KB Financial, Q1 Earnings Better Than Expected

[Asia Economy Reporter Ji-hwan Park] Kiwoom Securities evaluated that KB Financial Group's first-quarter earnings this year were better than market expectations on the 25th. However, it diagnosed that the true performance will be judged from the second quarter, when the impact of COVID-19 is reflected. Accordingly, it maintained a 'Buy' investment rating but lowered the target price by 17.24%, from the previous 58,000 KRW to 48,000 KRW.

Seoyoungsoo, a researcher at Kiwoom Securities, explained, "KB Financial Group posted a net profit of 729.5 billion KRW in the first quarter, down 13.7% compared to the same period last year," adding, "Although somewhat below market expectations, it is considered a very good performance given the overall market conditions."

He explained, "The decisive factor for the deterioration in earnings was the occurrence of temporary losses amounting to 300 billion KRW, including 48 billion KRW loss related to ELS hedge by KB Securities, 66 billion KRW operational loss from bank principal-protected trusts, 40 billion KRW from Lime Asset Management TRS, and 34 billion KRW loss related to over-the-counter derivatives."

Researcher Seo analyzed, "The earnings of core affiliates such as banks and cards were relatively favorable," and explained, "KB Kookmin Bank achieved a net profit of 586.3 billion KRW, up 2.4% compared to the same period last year, despite the difficult business environment."

He analyzed, "Although net interest margin fell by 5 basis points due to the base interest rate cut, interest income increased by 1.3% quarter-on-quarter due to high loan growth driven by a surge in demand from large corporations, contrary to initial concerns."

However, he said, "Losses from the chain suspension of private equity fund redemptions, such as Lime Asset Management, have not yet been reflected," and added, "From the second quarter, credit costs due to the impact of the COVID-19 crisis may increase sharply."

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