Set to Become Comprehensive Financial Investment Operator in 2021
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
As expected, Kiwoom Securities has announced a plan to issue RCPSs worth around W440bn. EPS dilution is likely to be limited, as the funding can be used for credit loans. Moreover, we note that it should allow the firm to meet the requirements for becoming a comprehensive financial investment operator faster than expected.
Set to issue RCPSs worth around W440bn
Kiwoom Securities has decided to issue two types of redeemable convertible preferred shares (RCPSs). 1) RCPSs worth around W400bn will be issued at a price of W150,417 (+25% premium) and conversion will be possible from end-Jun 2022. 2) RCPSs worth about W40bn will be issued at a price of W240,667 (+100% premium) and conversion will be possible from Jul 30, 2026. Both will be recognized as shareholders’ equity as the firm has redemption rights.
As the market was already aware that the company planned to issue RCPSs (around W450bn), any concerns over the capital increase should already be reflected in the stock price. Moreover, EPS dilution (2021E EPS: W29,867 → W28,251, -4.5%) should fall short of the issuance size (9.8%), as the funding can be used for credit loans.
Set to become comprehensive financial investment operator in 2021
After issuing RCPSs in 3Q21, Kiwoom will meet the requirements to become a comprehensive financial investment operator, given that its 1Q21 shareholders’ capital (non-consolidated basis) stood at W2.7tn. The IB business is likely to expand as comprehensive financial investment operators are qualified for PBS and corporate finance.
We expect Kiwoom to be classified as a large-sized player once it becomes a comprehensive financial investment operator. This means that the firm’s valuation discount (as a brokerage centered securities play) should fade. And, given its high ROE, Kiwoom is likely to target becoming a mega-sized IB in 2022 or 2023, after it is appointed as a comprehensive financial investment operator in 3Q21.