[Click e-Stock] "Korea Financial Group, an Optimized Stock for the Capital Market"

Surprise Earnings in 2Q
Direct Beneficiary of Booming Stock Market

In the second quarter of this year, Korea Financial Group posted solid results that far exceeded market expectations (consensus). Fee income increased thanks to active stock trading, and revenue from acquisition finance also grew. Although there are provisioning burdens at its affiliated savings bank and capital companies, these are considered manageable.

On August 7, Daol Investment & Securities raised its target price for Korea Financial Group by 5.3% to 200,000 won, maintaining its "Buy" investment rating. The previous day's closing price was 142,000 won.

The primary reason for the upward revision is the strong performance. Operating profit in the second quarter of this year was 585.6 billion won, up 95.5% compared to the same period last year. This figure is more than 27% above consensus. Net profit attributable to controlling shareholders also rose to 513.4 billion won, an 83.3% increase year-on-year.

Both the fee and non-fee segments performed well. Brokerage fee income increased by 16.0% quarter-on-quarter due to a rise in domestic stock trading volume. Wealth management (WM) fee income also rose by 10.6% from the previous quarter, driven by higher balances in bonds, funds, and wrap products.

Investment banking (IB) and other fee income also increased by 10.8% quarter-on-quarter. Although revenue from traditional IB declined, and some project financing (PF) fee income was offset by the reversal of provisioning costs from the previous quarter, there was a significant increase in M&A-related fee income due to a rise in acquisition finance mandates this quarter.

In the non-fee segment, net interest income rose by 15.7% compared to the previous quarter. This was mainly due to an increase in deposit balances, as well as higher interest income from acquisition finance. Operating and other income decreased by 27.4% from the previous quarter, but remained in line with previous expectations. The company recorded approximately 50 billion won in foreign exchange gains, and, in addition to profits from the disposal of held funds, achieved relatively solid valuation gains on securities despite increased interest rate volatility during the quarter.

There are still lingering effects from a decrease in subsidiary dividends, such as trust management, in the previous quarter, and provisioning burdens at the savings bank and capital arms. However, these were offset by increased operating income at the subsidiary Value Asset Management.

Kim Jiwon, an analyst at Daol Investment & Securities, explained, "While some provisioning fluctuations remain a burden, the company is seeing comprehensive profit growth in a favorable capital market environment, making it an optimal stock for the capital market."