Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Equity Bottom-Up

<p>In this insight, we discuss 10 different mean reversion pair trade ideas among the 6 major banks in Korea. The six major banks have had solid share price performances this year as their share prices are up on average 23.5% YTD, outperforming the market. </p><p>The overall trend among these different Korean banks' share prices (in terms of the % daily difference in the gaps of their share prices) has been consolidating.  Our data sample covers 246 trading days in the past year. </p><p>An example of the pair trade idea is between <a href="https://www.smartkarma.com/entities/kb-financial-group-inc" target="_blank" data-smartkarma-citation="entities:718:1" rel="noopener">KB Financial (105560 KS)</a> and <a href="https://www.smartkarma.com/entities/shinhan-financial-group-ltd" target="_blank" data-smartkarma-citation="entities:6978:1" rel="noopener">Shinhan Financial (055550 KS). </a>In the past year, there were four trading days when the daily change in the difference between two stocks exceeded 15% and three trading days when the daily change in the difference between two stocks exceeded -10%. In the past several weeks, the gap in the difference between two stocks has been consolidating and there does not appear to be noticeable mean reversion trading opportunity on this pair trade right now.</p><p><em>Trading idea: Look to put a mean reversion pair trade (long-short) if and when the daily change in the difference between the two stocks exceed either 15% or -10%. </em></p>

In this insight, we discuss 10 different mean reversion pair trade ideas among the 6 major banks in Korea. The six major banks have had solid share price performances this year as their share prices are up on average 23.5% YTD, outperforming the market. The overall trend among these different Korean banks' share prices (in terms of the % daily difference in the gaps of their share prices) has been consolidating.  Our data sample covers 246 trading days in the past year. An example of the pair trade idea is between KB Financial (105560 KS) and Shinhan Financial (055550 KS). In the past year, there were four trading days when the daily change in the difference between two stocks exceeded 15% and three trading days when the daily change in the difference between two stocks exceeded -10%. In the past several weeks, the gap in the difference between two stocks has been consolidating and there does not appear to be noticeable mean reversion trading opportunity on this pair trade right now.Trading idea: Look to put a mean reversion pair trade (long-short) if and when the daily change in the difference between the two stocks exceed either 15% or -10%. 

Mean Reversion Pair Trade Ideas in the Korean Banking Sector

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<div><p>Kakao Bank (KB), South Korea’s largest digital bank, raised up to US$2.2bn in its South Korean IPO. Kakao will hold a 27.26% stake post listing. The share will begin to trade on 6th Aug 2021.</p></div><div><p>Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. </p></div><div><p>Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.</p></div><div><p>We have covered various aspects of the deal in our previous notes, <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a>, <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-pricey-as-it-should-be" target="_blank" rel="noopener">Kakao Bank IPO - Pricey as It Should Be </a>and <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-lack-of-lock-up-and-msci-ftse-index-implications" target="_blank" rel="noopener">Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications</a>.</p></div><div><p>In this note, we will talk about the deal's trading dynamics.</p></div>

Kakao Bank (KB), South Korea’s largest digital bank, raised up to US$2.2bn in its South Korean IPO. Kakao will hold a 27.26% stake post listing. The share will begin to trade on 6th Aug 2021.Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.We have covered various aspects of the deal in our previous notes, Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear, Kakao Bank IPO - Pricey as It Should Be and Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications.In this note, we will talk about the deal's trading dynamics.

Kakao Bank IPO Trading - One for Instis, Closer Look at FTSE and MSCI Inclusion. Remain Buyers

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

Sanghyun Park

Korea / Special Sits, Pairs, Index Rebalancing

Clepsydra Capital

Investigate special situations, pairs, and index rebalancing trades in Korea.

Event-Driven

<p>Over the past month, the stock performance of the four largest banks in Korea has been interesting. Hana Financial Group and Woori Financial Group outperformed relatively, and in particular, KB Financial Group underperformed by more than 5%p compared to Woori Financial Group.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/219/154/original/Screen+Shot+2021-07-18+at+6.21.51+PM.png?1626646949" class="editor-image img-responsive" data-smartkarma-image-id="219154"></figure><p></p></section><p>In this interim dividend, there is a possibility that dividends not paid last year will be paid retroactively. However, excluding this possibility and assuming that the total annual dividend for this year is adjusted to the level of 2019, Woori Financial Group and Hana Financial Group have the highest dividend yields.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
<col width="100">
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<tbody>
<tr>
<td style="width: 380.724px;" data-sheets-value='{"1":2,"2":"Dividend yield"}'>Estimated dividend yield, assuming that the total annual dividend for. this year is adjusted to the level of 2019</td>
<td style="text-align: right; width: 86.8324px;" data-sheets-value='{"1":3,"3":2018}'>2018</td>
<td style="text-align: right; width: 92.5852px;" data-sheets-value='{"1":3,"3":2019}'>2019</td>
<td style="text-align: right; width: 94.7301px;" data-sheets-value='{"1":3,"3":2020}'>2020</td>
<td style="text-align: right; width: 91.1364px;" data-sheets-value='{"1":2,"2":"2021E"}'>2021E</td>
</tr>
<tr>
<td style="width: 380.724px;" data-sheets-value='{"1":2,"2":"Shinhan Financial"}'>Shinhan Financial</td>
<td style="text-align: right; width: 86.8324px;" data-sheets-value='{"1":3,"3":0.0404}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.04%</td>
<td style="text-align: right; width: 92.5852px;" data-sheets-value='{"1":3,"3":0.0427}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.27%</td>
<td style="text-align: right; width: 94.7301px;" data-sheets-value='{"1":3,"3":0.0468}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.68%</td>
<td style="text-align: right; width: 91.1364px;" data-sheets-value='{"1":3,"3":0.050608571468662246}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-14]C[0]/googlefinance(R[-42]C[0], "price")'><strong>5.06%</strong></td>
</tr>
<tr>
<td style="width: 380.724px;" data-sheets-value='{"1":2,"2":"KB Financial"}'>KB Financial</td>
<td style="text-align: right; width: 86.8324px;" data-sheets-value='{"1":3,"3":0.0413}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.13%</td>
<td style="text-align: right; width: 92.5852px;" data-sheets-value='{"1":3,"3":0.0464}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.64%</td>
<td style="text-align: right; width: 94.7301px;" data-sheets-value='{"1":3,"3":0.0408}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.08%</td>
<td style="text-align: right; width: 91.1364px;" data-sheets-value='{"1":3,"3":0.05260170044159115}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-14]C[0]/googlefinance(R[-42]C[0], "price")'><strong>5.26%</strong></td>
</tr>
<tr>
<td style="width: 380.724px;" data-sheets-value='{"1":2,"2":"Hana Financial"}'>Hana Financial</td>
<td style="text-align: right; width: 86.8324px;" data-sheets-value='{"1":3,"3":0.0524}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.24%</td>
<td style="text-align: right; width: 92.5852px;" data-sheets-value='{"1":3,"3":0.0569}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.69%</td>
<td style="text-align: right; width: 94.7301px;" data-sheets-value='{"1":3,"3":0.0536}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.36%</td>
<td style="text-align: right; width: 91.1364px;" data-sheets-value='{"1":3,"3":0.0619847401646764}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-14]C[0]/googlefinance(R[-42]C[0], "price")'><strong>6.20%</strong></td>
</tr>
<tr>
<td style="width: 380.724px;" data-sheets-value='{"1":2,"2":"Woori Financial"}'><div><div>Woori Financial</div></div></td>
<td style="text-align: right; width: 86.8324px;"></td>
<td style="text-align: right; width: 92.5852px;" data-sheets-value='{"1":3,"3":0.0603}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>6.03%</td>
<td style="text-align: right; width: 94.7301px;" data-sheets-value='{"1":3,"3":0.037}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>3.70%</td>
<td style="text-align: right; width: 91.1364px;" data-sheets-value='{"1":3,"3":0.06629340778032639}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-14]C[0]/googlefinance(R[-42]C[0], "price")'><strong>6.63%</strong></td>
</tr>
<tr><td colspan="5" rowspan="1" style="width: 746.008px;" data-sheets-value='{"1":2,"2":"Source: FnGuide &amp; KSD Seibro"}'>Source: FnGuide &amp; KSD Seibro</td></tr>
</tbody>
</table><p>This is similar to the dividend yield calculated based on this year's estimated DPS of local street consensus gathered by FnGuide.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
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<tbody>
<tr>
<td style="width: 362.429px;" data-sheets-value='{"1":2,"2":"Dividend yield"}'>Annual dividend yield based on the local street consensus compiled by FnGuide</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":2018}'>2018</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":2019}'>2019</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":2020}'>2020</td>
<td style="text-align: right; width: 96.0653px;" data-sheets-value='{"1":2,"2":"2021E"}'>2021E</td>
</tr>
<tr>
<td style="width: 362.429px;" data-sheets-value='{"1":2,"2":"Shinhan Financial"}'>Shinhan Financial</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0404}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.04%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0427}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.27%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0468}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.68%</td>
<td style="text-align: right; width: 96.0653px;" data-sheets-value='{"1":3,"3":0.052}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-28]C[0]/googlefinance(R[-35]C[0], "price")'><strong>5.20%</strong></td>
</tr>
<tr>
<td style="width: 362.429px;" data-sheets-value='{"1":2,"2":"KB Financial"}'>KB Financial</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0413}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.13%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0464}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.64%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0408}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>4.08%</td>
<td style="text-align: right; width: 96.0653px;" data-sheets-value='{"1":3,"3":0.05146666666666667}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-28]C[0]/googlefinance(R[-35]C[0], "price")'><strong>5.15%</strong></td>
</tr>
<tr>
<td style="width: 362.429px;" data-sheets-value='{"1":2,"2":"Hana Financial"}'>Hana Financial</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0524}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.24%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0569}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.69%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0536}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>5.36%</td>
<td style="text-align: right; width: 96.0653px;" data-sheets-value='{"1":3,"3":0.06045662100456621}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-28]C[0]/googlefinance(R[-35]C[0], "price")'><strong>6.05%</strong></td>
</tr>
<tr>
<td style="width: 362.429px;" data-sheets-value='{"1":2,"2":"Woori Financial"}'><div><div>Woori Financial</div></div></td>
<td style="text-align: right; width: 95.8381px;">-</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.0603}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>6.03%</td>
<td style="text-align: right; width: 95.8381px;" data-sheets-value='{"1":3,"3":0.037}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}'>3.70%</td>
<td style="text-align: right; width: 96.0653px;" data-sheets-value='{"1":3,"3":0.06334801762114538}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula='=R[-28]C[0]/googlefinance(R[-35]C[0], "price")'><strong>6.33%</strong></td>
</tr>
<tr><td colspan="5" rowspan="1" style="width: 746.008px;" data-sheets-value='{"1":2,"2":"Source: FnGuide &amp; KSD Seibro"}'>Source: FnGuide &amp; KSD Seibro</td></tr>
</tbody>
</table><p>As shown in the downward trend of 12M forward PER below, the market is taking a conservative approach to the recent slowdown in bank stocks' earnings growth, which is believed to have led to growing interest in dividends.</p><p>Interestingly, the difference in P/E decline between Hana Financial Group and KB Financial Group was the largest. This seems to have been influenced by the fact that Hana Financial Group has a higher probability of paying expected dividends than Woori Financial Group.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
<col width="100">
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<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"12-month forward PER"}'>12-month forward PER</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":44393}' data-sheets-numberformat='{"1":5,"2":"yyyy. m. d","3":1}'>2021. 7. 16</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3 months ago"}'>3 months ago</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"3-month Δ"}'>3-month Δ</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Shinhan Financial"}'>Shinhan Financial</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.03}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'>5.03x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.12}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'>5.12x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.017578124999999972}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]">-1.76%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"KB Financial"}'><strong>KB Financial</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.17}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'><strong>5.17x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":5.65}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'><strong>5.65x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.08495575221238945}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>-8.50%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Hana Financial"}'><strong>Hana Financial</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.21}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'><strong>4.21x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.35}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'><strong>4.35x</strong></td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.03218390804597694}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]"><strong>-3.22%</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Woori Financial"}'>Woori Financial</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":3.99}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'>3.99x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":4.16}' data-sheets-numberformat='{"1":2,"2":"0.00x","3":1}'>4.16x</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":-0.040865384615384595}' data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-formula="=(R[0]C[-2]-R[0]C[-1])/R[0]C[-1]">-4.09%</td>
</tr>
<tr><td colspan="4" rowspan="1" data-sheets-value='{"1":2,"2":"Source: FnGuide &amp; KSD Seibro"}'>Source: FnGuide &amp; KSD Seibro</td></tr>
</tbody>
</table>

Over the past month, the stock performance of the four largest banks in Korea has been interesting. Hana Financial Group and Woori Financial Group outperformed relatively, and in particular, KB Financial Group underperformed by more than 5%p compared to Woori Financial Group.In this interim dividend, there is a possibility that dividends not paid last year will be paid retroactively. However, excluding this possibility and assuming that the total annual dividend for this year is adjusted to the level of 2019, Woori Financial Group and Hana Financial Group have the highest dividend yields.









Estimated dividend yield, assuming that the total annual dividend for. this year is adjusted to the level of 2019
2018
2019
2020
2021E


Shinhan Financial
4.04%
4.27%
4.68%
5.06%


KB Financial
4.13%
4.64%
4.08%
5.26%


Hana Financial
5.24%
5.69%
5.36%
6.20%


Woori Financial

6.03%
3.70%
6.63%

Source: FnGuide &amp; KSD Seibro

This is similar to the dividend yield calculated based on this year's estimated DPS of local street consensus gathered by FnGuide.









Annual dividend yield based on the local street consensus compiled by FnGuide
2018
2019
2020
2021E


Shinhan Financial
4.04%
4.27%
4.68%
5.20%


KB Financial
4.13%
4.64%
4.08%
5.15%


Hana Financial
5.24%
5.69%
5.36%
6.05%


Woori Financial
-
6.03%
3.70%
6.33%

Source: FnGuide &amp; KSD Seibro

As shown in the downward trend of 12M forward PER below, the market is taking a conservative approach to the recent slowdown in bank stocks' earnings growth, which is believed to have led to growing interest in dividends.Interestingly, the difference in P/E decline between Hana Financial Group and KB Financial Group was the largest. This seems to have been influenced by the fact that Hana Financial Group has a higher probability of paying expected dividends than Woori Financial Group.








12-month forward PER
2021. 7. 16
3 months ago
3-month Δ


Shinhan Financial
5.03x
5.12x
-1.76%


KB Financial
5.17x
5.65x
-8.50%


Hana Financial
4.21x
4.35x
-3.22%


Woori Financial
3.99x
4.16x
-4.09%

Source: FnGuide &amp; KSD Seibro



Korean Local Banks Trading Dynamics: Dividend Yield Difference & Kakao Bank Listing

<div><p>Kakao Bank (KB), South Korea’s largest digital bank, aims to raise up to US$2.2bn in its South Korean IPO. Kakao held a 31.62% stake prior to listing.</p></div><div><p>Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. </p></div><div><p>Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.</p></div><div><p>We have covered various aspects of the deal in our previous notes, <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a> and <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-pricey-as-it-should-be" target="_blank" rel="noopener">Kakao Bank IPO - Pricey as It Should Be</a>.</p></div><div><p>In this note, we will talk about out the what the lack of lock-up on some investors could mean for index inclusion.</p></div>

Kakao Bank (KB), South Korea’s largest digital bank, aims to raise up to US$2.2bn in its South Korean IPO. Kakao held a 31.62% stake prior to listing.Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.We have covered various aspects of the deal in our previous notes, Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear and Kakao Bank IPO - Pricey as It Should Be.In this note, we will talk about out the what the lack of lock-up on some investors could mean for index inclusion.

Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications

<p>Kakao Bank (KB), South Korea’s largest digital bank, aims to raise up to US$2.2bn in its South Korean IPO. Kakao held a 31.62% stake prior to listing.</p><p>Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. </p><p>Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.</p><p>We have covered various aspects of the deal in our previous note, <a href="https://www.smartkarma.com/insights/kakao-bank-ipo-riding-on-parent-s-network-but-boundaries-with-kakao-pay-remain-unclear" target="_blank" rel="noopener">Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear</a>.</p><p>In this note, we will talk about our earnings estimates and valuation and other issues that will impact the deal.</p>

Kakao Bank (KB), South Korea’s largest digital bank, aims to raise up to US$2.2bn in its South Korean IPO. Kakao held a 31.62% stake prior to listing.Even though Kakao started operations only in July 2017, by 2020 it had already garnered more than 1% market share of overall loans and deposits in South Korea. KB’s loans have grown by 138% over 2018 to 1Q21 to reach KRW21.6tn, while its deposits have grown by 197% over the same period to reach KRW24.2tn. Over 2018-20, its total income (Net interest income plus net fee income) grew by 216%, while it went from booking a loss in 2018 to reporting a 26% profit margin by 2020. KB’s total income was up another 60% YoY in 1Q21, while PAT was up 153% YoY.We have covered various aspects of the deal in our previous note, Kakao Bank IPO - Riding on parents network but boundaries with Kakao Pay remain unclear.In this note, we will talk about our earnings estimates and valuation and other issues that will impact the deal.

South Korea

KB Financial Group Inc. (the "Company"), in accordance with Financial Holding Companies Act, was established on September 29, 2008, through stock transfer with the former shareholders of its subsidiaries including Kookmin Bank in order to provide management services and financing to associated companies. The headquarters are located at Seoul, Korea

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KB Financial (105560 KS)

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Korean Local Banks Trading Dynamics: Dividend Yield Difference & Kakao Bank Listing

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Kakao Bank IPO - Lack of Lock-Up and MSCI, FTSE Index Implications

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