[Click eStock] Korea Financial Group, Delayed Recovery in Investor Sentiment 'Investment Opinion Neutral'

On the 20th, NH Investment & Securities maintained a Hold rating and a target price of 65,000 KRW for Korea Financial Group, citing that although the business conditions in the first quarter were favorable, it will take time for investment sentiment to recover.

Yoon Yudong, a researcher at NH Investment & Securities, explained, "While ordinary profit is strong, the possibility of additional project financing (PF) reserve provisions cannot be ruled out," adding, "Considering the recent 860 billion KRW paid-in capital increase for affiliates (savings banks and capital companies), it is still considered burdensome."

With the improvement in the operating environment in the first quarter, ordinary profit rose compared to the previous quarter. However, following last year's 300 billion KRW PF reserve accumulation, there remains a possibility of further reserve expansion. The combined PF balance of the group companies stands at 4.6 trillion KRW, the largest among major firms. Moreover, the decision last month to inject 420 billion KRW and 440 billion KRW into the affiliate savings banks and capital companies respectively reflects the unstable economic situation.

Researcher Yoon noted, "High PF exposure is a burden factor when domestic and international macro uncertainties expand," and added, "The stock price tends to reflect negative factors such as the Silicon Valley Bank (SVB) incident and concerns over the secondary financial sector more than the positive effects of earnings improvement, making sentiment recovery difficult."

On a consolidated basis, the controlling shareholder net profit for the first quarter is expected to be 239.4 billion KRW, down 22.0% year-on-year but up 265.7% from the previous quarter, exceeding consensus estimates. The main reasons are strong operations due to index rises and interest rate declines. The service profit and loss in the investment banking (IB) sector is estimated at 91.1 billion KRW. Researcher Yoon stated, "The investment-type IB has been gradually resuming business focusing on main PF and senior loans since March," and added, "Since a significant portion of the group’s profits depends on real estate operations, a sudden business contraction is considered unlikely."