[Click eStock] Korea Financial Group Posts Earnings Surprise Even Excluding One-Time Gains

Hyundai Motor Securities maintained a buy rating and a target price of 83,000 KRW for Korea Financial Group on the 8th, recommending a gradual increase in interest.

Lee Hong-jae, a researcher at Hyundai Motor Securities, stated, "The main reason for the strong performance in the first quarter was the increase in trading valuation gains. Since losses on unsettled receivables related to Contract for Difference (CFD) transactions are expected to be partially reflected in the second quarter, profits and losses in the second quarter are likely to decrease compared to the previous quarter. Additionally, the relatively high dependence on real estate finance across the holding company’s subsidiaries, not just Korea Investment & Securities, remains a burden." He added, "However, with the recent activation of the real estate PF creditor consortium, uncertainties are easing. Despite Korea Investment & Securities’ high dependence on real estate finance in the first quarter, the decline in IB-related performance compared to the previous year is not significantly more pronounced than competitors, indicating better-than-expected results. Coupled with the recent improvement in spread margin, the increased investment capacity of Korea Investment & Securities is expected to positively impact profitability recovery."

Korea Financial Group’s first-quarter net income attributable to controlling shareholders was 301.2 billion KRW, down 1.8% year-on-year but exceeding consensus and our estimates by 40.6% and 34.5%, respectively, delivering an earnings surprise. One-time gains of 44.4 billion KRW from the sale of KakaoBank shares by Korea Investment Value Asset Management were reflected. Even excluding this, Korea Investment & Securities’ trading-related performance significantly exceeded expectations, recording profits in the 250 billion KRW range. Another notable point was Korea Investment & Securities’ separate profit and loss reaching 1.9 trillion KRW, due to dividends of 1.66 trillion KRW paid by Korea Investment Value Asset Management to Korea Investment & Securities related to KakaoBank shares (an internal transaction, thus not reflected in the holding company’s consolidated basis). Excluding this, Korea Investment & Securities’ separate profit and loss was 204.7 billion KRW, down 20.9% year-on-year.

Korea Investment & Securities’ commission income improved by 43.2% quarter-on-quarter, supported by an increase in average daily trading volume and a slight recovery in IB-related fees outside of the weak real estate finance sector. Operating and interest income reached 231.1 billion KRW due to increased bond trading valuation gains following a decline in market interest rates. Interest expenses increased by 19.2% compared to both the previous year and the previous quarter, mainly due to an 18.2% rise in borrowed debt. Short-term funding such as call money and issuance of promissory notes also expanded by 110 billion KRW quarter-on-quarter. Meanwhile, combined profits from savings banks and capital companies amounted to 47.8 billion KRW, showing a recovery in profit resilience compared to the previous quarter. However, profitability pressures are expected to continue due to asset quality deterioration from rising delinquency rates and increased funding costs.

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