Diversification Into Nonbanking Sectors Could Improve Future Earnings Stability

Key Takeaways

• Emphasis on sustainability and diversified revenue streams from nonbanking subsidiaries could lead to more stable earnings and enhanced shareholder value.
  
• Strategic asset growth in SMEs and SOHOs, combined with cost efficiency, may improve loan quality, net interest income, and overall profit margins.
  
• Economic uncertainties and policy changes threaten KB Financial Group's consumer lending, earnings stability, and net margins through increased costs and market volatility.

Catalysts

Provides various banking and related financial services to consumers and corporations in South Korea, the United States, New Zealand, China, Cambodia, the United Kingdom, Indonesia, and internationally.

• KB Financial Group's emphasis on sustainability and the implementation of the Sustainable Value-Up Plan, alongside positive market reactions, could lead to more reliable and predictable future earnings growth. This could improve long-term revenue stability and enhance shareholder value.
  
• Significant expansion in net interest margin (NIM) contributions from nonbanking subsidiaries such as credit cards and insurance suggests diversified revenue streams, which may alleviate pressure from traditional banking income and lead to future revenue growth.
  
• The strategic focus on growth in high-quality assets, particularly in SME and SOHO loans, indicates future loan portfolio quality improvement, potentially improving the net interest income and reducing credit-related costs, positively impacting net margins.
  
• Ongoing share buyback programs and increased dividends enhance shareholder returns, while maintaining a healthy CET1 ratio. This shareholder-centric approach could boost earnings per share (EPS) by reducing outstanding shares.
  
• Continued efforts to improve cost efficiency through strategic SG&A management and the minimization of fixed costs, alongside the maintenance of a conservative provisioning stance, could improve profit margins and operational efficiency, enhancing net profit growth.

KB Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming KB Financial Group's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 32.5% today to 34.5% in 3 years time.
• Analysts expect earnings to reach ₩6366.2 billion (and earnings per share of ₩19348.29) by about March 2028, up from ₩4878.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 8.1x on those 2028 earnings, up from 6.2x today. This future PE is greater than the current PE for the US Banks industry at 5.0x.
• Analysts expect the number of shares outstanding to decline by 1.34% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

KB Financial Group Future Earnings Per Share Growth

Risks

• Concerns over household debt and real estate market uncertainties could impact consumer lending and asset quality, potentially affecting KBFG's revenue and net margins.
  
• Financial market volatilities, driven by factors such as major countries' monetary policy changes, U.S. political events, and fluctuating FX rates, could lead to instability in earnings and net margins.
  
• Rate cut cycles may erode profitability, posing a risk to net interest margins and earnings capability.
  
• Sizable one-off expenses and decreased gains from securities and derivatives may contribute to earnings volatility and negatively impact net profit consistency.
  
• Increased provisioning for credit losses, especially in response to real estate and overseas exposure risks, could lead to higher operational costs and affect net margins.

Valuation

• The analysts have a consensus price target of ₩113909.091 for KB Financial Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩121000.0, and the most bearish reporting a price target of just ₩90000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩18441.7 billion, earnings will come to ₩6366.2 billion, and it would be trading on a PE ratio of 8.1x, assuming you use a discount rate of 8.1%.
• Given the current share price of ₩81200.0, the analyst price target of ₩113909.09 is 28.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.