Industry Top Pick
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Maintain BUY; cut target price 21.4% to KRW110,000; top industry pick
We maintain BUY on Kiwoom Securities but cut our TP by 21.4% to KRW110,000. Our TP represents KRW183,907 12m fwd BVPS, 0.60x target multiple (sustainable ROE: 10.0%→8.9%; COE: 11.7%→12.8%; g: 3.1%). We cut our TP given (1) 2022E/2023E daily avg. trading value assumptions were lowered 8.2%/16.8% to KRW17.7tn/KRW16.7tn and (2) trading & product profitability was lowered 0.3pp/0.2pp to 0.7%/0.9%, weighing on sustainable ROE. That said, Kiwoom Securities is our top industry pick. While daily avg. trading value should deteriorate, (1) earnings are more stable than that of competitors (lower share of margin loans vs. brokerage market share; high net revenue contribution from brokerage income) and (2) profitability should remain relatively high (bond valuation gains/losses to have mild impact on OP). Also, the firm’s straightforward profit structure should bolster earnings visibility as asset price volatility rises.
2022 forecast: Cut NP (to control. int.) by 21.7% to KRW585.5bn
We lower 2022E NP (attributable to controlling interests) by 21.7% to KRW585.5bn to reflect sluggish 2Q22 results and our downward revisions to daily avg. trading value and trading & product income.
2Q22 NP (to control. int.) to miss market consensus by 48.4%
We forecast 2Q22 consolidated NP (attributable to controlling interests) at KRW86.5bn (-38.7% QoQ), which is below the market consensus by 48.4%. While 2Q22 daily avg. trading appears to have declined 12.8% QoQ, brokerage income should slip just 3.8% QoQ (brokerage market share to increase improve 1.5pp). Also, Kiwoom Securities has far smaller bond holdings compared to competitors, which should limit the impact from deteriorating bond valuation gains. However, we forecast PI and investment partnership earnings (subject to consolidated earnings) to deteriorate on the KOSPI decline in June.