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The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. — Ed.
Maintain BUY but lower target price 5.8% to KRW81,000
We lower our TP on KIH by 5.8% to KRW81,000. Despite 2Q22 earnings falling far short of the market consensus and our estimate, we maintain BUY, as:
(1) losses from bond/FX valuations and high corporate tax rates behind the disappointing earnings should dissipate in 3Q22;
(2) KIH’s profit structure is diversified; and
(3) advantages of KIH’s financial holdings structure remain valid.
Lower 2022E consolidated NP (to control. int.) 8.1% to KRW860.5bn
Reflecting 2Q22 results, we lower 2022E consolidated NP (attributable to controlling interests) by 8.1% to KRW860.5bn. Our TP applies 0.58x P/B to 12m fwd BVPS of KRW140,669 (9.4% sustainable ROE; 13.9% COE; 3.2% TGR).
2Q22 review: Consolidated NP (to control. int.) of KRW99.5bn far short of KB estimate, market consensus
2Q22 consolidated NP (attributable to controlling interests) came in at KRW99.5bn, far short our estimate of KRW171.9bn and the market consensus of KRW224.8bn:
(1) An approx. KRW100bn bond valuation loss was larger than expected.
(2) Of the USD600mn foreign-currency bonds issued by Korea Investment & Securities to invest in overseas subsidiaries, USD400mn resulted in a KRW33.5bn FX valuation loss due to exposure to FX fluctuations.
(3) Following corporate tax adjustments for overseas subsidiaries, a 2Q22 corporate tax rate of 41.5% was recognized (based on securities subsidiary), resulting in ~KRW21bn in taxes.
(4) Korea Investment Partners recorded a KRW5bn loss on the bearish stock market, valuation losses on consolidated beneficiary certificates and a valuation loss of ~KRW35bn on shares held.
Taking into consideration that financial market continue to be volatile, we still believe 3Q22 earnings will normalize given strengthened hedging policies in July, We forecast 3Q22 earnings at KRW228.1bn.
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