Daol Investment & Securities on the 13th said earnings at Korea Investment Holdings are set to rise on increased domestic stock and exchange-traded fund (ETF) transaction value. It kept its "Buy" rating and raised the target price to 350,000 won from 285,000 won. The previous trading day's closing price for Korea Investment Holdings was 241,500 won.
Daol Investment & Securities projected Korea Investment Holdings' first-quarter operating profit on a consolidation basis at 889.3 billion won and profit attributable to owners at 696.1 billion won. Those are up 67.9% and 51.8%, respectively, from a year earlier. It also said the figures are expected to beat the market consensus by 12%.
Kim Ji-won, an analyst at Daol Investment & Securities, said, "As the average daily transaction value for domestic stocks and ETFs rises sharply, fee revenue will increase significantly," adding, "Brokerage institutional sector revenue will climb 68.3% from the prior quarter."
However, the investment banking (IB) institutional sector is expected to show a relatively stable trend. Kim said, "Despite sluggish industry conditions, traditional IB fee revenue should be solid, backed by underwriting and leading multiple small and mid-size initial public offering (IPO) deals and mandates in the debt capital market (DCM)," adding, "However, large swings will likely be limited."
Non-fee institutional sector revenue is expected to rise only 2% from the prior quarter. Kim said, "Net interest income is expected to increase 2% quarter over quarter," adding, "There may be some impact from the suspension of certain transactions due to the exhaustion of retail margin lending limits during the quarter, but overall interest revenue will expand as the average retail margin balance increases."
Operating and other gains are expected to improve. Kim explained, "There is a base effect from additional provisions at the end of the prior quarter, and gains on valuation of held revenue securities will increase on a strong stock market," adding, "Earnings growth from the subsidiary Value Asset Management's assets under management (AUM) expansion is also expected." Kim added, "A reduction in bond valuation gains and the potential for foreign-exchange losses on held dollar bonds are partial headwinds."
From a valuation perspective, the shares still appear undervalued. Kim said, "Even with a high return on equity (ROE) expected, the price-to-book ratio (PBR) remains low," analyzing that "concerns over asset quality related to exposure to overseas private credit within IMA (individual managed account) assets under management are acting as a discount factor for the valuation."
However, Kim said, "IMA is operated as a separate account and does not directly affect profit and loss," evaluating that "as there have been no realized asset-quality issues to date, excessive concerns are limited."