Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Event-Driven

In this insight, we discuss the end of the one month lock up period and more block selling ahead by major investors for KakaoBank in the months ahead. The one month lock up period will end on 6 September for KakaoBank and some institutional investors may try to take some profits. There are 3.14 million shares that will no longer be under the lock up period for KakaoBank starting 6 September, which represents 0.7% outstanding shares.In addition, among the three largest shareholders of KakaoBank, we believe that there is an increasing probability of Korea Investment Asset Mgmt and KB Bank trying to unload partial stakes in KakaoBank once the 6 months lock-up period is over.

In this insight, we discuss the end of the one month lock up period and more block selling ahead by major investors for KakaoBank in the months ahead. The one month lock up period will end on 6 September for KakaoBank and some institutional investors may try to take some profits. There are 3.14 million shares that will no longer be under the lock up period for KakaoBank starting 6 September, which represents 0.7% outstanding shares.In addition, among the three largest shareholders of KakaoBank, we believe that there is an increasing probability of Korea Investment Asset Mgmt and KB Bank trying to unload partial stakes in KakaoBank once the 6 months lock-up period is over. 

KakaoBank - End of the 1 Month Lock Up Period & More Block Selling Ahead Likely by Major Investors

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

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 <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.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%.

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

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In this insight, we discuss the risk vs. reward of Kakao Bank shares after the sharp appreciation of its share price post IPO. Kakao Bank's share price has appreciated to 78,500 won, up 101% from the IPO price of 39,000 won. Kakao Bank's market cap has ballooned to 37.3 trillion won.
Kakao Bank has now become the 10th largest stock in KOSPI. Kakao Bank's market cap is now similar to the combined market caps of the two largest banking groups in Korea including <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> - 42 trillion won. After this sharp appreciation, we believe that the risk-reward ratio of Kakao Bank is no longer attractive and change our view on the company to NEGATIVE.  
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In this insight, we discuss the risk vs. reward of Kakao Bank shares after the sharp appreciation of its share price post IPO. Kakao Bank's share price has appreciated to 78,500 won, up 101% from the IPO price of 39,000 won. Kakao Bank's market cap has ballooned to 37.3 trillion won.
Kakao Bank has now become the 10th largest stock in KOSPI. Kakao Bank's market cap is now similar to the combined market caps of the two largest banking groups in Korea including KB Financial (105560 KS) and Shinhan Financial (055550 KS) - 42 trillion won. After this sharp appreciation, we believe that the risk-reward ratio of Kakao Bank is no longer attractive and change our view on the company to NEGATIVE.  


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>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.</div><div>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. </div><div>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.</div><div>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>.</div><div>In this note, we will talk about the deal's trading dynamics.</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

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)

KakaoBank - End of the 1 Month Lock Up Period & More Block Selling Ahead Likely by Major Investors

There are 3.14 million shares that will no longer be under the lock up period for KakaoBank starting 6 September, which represents 0.7% outstanding...

Douglas Kim

KB Financial: Trends on the up as Diversification Kicks In

KB commands a much more diversified and balanced business model than in the past. Fundamental trends are improving and shares are still cheap.

Paul Hollingworth

Mean Reversion Pair Trade Ideas in the Korean Banking Sector

In this insight, we discuss 10 different mean reversion pair trade ideas among the 6 major banks in Korea.Our data sample covers 246 trading days...

Douglas Kim

Kakao Bank - Risk Vs. Reward Post IPO

After this sharp appreciation, we believe that the risk-reward ratio of Kakao Bank is no longer attractive and change our view on the company to...

Douglas Kim

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

Kakao Bank, 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...

Sumeet Singh

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