Focus on Portfolio Diversification
The author is an analyst of NH Investment & Securities. She can be reached at yd.yoon@nhqv.com. -- Ed.
Daol’s 2Q22 NP (excluding minority interest) exceeded consensus by 22%. We reconfirmed the firm’s solid fundamentals through affiliate earnings. Daol is in the process of adopting a financial holding company structure, and the company’s 2022E ROE of 21% amply demonstrates its superior capital utilization relative to peers. Earnings should remain sound h-h in 2H22.
Focus on portfolio diversification
Daol Investment & Securities’ affiliates are increasing their sales contributions. The company has succeeded in securing a stable source of income, in addition to earnings from its main business (securities), through the acquisition of a savings bank last year and listing a VC firm. While sentiment in the securities industry has been improving since July, Daol’s share price has yet to reflect the earnings contributions of affiliates. We view the company’s shares as being strongly undervalued, trading at a 2022E P/E of 2.1x and P/B of 0.4x.
2Q22 review: NP reaches W32.7bn (-29.8% y-y, -24.8% q-q)
The securities and savings bank businesses recorded sound 2Q22 results, beating consensus. We reflect the high possibility of a W16.6bn reversal in litigation provisions in our 3Q22 estimates.
Securities: IB commission income recorded W8.4bn (+32% y-y) led by the real estate PF division. Commission income is expected to slow in 2H22, which means risk management is now becoming more important. Since the beginning of the year, Daol has strengthened its PF risk management.
Savings bank: NP amounted to W23.3bn (1Q22: W15.5bn). The savings bank arm remains focused on top-line growth. Loan assets steadily rose to W2.2tn (+55% y-y) for corporations and W1.7tn (+16% y-y) for individuals, breaking down as 56% and 44%, respectively. The savings bank business has greatly contributed to consolidated interest income since its acquisition last year.
VC: NP came to W3.7bn in 2Q22 (vs W500mn in 1Q22). Equity-method gains from investment asset Moloco amounted to roughly W9bn and other investment assets were reflected, as well. Year-end AUM is estimated at W1.4tn thanks to steady investment by the Korea Fund of Funds.