KakaoBank: platform revenue and cost management are insufficient

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The author is an analyst at KB Securities. He can be contacted at cygun101@kbfg.com. — Ed.

Hold BUY; revise target price down by 5.3% to 36,000 KRW

We are maintaining BUY on KakaoBank but revising our TP down by 5.3% to KRW 36,000 as (1) new loan growth (including mortgages) has disappointed, although overall loan growth is outpacing that of our rivals, and (2) non-interest revenue and platform revenue have stagnated. We reduced the loan balance based on KRW 2025E (KRW46.2tn→KRW44.8tn) and increased the CIR (29.9%→32.2%). Our TP derived from RIM reflects (1) 2.5% RFR, 7.16% ERP and 3.2% TGR; (2) revisions of the loan balance based on KRW 2025E and of the CIR; and (3) 2.1% NIM and 41 bps CCR. We lower the standalone NP 2022E by 3.9% to KRW 283.4 billion given the mixed 2Q22 results and increased the CIR. Nonetheless, we remain optimistic as expanded limits on mortgages/coverage regions as well as consumer targeting are expected to result in growth in 2H22 despite 2Q22 mortgages of KRW 146.0 billion (192. 0 billion KRW cumulative) falling short of expectations.

2Q22 Review: Standalone NP (attributable to controlling interests) KRW 57.0 billion below market consensus, KB estimate

2Q22 standalone NP (to control.int.) declined 17.7% YoY to KRW 57.0 billion, below market consensus/our estimate of KRW 74.1 billion/65, 3 billion KRW. We attribute this to:

(1) larger than expected additional provisions of KRW 12.6 billion in anticipation of an economic downturn;

(2) lower than expected platform revenues; and

(3) SG&A higher than expected.

KRW loans in 2Q22 totaled KRW 26.8 billion (+3.3% quarter-on-quarter, +16.0% year-on-year) and NIM increased by 7 bps quarter-on-quarter (+39 bps over one year) to 2.29%, in line with expectations. However, platform revenue was down 14.9% QoQ and non-interest revenue (including commissions) deteriorated (-KRW 1.2 billion in 1Q22 → KRW –5.4 billion in 2T22). CCR increased from 20.7 basis points QoQ to 70 basis points on additional provisions of KRW 12.6 billion. General and administrative expenses increased by 14.6% quarter-on-quarter to KRW 90.6 billion due to higher labor costs (i.e. IT hires).

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