Benefits Expected from MyData, Toss Bank and Kakao Bank
The author is an analyst of Shinhan Investment Corp. He can be reached at sh.kim@shinhan.com. -- Ed.
Benefits expected from MyData, Toss Bank and Kakao Bank
We believe NICE Information Service will continue to enjoy trickle-down benefits from the government’s fintech innovation policies. A total of 29 companies have received final approval to operate MyData business. With seven companies (including Kakao Pay) currently holding preliminary license, a second and third round of approvals are expected going forward. NICE Information Service is forecast to expand sales by providing personal credit information to MyData business operators. The company should secure a new source of sales upon the upcoming launch of Toss Bank. The two other internet-only banks, Kakao Bank and K Bank, are already included in its clientele. We expect to see stronger sales from Kakao Bank, which is set to grow rapidly after the IPO, as credit bureau (CB) service fees for internet banks are charged in proportion to the total volume of data provided.
Stable profits from the mainstay business
NICE Information Service is the largest CB service provider in Korea with a market share of 70%. Sales from CB services for individuals, which account for more than 60% of total sales, increased at a CAGR of 9.4% over the past five years thanks to the sharp growth in personal credit loans at banks. Solid earnings have also been driven by: 1) brisk B2B sales, which have a big leverage effect; and 2) fixed-rate plan for banks having a price hike effect.
The company posted strong growth of 7.8% YoY in sales and 28.1% YoY in operating profit for 1Q21. Robust growth was partly due to low base effect created by one-off expenses booked in 1H20, as well as increase in personal credit information search volume and improvement in corporate intelligence business. Earnings should continue on an uptrend in 2Q21 with sales of KRW128bn (+8.7% YoY) and operating profit of KRW21.4bn (+8.5% YoY).
New big data business to drive up profits and valuations
Expectations are high not only for the mainstay business but for a new big data business through the wholly-owned subsidiary NICE ZiniData. The domestic big data market has just started to grow and should expand at a rapid pace from KRW1.8tr in 2020 to KRW2.6tr in 2023. The new business will likely help strengthen competitiveness through: 1) integration of non-credit and financial information; and 2) B2B data-based consulting and analytics services. NICE Information Service generates only 8% of sales from the big data business, compared to 24% at its overseas CB peer Experian. A rise in the sales share of big data business should drive valuations up to new levels. We raise our target price for NICE Information Service from KRW27,000 to KRW33,000 and highly recommend the stock for long-term investors.