[Click e-Stock] "KakaoBank, Weakened Link to Profitability... Investment Rating and Target Price Lowered"

Investment Rating Downgraded from "Buy" to "Neutral"
Target Price Lowered by 8.9% from Previous Level

On November 6, KB Securities reported that the link between KakaoBank's channel competitiveness and profitability is weakening, and accordingly downgraded its investment rating from "Buy" to "Neutral," while also lowering the target price from 28,000 won to 25,500 won.

Kang Seunggeon, a researcher at KB Securities, stated, "We have lowered our target price by 8.9% compared to the previous figure," and explained, "The basis for the target price downgrade is the weaker-than-expected loan growth in the third quarter of this year, as well as the government's household loan regulations. As a result, we have revised our loan growth rate forecasts for 2025 and 2026 down by 0.3 percentage points and 0.1 percentage points to 6.6% and 7.0%, respectively. We have also lowered our net interest margin (NIM) forecasts due to a deterioration in the loan-to-deposit ratio, and consequently reduced our profit forecasts for 2025 and 2026 by 1.7% and 6.4%, respectively." He added, "The reason for downgrading our investment rating is that the deposit-focused growth strategy continues, and the decline in NIM due to the falling loan-to-deposit ratio is proceeding more sharply than expected. Furthermore, the increase in returns from fund management using secured deposits is progressing at a lower level than anticipated."

KakaoBank's standalone net profit for the third quarter was 111.4 billion won, down 10.3% year-on-year. Kang analyzed, "This figure is 5.1% below the consensus (the average of securities firms' forecasts), and the reason for missing consensus was that non-interest income fell short of expectations."

In the third quarter, won-denominated loans grew by 1.0%, while NIM declined by 11 basis points (1bp = 0.01 percentage points) from the previous quarter to 1.81%. "While deposits increased by 2 trillion won, loans grew by only 434 billion won, resulting in a decline in the loan-to-deposit ratio. Although deposits grew mainly through low-cost deposits, the net interest spread (NIS) also declined," he explained. "Non-interest income was 25.5 billion won, down 37.4% from the previous quarter. While fee income remained at a similar level, other non-interest income decreased due to valuation losses reflecting the rise in market interest rates in September."

It was also noted that meaningful progress in new business initiatives is necessary to reverse the direction of the stock price. Kang commented, "Although channel competitiveness remains strong, factors such as reduced merchant fees, slower growth due to regulations, and declining margins are weakening the link to profitability, which is a burden. In the future, only meaningful progress in new business initiatives such as artificial intelligence (AI) native banking and stablecoins will enable a turnaround in the stock price direction."