KB: The Dichotomy Between Valuation and Earnings Quality

KB Financial: Trends on the up as Diversification Kicks In

South Korean Financials: Increasing in Value

KB Financial : Diversifying into Higher Margin Areas

South Korean Banks: Remain Cheap, if Not Unspectacular

Hana Financial: Scores Well, Is Cheap, but Some Doubts Linger

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/kb-financial-group-inc" target="_blank" data-smartkarma-citation="entities:718:1" rel="noopener">Kb Financial Group (105560 KS)</a> 
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 in a market which has shown resilience and recovery this year, helped by existing Pandemic protocols.
Results are satisfactory given the low-margin environment. Our PH Score™ shows that the bank is making headway. The top-line shows vibrant growth of non-interest Income, which offsets a flat Net Interest Income result, slightly better Efficiency, while Liquidity (driven by core Deposits), Provisioning, and headline Asset Quality (as opposed to “reported investment of impaired Loans”) are improving somewhat. Capital Adequacy reveals some erosion, as does NIM, but still remains better than the system average. The bottom-line was impacted lower by modestly higher Credit Costs as elsewhere on a YoY basis though LLPs climbed this quarter while banks in other jurisdictions took lower costs QoQ. Comprehensive Income and Net Profit still showed moderate progression YoY which in today’s context is encouraging.
KB Financial targets a DPR to 30% in the medium term versus 26% at FY19. Korean bank DPR’s are low. In addition, KB Financial may pay dividends on a semi-annual basis in the future. Last year, the Group cancelled 8% of its total treasury shares. There may be more share buybacks and treasury share cancellations in 2021. 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.
Earlier this year, The Carlyle Group invested in KRW240 billion worth of zero-coupon exchangeable bonds issued by KB Financial Group. Assuming the exchange price for the exchangeable bonds was a fair reflection of the KB Financial's intrinsic value, this transaction was a “no-brainer” for existing or new equity investors. There was no dilution for existing shareholders either as KB Financial set aside treasury shares for the exchange of shares as part of the deal.
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For such a solid, diversified, franchise, with enhanced capital returns ahead, valuations still appeal: a FV of 6%, a PBV of 0.45x, an Earnings Yield of 19.3%, a Dividend Yield of 4.8%, and a TRR (Total Return Ratio) of 2.85x. A PH Score™ of 8.5 is top quartile globally. According to our VFM (Valuation, Fundamentals, Valuation) model, KB Financial resides in the top decile globally, from over 1400 banks.
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Kb Financial Group (105560 KS) 
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 in a market which has shown resilience and recovery this year, helped by existing Pandemic protocols.
Results are satisfactory given the low-margin environment. Our PH Score™ shows that the bank is making headway. The top-line shows vibrant growth of non-interest Income, which offsets a flat Net Interest Income result, slightly better Efficiency, while Liquidity (driven by core Deposits), Provisioning, and headline Asset Quality (as opposed to “reported investment of impaired Loans”) are improving somewhat. Capital Adequacy reveals some erosion, as does NIM, but still remains better than the system average. The bottom-line was impacted lower by modestly higher Credit Costs as elsewhere on a YoY basis though LLPs climbed this quarter while banks in other jurisdictions took lower costs QoQ. Comprehensive Income and Net Profit still showed moderate progression YoY which in today’s context is encouraging.
KB Financial targets a DPR to 30% in the medium term versus 26% at FY19. Korean bank DPR’s are low. In addition, KB Financial may pay dividends on a semi-annual basis in the future. Last year, the Group cancelled 8% of its total treasury shares. There may be more share buybacks and treasury share cancellations in 2021. 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.
Earlier this year, The Carlyle Group invested in KRW240 billion worth of zero-coupon exchangeable bonds issued by KB Financial Group. Assuming the exchange price for the exchangeable bonds was a fair reflection of the KB Financial's intrinsic value, this transaction was a “no-brainer” for existing or new equity investors. There was no dilution for existing shareholders either as KB Financial set aside treasury shares for the exchange of shares as part of the deal.

For such a solid, diversified, franchise, with enhanced capital returns ahead, valuations still appeal: a FV of 6%, a PBV of 0.45x, an Earnings Yield of 19.3%, a Dividend Yield of 4.8%, and a TRR (Total Return Ratio) of 2.85x. A PH Score™ of 8.5 is top quartile globally. According to our VFM (Valuation, Fundamentals, Valuation) model, KB Financial resides in the top decile globally, from over 1400 banks.


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

KB Financial ADR

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