Trading Income to Decline
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
We maintain BUY; cut target price 25.2% to KRW86,000
We maintain BUY on KIH but cut our TP by 25.2% to KRW86,000. Our TP represents KRW141,709 12m fwd BVPS, 0.61x target multiple (sustainable ROE: 11.5%→9.4%; COE: 12.2%→13.5%; g: 3.1%). We cut our TP because (1) 2022E/2023E daily avg. trading value assumptions were reduced by 8.2%/16.8% to KRW17.7tn/KRW16.7tn and (2) 2022E/2023E trading & profitability margins were lowered 0.2pp/0.1pp to 0.6%/0.8%, weighing on sustainable ROE. However, we maintain BUY given (1) KIH’s diversified profit structure should insulate the firm from deteriorating operating conditions and (2) KIH ROE should outpace competitors’ ROE, backed by KIH’s holding company structure. However, these competitive advantages may erode considering the robust IB growth over the past several years and worsening operating conditions for real estate/M&A-related financing.
2022 forecast: Revise down NP (to control. int.) 12.6% to KRW936.8bn
We cut 2022E NP (attributable to controlling interests) by 12.6% to KRW936.8bn to reflect our disappointing 2Q22 outlook and downward revisions to daily avg. trading value and trading & product profitability.
2Q22 consol. NP (to control. int.) to miss market consensus by 33.7%; trading income to decline in line with that of competitors
We forecast 2Q22 consolidated NP (attributable to controlling interests) at KRW171.9bn (-44.0% QoQ), which is 33.7% below the market consensus. Earnings should disappoint given: (1) marked deterioration in bond valuation gains in June on surging bond yields since end-May; (2) an earnings slump at consolidated subsidiaries amid KOSPI decline; and (3) shrinking ELS issuance volume amid a decline in early redemption volume. 2Q22 trading income should improve QoQ but should decrease in line with that of competitors.