[Click eStock] "Korea Financial Group, 4Q Last Year Controlling Shareholder Net Profit Exceeds Market Expectations"

[Asia Economy Reporter Oh Ju-yeon] KB Securities analyzed that Korea Financial Group's controlling shareholder net profit for the fourth quarter of last year was 167 billion KRW, exceeding market consensus.

Researcher Lee Nam-seok stated, "Korea Investment & Securities' standalone net profit was 129 billion KRW, with IB-related revenues such as debt guarantees and financial advisory fees maintaining a similar level to the previous quarter. Operating profit increased due to a decline in bond yields and an increase in early redemption of ELS, significantly surpassing expectations." He added, "In 2019, Korea Financial Group recorded a controlling shareholder net profit of 859.8 billion KRW and a return on equity (ROE) of 18.4%, the highest level within the securities industry."

He mentioned that the final loss amount related to the Lime Asset Management total return swap (TRS) contract, which remains a risk factor for the first quarter earnings this year, is expected to be confirmed within this week.

Quoting media reports, Researcher Lee said, "The accounting due diligence results for the suspended redemption mother fund have been delivered to Lime Asset Management, and after the appropriate valuation process for each asset, the expected profit and loss will be finalized on the 14th. Korea Investment & Securities' TRS contract exposure to the suspended redemption fund is 70 billion KRW." He continued, "Since asset collateral ratios are set, if the recovery rate is around the 50% level, the final loss directly borne by Korea Investment & Securities will be limited."

Researcher Lee added, "Although the depletion of capital capacity has lowered expectations for additional profit growth, delaying stock price recovery, the price-to-book ratio (PBR) is formed at 0.72 times compared to the expected 2020 return on equity (ROE) of 12.7%, indicating that the stock price decline is excessive relative to fundamentals." He forecasted, "If the real estate project financing (PF) regulation strengthening plan, expected to be announced in the first quarter, is finalized, exposure adjustment to real estate finance assets is anticipated, but the impact on profits is estimated to be limited to -2% to -3%."

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