[Click e-Stock] Korea Financial Holdings Posts Strong Q1 Results... Target Price Raised

On May 16, Yuanta Securities maintained its "Buy" investment rating on Korea Financial Holdings, noting that the company's net profit for the first quarter of this year exceeded the market consensus by 35.4%. The target price was also raised by 18.9% from the previous level to 113,000 won.

On this day, Woo Dohyeong, a financial analyst at Yuanta Securities, stated, "We have revised upward our return on equity (ROE) estimate in line with the profit growth in the first quarter."

The strong first-quarter performance was driven by increased profits from investment banking (IB) and trading. Analyst Woo explained, "Profits related to IB rose by 26.8% quarter-on-quarter and 23.5% year-on-year, attributable to higher fees from debt guarantees, project financing (PF), and mergers and acquisitions (M&A). Trading profits increased by 246.4% quarter-on-quarter and 1.3% year-on-year, due to higher returns from bond and note operations as interest rates declined."

Excluding the 240 billion won in dividends received from Korea Investment Trust Management and Value Asset Management in the first quarter of last year, and the 45 billion won in dividends from Korea Investment Trust Management in the first quarter of this year, net profit increased by 75.8% year-on-year. Dividends also appear to have increased, including 50 billion won from KakaoBank and 20 billion won from Woori Financial Group.

Analyst Woo noted, "There was a reversal of 18 billion won in securities provisions, but an additional 50 billion won and 15 billion won were set aside for savings banks and capital companies, respectively." He added, "The balance of notes issued by Korea Financial Holdings stands at 17.6 trillion won, which is 176.7% of its standalone capital. Since the note issuance limit is 200% of capital, there is still room for additional funding."

The first quarter margin stood at 180 basis points (1bp=0.01 percentage points), and margins are expected to expand further as funding costs decrease due to interest rate cuts. For every 10bp improvement in margin, pre-tax profit is expected to increase by 17.6 billion won, and the increase in balance is also a positive factor.

Analyst Woo added, "Approval of the Integrated Management Account (IMA) is also a driver of profit growth. Since the limit is 300% of the combined note issuance, the IMA funding scale is estimated at around 10 trillion won. Assuming a conservative margin of 100bp, a profit increase effect of 100 billion won is expected. The funding scale is projected to increase gradually each year."