fair value of private equity funds remains an issue and may impact earnings post-audit. The private equity fund issue was not factored into our 4Q20 estimate.