Disappointing Performance
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY, cut target price 20.0% to KRW60,000
We maintain BUY on KakaoBank but cut our TP by 20% to KRW60,000 to reflect the following:
(1) We revise down 2022E/2023E loan growth to 17.6%/28.5% from 29.2%/29.4% given stricter household loan regulations.
(2) We cut 2022E/2023E fee income growth to 20.6%/27.8% from 69.9%/32.4%.
Revise down forecasts for loan, fee income growth
For KakaoBank, loan growth is a key indicator that determines the pace of improvements in (1) CIR competitiveness and (2) efficiency of capital raised via IPO, and fee income is an indicator of platform performance, differentiating the bank from traditional players in terms of valuations. Our RIM-based TP assumes (1) 1.4% risk-free rate, 7.16% equity risk premium and 2.3% terminal growth rate, (2) changes in 2025E KRW-denominated loan balance (KRW67.7tn→KRW59.6tn) and CIR (19.4%→24.7%) and (3) 2.01% NIM and 46bps CCR. Nevertheless, we maintain BUY, as the bank is expected to maintain its competitive edge over rival internet-only banks through (1) efforts to enhance mid-rate loan competitiveness (impact of CSS upgrades to be confirmed later) and (2) the Kakao Ecosystem.
4Q21 consolidated NP (attributable to controlling interests) of KRW36.2bn misses market consensus; growth, fee income disappointing
4Q21 consolidated NP (attributable to controlling interests) of KRW36.2bn fell well below the market consensus and our estimate for the following reasons:
(1) Incentive payments of ~KRW20.0bn were booked in 4Q21 (booked in 1Q in previous years) and SG&A jumped 46.0% QoQ on higher advertising costs.
(2) While Fee & Platform revenue declined slightly QoQ, fee and commission expenses rose 11.9% QoQ on higher commission payments, leading to disappointing non-interest income.
KRW-denominated loans expanded 3.3% QoQ despite a decrease in credit loans driven by jeonse (lump-sum deposit) loans. In 4Q21, the percentage of mid-rate loans rose to 17%, pushing up NIM by 15bps QoQ to 2.13% and CCR by 3bps QoQ to 50bps. Overall, 4Q21 results were disappointing in terms of growth and fee income.