Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<p>South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.</p><p>Fundamental trends are highly positive as testified by the financial metric progression revealed by the PH Score™ at Q118. If the business improves, the stock price should follow.</p><p>It is hardly as if the macro and political backdrop have deteriorated either.</p>

South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.Fundamental trends are highly positive as testified by the financial metric progression revealed by the PH Score™ at Q118. If the business improves, the stock price should follow.It is hardly as if the macro and political backdrop have deteriorated either.

South Korean Banks: Buying into a Better Future

Industrial Bank Of Korea / Equity Bottom-Up

<p>We buy into the <a href="https://www.smartkarma.com/entities/717" target="_blank" data-smartkarma-citation="entities:717:1">Industrial Bank Of Korea (024110 KS)</a> narrative, underpinned by an elevated PH Score™ of 9.8.  </p><div class="content-highlight"><p>The PH Score™ is a fundamental momentum-quantamental score that ranks banks according to changes in value-quality. We score bank performance on a quarterly basis with variables that reflect fundamental momentum, trend, and change in key tested variables. The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning.  The scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.</p></div><p style="text-align: left;">The core SME business is improving and the fundamental momentum should be matched by a higher share price. “If a business does well,  the stock will eventually follow”. The bank rather lacks star appeal and is marked by restraint which we find quite attractive.</p><p style="text-align: left;"> IBK represents  a relatively low-risk investment given its attractive valuation within a global context, its disciplined underwriting, a core competency SME franchise (22% share) and brand plus the explicit support of government via Article 43 of IBK Act.  The latter means that the bank carries a AA/AA- backstop in the advent of distressed/adverse conditions and benefits from steady long-term wholesale funding to alleviate any relative weakness in Capitalisation and Liquidity levels despite an extensive CASA funding infra.</p><p style="text-align: left;"> The enviable SME positioning and focus is an advantage in a market grappling with elevated household debt (circa 94% of GDP) and regulatory change affecting mortgage provision (DSR, LTV, Debt/Income, and Rent/Income) as well as tighter monetary policy effects on consumers.</p><p style="text-align: left;"> IBK is committed to digital and smart transformation, (insurance products on the mobile banking app i-ONE Bank, 40% of  total deposit accounts opened through online and smart banking, 1 million users of the Flick smart app, KRW 816.9 BN extended to fintech companies,  KRW 20.19 BN directed at 122 crowd funding projects, IBK Big Data Platform, robo advisers etc), enhanced services as an enabler to SME “partners” (“Scale Up”, “Level Up”, “Cycle-up”, support for ICT smart factories, Tech convertible bonds, KRW 100 trillion in funding to start-up companies over 2017 to 2021 etc), discrete diversification into the Indonesian market, and “preemptive” measures to bolster asset quality and capitalisation.</p><p style="text-align: left;"> We view the current share price as compelling in the medium term based on value-quality signals. The market pricing of the deposit franchise, earnings, and book value is also highly attractive. On a Terminal Value calculation, the shares appear some 30% undervalued. The dividend yield of around 4% is healthy.</p>

We buy into the Industrial Bank Of Korea (024110 KS) narrative, underpinned by an elevated PH Score™ of 9.8.  The PH Score™ is a fundamental momentum-quantamental score that ranks banks according to changes in value-quality. We score bank performance on a quarterly basis with variables that reflect fundamental momentum, trend, and change in key tested variables. The Score encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning.  The scores lie between 0 and 10, with higher value-quality rankings representing more positive signs.The core SME business is improving and the fundamental momentum should be matched by a higher share price. “If a business does well,  the stock will eventually follow”. The bank rather lacks star appeal and is marked by restraint which we find quite attractive. IBK represents  a relatively low-risk investment given its attractive valuation within a global context, its disciplined underwriting, a core competency SME franchise (22% share) and brand plus the explicit support of government via Article 43 of IBK Act.  The latter means that the bank carries a AA/AA- backstop in the advent of distressed/adverse conditions and benefits from steady long-term wholesale funding to alleviate any relative weakness in Capitalisation and Liquidity levels despite an extensive CASA funding infra. The enviable SME positioning and focus is an advantage in a market grappling with elevated household debt (circa 94% of GDP) and regulatory change affecting mortgage provision (DSR, LTV, Debt/Income, and Rent/Income) as well as tighter monetary policy effects on consumers. IBK is committed to digital and smart transformation, (insurance products on the mobile banking app i-ONE Bank, 40% of  total deposit accounts opened through online and smart banking, 1 million users of the Flick smart app, KRW 816.9 BN extended to fintech companies,  KRW 20.19 BN directed at 122 crowd funding projects, IBK Big Data Platform, robo advisers etc), enhanced services as an enabler to SME “partners” (“Scale Up”, “Level Up”, “Cycle-up”, support for ICT smart factories, Tech convertible bonds, KRW 100 trillion in funding to start-up companies over 2017 to 2021 etc), discrete diversification into the Indonesian market, and “preemptive” measures to bolster asset quality and capitalisation. We view the current share price as compelling in the medium term based on value-quality signals. The market pricing of the deposit franchise, earnings, and book value is also highly attractive. On a Terminal Value calculation, the shares appear some 30% undervalued. The dividend yield of around 4% is healthy.

Industrial Bank of Korea: Value in Restraint

<p><a href="https://www.smartkarma.com/entities/16104" target="_blank" data-smartkarma-citation="entities:16104:1">Jb Financial Group Co Ltd (175330 KS)</a></p><table class="table table-striped"><tbody>
<tr>
<td>JB Financial</td>
<td style="text-align: center;">'13</td>
<td style="text-align: center;">'14</td>
<td style="text-align: center;">'15</td>
<td style="text-align: center;">'16</td>
<td style="text-align: center;">'17</td>
<td style="text-align: center;">17 v '16</td>
</tr>
<tr>
<td>CAPITAL ADEQUACY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>BIS Ratio</td>
<td style="text-align: center;">12.90%</td>
<td style="text-align: center;">13.12%</td>
<td style="text-align: center;">12.51%</td>
<td style="text-align: center;">12.05%</td>
<td style="text-align: center;">12.16%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>Tier1 Ratio</td>
<td style="text-align: center;">7.24%</td>
<td style="text-align: center;">8.34%</td>
<td style="text-align: center;">8.59%</td>
<td style="text-align: center;">9.20%</td>
<td style="text-align: center;">9.70%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>CET1 Ratio</td>
<td style="text-align: center;">5.88%</td>
<td style="text-align: center;">7.12%</td>
<td style="text-align: center;">7.40%</td>
<td style="text-align: center;">7.92%</td>
<td style="text-align: center;">8.57%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ASSET QUALITY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>Delinquency Ratio</td>
<td style="text-align: center;">1.66%</td>
<td style="text-align: center;">1.14%</td>
<td style="text-align: center;">1.19%</td>
<td style="text-align: center;">1.04%</td>
<td style="text-align: center;">0.87%</td>
<td style="text-align: center;">↓</td>
</tr>
<tr>
<td>NPL Coverage Ratio (New)</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;">72.71%</td>
<td style="text-align: center;">67.92%</td>
<td style="text-align: center;">↓</td>
</tr>
<tr>
<td>NPL Coverage Ratio (Old)</td>
<td style="text-align: center;">82.39%</td>
<td style="text-align: center;">63.00%</td>
<td style="text-align: center;">130.52%</td>
<td style="text-align: center;">144.33%</td>
<td style="text-align: center;">154.57%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>PROFITABILITY</td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
<td style="text-align: center;"> </td>
</tr>
<tr>
<td>ROA</td>
<td style="text-align: center;">0.40%</td>
<td style="text-align: center;">1.71%</td>
<td style="text-align: center;">0.40%</td>
<td style="text-align: center;">0.47%</td>
<td style="text-align: center;">0.56%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ROE </td>
<td style="text-align: center;">6.59%</td>
<td style="text-align: center;">26.71%</td>
<td style="text-align: center;">6.28%</td>
<td style="text-align: center;">7.17%</td>
<td style="text-align: center;">8.64%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>ROE </td>
<td style="text-align: center;">3.37%</td>
<td style="text-align: center;">41.34%</td>
<td style="text-align: center;">5.72%</td>
<td style="text-align: center;">6.45%</td>
<td style="text-align: center;">7.84%</td>
<td style="text-align: center;">↑</td>
</tr>
<tr>
<td>NIM (Bank, Quarterly)</td>
<td style="text-align: center;">2.</td>
</tr>
</tbody></table>…

Jb Financial Group Co Ltd (175330 KS)

JB Financial
'13
'14
'15
'16
'17
17 v '16


CAPITAL ADEQUACY
 
 
 
 
 
 


BIS Ratio
12.90%
13.12%
12.51%
12.05%
12.16%
↑


Tier1 Ratio
7.24%
8.34%
8.59%
9.20%
9.70%
↑


CET1 Ratio
5.88%
7.12%
7.40%
7.92%
8.57%
↑


ASSET QUALITY
 
 
 
 
 
 


Delinquency Ratio
1.66%
1.14%
1.19%
1.04%
0.87%
↓


NPL Coverage Ratio (New)
 
 
 
72.71%
67.92%
↓


NPL Coverage Ratio (Old)
82.39%
63.00%
130.52%
144.33%
154.57%
↑


PROFITABILITY
 
 
 
 
 
 


ROA
0.40%
1.71%
0.40%
0.47%
0.56%
↑


ROE 
6.59%
26.71%
6.28%
7.17%
8.64%
↑


ROE 
3.37%
41.34%
5.72%
6.45%
7.84%
↑


NIM (Bank, Quarterly)
2.

…

Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Thematic (Sector/Industry)

<p>Don't forget that this year's ex-dividend date for the Korean companies whose fiscal year ends Dec 31 is Dec 27. This means you have to own (or buy) shares until Dec 26 (next Tuesday) to get dividends. Yes, this means it is again time to make a move on dividend arbitrage. Buy them in baskets and short the futures? Surely, we have various ways of doing arbitrage on high yield dividend stocks, but in this insight I will just take a look at individual stocks and I will leave specifics of arbitrage strategy up to you. That is, I will try to examine the most basic thing, price-dividend yield of each individual stock that I think worth our attention, and then compare it with the opening price of each individual stock on the ex-dividend day.</p><table class="table table-striped"><tbody><tr><td colspan="2" style="width: 731px;">Important dates for high yield dividend stock hunters in Korea for the companies whose FY ends Dec 31</td></tr><tr><td style="width: 403.7364196777344px;"><em><strong>Last day to buy high yield dividend stocks in 2017</strong></em></td><td style="text-align: right; width: 327.2635803222656px;"><em><strong>Dec 26, 2017</strong></em></td></tr><tr><td style="width: 403.7364196777344px;"><em><strong>Ex-dividend date in 2017</strong></em></td><td style="text-align: right; width: 327.2635803222656px;"><em><strong>Dec 27, 2017</strong></em></td></tr><tr><td colspan="2" style="text-align: right; width: 731px;"><hr></td></tr><tr><td style="width: 403.7364196777344px;">Last day to buy high yield dividend stocks in 2016</td><td style="text-align: right; width: 327.2635803222656px;">Dec 27, 2016</td></tr><tr><td style="width: 403.7364196777344px;">Ex-dividend date in 2016</td><td style="text-align: right; width: 327.2635803222656px;">Dec 28, 2016</td></tr><tr><td colspan="2" style="width: 731px;"><em>Source: KRX</em></td></tr></tbody></table>

Don't forget that this year's ex-dividend date for the Korean companies whose fiscal year ends Dec 31 is Dec 27. This means you have to own (or buy) shares until Dec 26 (next Tuesday) to get dividends. Yes, this means it is again time to make a move on dividend arbitrage. Buy them in baskets and short the futures? Surely, we have various ways of doing arbitrage on high yield dividend stocks, but in this insight I will just take a look at individual stocks and I will leave specifics of arbitrage strategy up to you. That is, I will try to examine the most basic thing, price-dividend yield of each individual stock that I think worth our attention, and then compare it with the opening price of each individual stock on the ex-dividend day.Important dates for high yield dividend stock hunters in Korea for the companies whose FY ends Dec 31Last day to buy high yield dividend stocks in 2017Dec 26, 2017Ex-dividend date in 2017Dec 27, 2017Last day to buy high yield dividend stocks in 2016Dec 27, 2016Ex-dividend date in 2016Dec 28, 2016Source: KRX

Year-End Dividend Arbitrage - 5 High Conviction Stocks in KOSPI

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Korea Stock Exchange Kospi Index / Technical Analysis

<p style="text-align: justify;">The two-month pullback in Korea KOSPI has created buying opportunities. In fact, this recent weakness is largely confined to auto and financial stocks, masking strength in other segments, such as tech and materials, where bullish inflections are visible.  In this report we highlight a variety of actionable investment themes.</p>

The two-month pullback in Korea KOSPI has created buying opportunities. In fact, this recent weakness is largely confined to auto and financial stocks, masking strength in other segments, such as tech and materials, where bullish inflections are visible.  In this report we highlight a variety of actionable investment themes.

South Korea

Industrial Bank of Korea(IBK) is a policy bank providing development finance and related banking services to support small and medium-sized enterprises in Korea. The Bank provides loans, discount bills, trade finance, deposits, foreign exchange, and payment guarantees. The company also offers services such as credit cards, insurance and smart-phone banking.

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Industrial Bank of Korea (IBK LX)

South Korean Banks: Buying into a Better Future

South Korean banks are cheap globally. They trade on average at a P/Book of 0.5x and a PER of 6x.Fundamental trends are highly positive as...

Paul Hollingworth

Industrial Bank of Korea: Value in Restraint

We buy into the Industrial Bank Of Korea (024110 KS) narrative, underpinned by an elevated PH Score™ of 9.8. The PH Score™ is a fundamental...

Paul Hollingworth

Top PH Scores™ in South Korea

Jb Financial Group Co Ltd (175330 KS)Kwangju Bank (192530 KS)The PH Score™ is a fundamental momentum-quantamental score that scores banks according...

Paul Hollingworth

Year-End Dividend Arbitrage - 5 High Conviction Stocks in KOSPI

Don't forget that this year's ex-dividend date for the Korean companies whose fiscal year ends Dec 31 is Dec 27. This means you have to own (or...

Sanghyun Park

Pullback Opportunity in South Korea

The two-month pullback in Korea KOSPI has created buying opportunities. In fact, this recent weakness is largely confined to auto and financial...

Vermilion Research

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