Sound Upside Potential and Healthy Earnings Growth
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Being a leading banking stock of Korea, KBFG has been at the center of large–scale net foreign buying of Korean banking shares at the start of every year. In 2022, the firm is expected to lead the banking sector’s expansion of shareholder return policy.
Maintain Buy rating; raise TP to W84,000
We raise our TP on KBFG from W74,000 to W84,000. Our new TP is derived by applying a target P/B of 0.67x (2022~2024 avg ROE of 9.5%, COE of 7.2%, and discount rate of 50%) to 2022F BPS of W124,743. In light of sound upside potential and healthy earnings growth amid a favorable business environment, we maintain a Buy rating.
Expect shareholder return to strengthen
KBFG is forecast to offer stronger shareholder returns from 2022, based upon its sound asset quality, superior capital adequacy, and pre-emptive provisioning efforts. It boasts a CET1 ratio of 13.9%. In addition, with diverse non-banking affiliates under its wing, KBFG is not in need of funding for M&As. Moreover, the company’s aggressive provisioning since the breakout of Covid-19 in 2020 has pushed up its NPL coverage ratio close to 180%.
Building on sound financials, we believe that KBFG will gradually expand its payout ratio up from 2021E’s 26%. When further adding in interim dividend expansion (from semi-annual to quarterly or monthly) plans, KBFG looks well situated to emerge as a representative national stock.
4Q21 preview: NP (excl minority interests) of W631.3bn (+9.4% y-y)
We expect KBFG to post 4Q21 NP (excluding minority interests) of W631.3bn (+9.4% y-y). Although NIM improvement was likely limited to 3bp y-y, a figure that is smaller than that for other financial holding players, we note this difference stems from sharp NIM growth in 3Q21. The firm’s 4Q21 figures will likely show the booking of some provisioning, but given its pre-emptive nature, the provisioning should not be a cause of concern.