Industry Top Pick

The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.      

 

Maintain BUY and TP of KRW123,000; Remains sector top pick             

We maintain BUY on Korea Investment Holdings (KIH) and our TP of KRW123,000, given the following:

(1) Margins are the highest among large domestic brokerages even after stripping out non-recurring equity-method gains linked to the disposal of its KakaoBank stake in 2021.

(2) Considering 2022E ROE of 16.3%, the stock is significantly undervalued, with P/B at just 0.65x (based on end-2022E BVPS).

(3) Expiration of the lock-up period for its KakaoBank stake in 1Q22 should diversify the company’s options for enhancing shareholder value and securing investment resources. 

We maintain KIH as our industry top pick. Our TP is based on a target multiple of 0.95x (sustainable ROE: 11.3%, COE: 10.9%→11.7%, TGR: 2.3%) and 12m fwd BVPS of KRW134,804.   

4Q21E consolidated NP (attributable to controlling interests) of KRW215.9bn (-71.3% QoQ; -38.4% QoQ when stripping out non-recurring gains)   

We expect 4Q21E consolidated NP (attributable to controlling interests) to fall 71.3% QoQ to KRW215.9bn. Earnings should decline due to the following:  (1) The company booked KRW554.6bn in non-recurring and accounting gains from the disposal of its KakaoBank stake in 3Q21. (Stripping out the one-off, NP should fall just 38.4% QoQ, a decline similar to those at its peers.) (2) The downtrend in trading value, weaker bond valuation gains in line with higher interest rates, and lower contribution from principal investments amid the bearish stock market should also depress earnings.

Meanwhile, the company’s share in market trading value gained 1.4pp QoQ to 9.1% in 4Q21, partially offsetting the decline in commission income. Moreover, WM earnings are anticipated to remain on a solid upward trajectory. While 4Q21 figures should fall well short of a positive earnings surprise, earnings still appear robust overall as 2021 earnings should reach a record KRW1.67tn.  

Copyright © BusinessKorea. Prohibited from unauthorized reproduction and redistribution