[Click eStock] "Kiwoom Securities, Stock Price Expensive but Still Undervalued... Target Price Up"

NH Investment & Securities Report

[Asia Economy Reporter Minji Lee] NH Investment & Securities maintained a buy rating on Kiwoom Securities on the 9th and raised the target price by 24% from the previous level to 180,000 KRW.

The increase in the target price reflects the upward revision of earnings forecasts. This is because profits are expected to increase significantly due to strong stock trading volumes. Although the average daily trading volume of domestic stocks decreased from 28.5 trillion KRW on September 9 to 21 trillion KRW in October, it recovered to 27.6 trillion KRW in November. The postponement of the major shareholder requirement reinforcement, news of COVID-19 vaccine development, and expectations of economic recovery appear to have played a positive role in revitalizing stock trading.

Expansion of market dominance overseas is also positive. While the retail domestic stock market share (30%) is higher than the overseas stock market share (10%), the overseas share increased by nearly 30% as of last September.

Kiwoom Securities is expected to be designated as a Comprehensive Financial Investment Business Operator (CFIBO) with a capital of 3 trillion KRW as early as 2022. This is because its ROE is higher and dividend payout ratio is lower than competitors, leading to rapid growth in capital. As of the third quarter this year, the company’s capital stood at 2.3488 trillion KRW on a separate basis, up about 17.9% year-on-year. By the fourth quarter of next year, capital is expected to approach 3 trillion KRW from 2.9 trillion KRW.

Once designated as a CFIBO, the company will be able to perform tasks such as corporate credit extension and dedicated brokerage services. Although the current retail business model will not change with the CFIBO designation, at least the IB (Investment Banking) business will gain scalability similar to other large securities firms. Junseop Jeong, a researcher at NH Investment & Securities, explained, “Upon CFIBO designation, the valuation discount as a brokerage-specialized securities firm will gradually ease.”

Other Major Securities Firms and Past Kiwoom Securities Valuation

As of the previous day, the company’s stock price was 138,500 KRW, slightly adjusted after reaching an all-time high last week. The current stock price increase is estimated to fall short of the profit improvement. Valuation is at its lowest level; looking at the company’s price-to-earnings ratio (PER) based on annual earnings, this year’s PER is about 5.1 times, lower than other major securities firms.

Researcher Junseop Jeong said, “Even considering profit decline due to lower trading volumes next year, next year’s PER is only 6.4 times,” adding, “Although there was a significant stock price increase this year, the valuation attractiveness is still considered high.”

This content was produced with the assistance of AI translation services.