[Click eStock] KakaoBank Lowers Mid-to-Long-Term ROE Again 'Target Price ↓'

[Asia Economy Reporter Lee Seon-ae] Hanwha Investment & Securities announced on the 3rd that it maintains a neutral (hold) investment opinion on KakaoBank and lowers the target price by 33% to 20,000 KRW. This adjustment reflects a decline in the mid-to-long-term return on equity (ROE) expectations.

Kim Do-ha, a researcher at Hanwha Investment & Securities, stated, "In addition to the increase in operating expenses (selling, general and administrative expenses and loan loss provisions), there is a slowdown in top-line growth and a decrease in platform transaction volume." He added, "Considering that the current delinquency rate increased by 8 basis points and non-performing loans rose by 13% compared to the previous quarter, although margin improved due to the expansion of mid-credit loans, an increase in credit cost is also expected." He continued, "Reflecting the expansion of net margin, slowdown in loan growth, increase in SG&A expenses, and rise in loan loss costs in the mid-to-long-term estimates used to calculate the company's target price, the expected ROE falls to 15.4% (previously 18.8%), so the target price is lowered by 33%. Since there is no upside potential from the current stock price, the investment opinion is maintained as neutral."

KakaoBank's operating profit for the third quarter was 104.6 billion KRW, which was 11% below the company's estimate but considered in line with market expectations. The decline in operating profit was caused by a shift to a loss in fee income and a continuous increase in SG&A expenses.

For the bank, loans increased by 2.4% compared to the previous quarter. Although the net increase in guarantee loans, which had risen by more than 1 trillion KRW in the previous quarter, decreased to less than 700 billion KRW this quarter, the growth was supported by an expanded increase in mortgage loans. Unlike commercial banks, time deposits decreased compared to the previous quarter, but low-cost deposits increased.

Due to the sharp rise in loan interest rates and defensive funding portfolio management, the net interest margin (NIM) rose by 27 basis points from the previous quarter. On the other hand, SG&A expenses increased again by 3% following a 15% rise in the previous quarter, driven by continued increases in labor and IT costs. The loan loss cost ratio was 0.54%, rising by 2 basis points excluding additional provisions.

On the platform side, securities account openings in the third quarter were 80,000, down 27% from the previous quarter. Linked loan transaction volume was 414 billion KRW, also down 15%. Issuance of affiliated credit cards was 53,000, an increase of 2,000 from the previous quarter. While costs to acquire customers continue to rise, overall transaction volume declined, resulting in fee and platform profit turning to a loss.

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