South Korean Financials: Increasing in Value

2021 High Conviction - KB Financial Group: Buy Ahead of Initiatives to Galvanise Shareholder Value

KB: The Dichotomy Between Valuation and Earnings Quality

KB Financial : Diversifying into Higher Margin Areas

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

KB Financial combines a diversified operational profile (with increasing non-banking revenue streams), robust fundamental trends, with a low valuation and benign capital return potential.Results are encouraging given the low-margin environment. Our PH Score™ of 8.2 shows that the bank is making headway. The top-line shows vibrant growth of (higher ROE) non-interest Income while Net Interest Income benefits from lower Funding Costs. Elsewhere, we can highlight somewhat better Efficiency, enhanced Provisioning, improved headline Asset Quality (as opposed to “reported investment of impaired Loans”) while Profitability (a key variable and management priority rather than growth) moved in the right direction. Capital Adequacy ratios are generally improved. Not so good were the compression of NIM/Spread and erosion of Liquidity: these are structurally challenging areas for the bank. With flat Credit Costs, Comprehensive Income and Net Profit still showed highly robust progression YoY. KB Financial targets a DPR to 30% in the medium term (dependent on macro certainties) versus around about 25% currently. There may be more share buybacks and treasury share cancellations going forward. With M&amp;A on the backburner, the Group will focus on integration of its existing asset base, freeing up space for dividends and share buybacks. For such a solid, diversified, franchise, with enhanced capital returns ahead, valuations appeal: a FV of 6%, a PBV of 0.49x, an Earnings Yield of 20.3%, a Dividend Yield of 3.1%, and a TRR (Total Return Ratio) of 2.4x. A PH Score™ of 8.2 is top quartile globally. According to our VFM (Valuation, Fundamentals, Valuation) model, KB Financial resides in the top decile globally, from over 2000 banks.

KB Financial combines a diversified operational profile (with increasing non-banking revenue streams), robust fundamental trends, with a low valuation and benign capital return potential.Results are encouraging given the low-margin environment. Our PH Score™ of 8.2 shows that the bank is making headway. The top-line shows vibrant growth of (higher ROE) non-interest Income while Net Interest Income benefits from lower Funding Costs. Elsewhere, we can highlight somewhat better Efficiency, enhanced Provisioning, improved headline Asset Quality (as opposed to “reported investment of impaired Loans”) while Profitability (a key variable and management priority rather than growth) moved in the right direction. Capital Adequacy ratios are generally improved. Not so good were the compression of NIM/Spread and erosion of Liquidity: these are structurally challenging areas for the bank. With flat Credit Costs, Comprehensive Income and Net Profit still showed highly robust progression YoY. KB Financial targets a DPR to 30% in the medium term (dependent on macro certainties) versus around about 25% currently. There may be more share buybacks and treasury share cancellations going forward. With M&amp;A on the backburner, the Group will focus on integration of its existing asset base, freeing up space for dividends and share buybacks. For such a solid, diversified, franchise, with enhanced capital returns ahead, valuations appeal: a FV of 6%, a PBV of 0.49x, an Earnings Yield of 20.3%, a Dividend Yield of 3.1%, and a TRR (Total Return Ratio) of 2.4x. A PH Score™ of 8.2 is top quartile globally. According to our VFM (Valuation, Fundamentals, Valuation) model, KB Financial resides in the top decile globally, from over 2000 banks.

KB Financial: Trends on the up as Diversification Kicks In

KB Financial ADR

KB Financial: Trends on the up as Diversification Kicks In