[Click eStock] "Korea Financial Group, Excessive Stock Price Drop... Opportunity for Bottom Buying"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained its buy rating and target price of 130,000 KRW for Korea Financial Group on the 3rd. Despite the stock price showing weakness after the KakaoBank IPO momentum ended, it is considered a buying opportunity at the bottom given the stable earnings.

In the third quarter, Korea Financial Group recorded a controlling shareholder net profit of 752.9 billion KRW, a 202.6% increase compared to the same period last year. The high net profit growth rate is analyzed to be due to the recognition of 550 billion KRW in equity method disposal gains from the KakaoBank IPO. Lee Hong-jae, a researcher at Hana Financial Investment, said, “Although Korea Investment & Securities experienced a decline in trading profits due to bond valuation losses from rising market interest rates and poor ELS performance, IB-related earnings increased by 57.7% year-on-year, marking an all-time high. Additionally, steady performance from non-securities affiliates such as KDB Partners contributed to the holding company’s net operating income improving by 26.9% year-on-year and 17.8% quarter-on-quarter to 722.2 billion KRW.”

Recently, the stock price has fallen about 22.3% since April, when momentum related to the KakaoBank IPO expanded, showing severe underperformance even within the securities sector. Researcher Lee said, “It is true that non-operating gains and losses related to the IPO were one-off and momentum has been exhausted, making supply and demand unfavorable. However, excluding these factors, the recurring earnings are not particularly weak compared to peers, so the decline seems somewhat excessive.” He added, “Considering the market’s expectations for KakaoBank’s future rapid growth and the anticipated increase in profit contribution, the equity value should not act as a negative factor in the mid to long term.”

Hana Financial Investment judged that even excluding profits and losses related to KakaoBank, the current stock price is excessively undervalued given that Korea Financial Group continues to maintain the highest ROE within the securities sector. Despite the securities industry outlook not being rosy due to liquidity contraction pressures, expected decreases in average daily trading volume next year, and worsening trading profits, the company is expected to have the strongest ROE defense because it holds the most diversified portfolio including savings banks, capital, and asset management. The researcher explained, “The current stock price is only about 4 times the 12-month forward PER and 0.7 times PBR, and the expected dividend yield this year reaches 5.6%, so it is considered a buying opportunity at the bottom.”