Kookmin Bank Upped To Hold From Sell

We are raising our rating on Kookmin Bank (KB) to Hold from Sell as the stock has exceeded our target price, which remains $50. KB is expected to report third quarter results in late October. We are retaining our EPADS estimates at $7.55 for 2008 and at $8 for 2009.

We expect pressure on the net interest margin to offset loan growth, with only lackluster earnings growth over the near term. KB reported second quarter net earnings of KRW644 billion, down 10% from the KRW718 billion earned in the prior-year quarter, primarily reflecting higher loss provisions. Plans to convert into a holding company structure appear on track. KB cut its annual dividend by one-third in-line with its strategy to reduce the payout ratio to 30% from 50%.

The bank’s profitability measures deteriorated, with return on assets (ROA) decreasing to 1.08% in 2008 s second quarter from 1.41% in the prior-year quarter and return on equity (ROE) slipping to 15.9% from 19.6%. Its asset quality strengthened, with nonperforming loans to total loans falling to 0.66% at June 30 from 0.80% at the end of the year-ago quarter.

On August 14, Kookmin Bank adopted a stock repurchase plan. The company plans to repurchase 16,840,000 shares of common stock (representing 5.01% of the total issued shares of common stock) for about KRW1,000,296,000,000 from August 18, 2008 to November 17, 2008.

Subscribe by RSS Subscribe by Email