2022 Forecast: NP to Drop 13.0% YoY to KRW786.5bn
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY, target price of KRW153,000
We maintain BUY on Kiwoom Securities and our TP of KRW153,000 given the following:
(1) 4Q21 results confirmed that the company is positioned to maintain stable earnings when interest rates rise thanks to its relatively low earnings sensitivity to interest rates despite relatively high sensitivity to trading value.
(2) IB should enjoy a boost to growth when it receives its merchant banking license in 1H22. The potential increase in IB earnings contribution should reduce Brokerage earnings sensitivity, leading to more stability for the stock, which is highly sensitive to market fluctuations.
Higher stock market volatility could weigh on the stock, but the stock’s valuation relative to profitability is still attractive.
2022 forecast: NP (attributable to controlling interests) to drop 13.0% YoY to KRW786.5bn
For 2022, we forecast NP (attributable to controlling interests) to drop 13.0% YoY to KRW786.5bn. Our TP is based on 12m fwd BVPS of KRW171,665 and target multiple of 0.92x (sustainable ROE: 10.3%; COE: 10.9%; TGR: 2.3%).
4Q21 consolidated NP of KRW188.1bn exceeds market consensus, our estimate
Kiwoom Securities reported 4Q21 NP (attributable to controlling interests) of KRW188.1bn (-19.1%), which is above both the market consensus and our estimate. Although trading value decreased, the firm outperformed competitors thanks to its relatively low dependence on bond earnings. Domestic trading value contracted 12%, but Brokerage commission income fell just 7.0% thanks to higher fees from overseas equities. PI earnings improved QoQ on higher dividends from alternative/mezzanine investments and equity earnings, which are largely attributable to earnings sensitivity to interest rates. Trading & Product income plummeted 61.5% QoQ, as dividend income was partially booked as non-operating income. The gap between consolidated and standalone NP narrowed KRW35.2bn QoQ to KRW6.0bn QoQ because of the base effect (robust 3Q21 results at Kiwoom Capital, drop in valuation gains on investment funds amid falling stock market).