[Click eStock] "IBK, Gradual Reduction of Policy Bank Functions Expected"

Profitability Recovery Potential↑... Dividend Appeal Is Sufficient

[Asia Economy Reporter Minwoo Lee] As the role of Industrial Bank of Korea (IBK) as a policy bank gradually diminishes, there is a forecast that its profitability will improve compared to the past.

On the 26th, Kiwoom Securities gave IBK an investment opinion of 'Outperform' for this reason. The target price was also raised from 8,000 KRW to 11,500 KRW. The closing price on the previous day was 9,680 KRW.

The background of this judgment is IBK's recent acquisition of perpetual preferred shares. On the 19th, IBK decided to acquire and cancel 44.85 million perpetual preferred shares for 224.2 billion KRW. This is a method of returning Korea Expressway Corporation shares that the government received from IBK in 2008 as a capital increase consideration. The cancellation of perpetual preferred shares is evaluated to have virtually no impact on earnings per share (EPS) of common stock or the common stock capital ratio. Nevertheless, it is analyzed as positive news in that it suggests the role of IBK as a policy bank may be somewhat reduced.

Seoyoungsoo, a researcher at Kiwoom Securities, said, "After the COVID-19 pandemic, the public function of private banks has been reduced and IBK's role has increased, which has acted as a factor discounting the stock price along with deteriorating profitability," adding, "Unlike before, even with concerns about the spread of COVID-19, the situation where IBK bears the burden entirely due to expectations of treatment and vaccine development will not occur."

Assuming the reduction of the policy bank function, the stock price level of IBK is expected to have a high possibility of short-term increase. The trend of net interest margin decline due to changes in the interest rate environment such as interest rate reversal and reduced competition among banks

is expected to come to an end. Once the net interest margin decline trend ends, profitability is expected to improve rapidly. Researcher Seo explained, "IBK's price-to-earnings ratio (PER) and price-to-book ratio (PBR) this year are 5.4 times and 0.35 times respectively, which are at an absolutely undervalued level, so there is still high valuation attractiveness for stock price increase," adding, "Although absolute dividends will slightly decrease due to poor performance, it is still expected to provide a high level of dividends, making it highly attractive from a dividend perspective as well."