SEOUL: Last October, KB Financial took a step in the right direction when it named Yoon Jong-kyoo as its new CEO.
For years, KB (ticker: 105560.KR), one of Korea’s largest banks, has been held back by upheaval in the C-suite. Since taking office, Yoon, a bank insider and the former CFO, has taken steps to improve KB’s corporate governance, which has been problematic, and a major factor in the stock’s discounted valuation.
Barron’s highlighted Yoon’s appointment in a favorable story on KB last November. While the shares have dropped 2% since our recommendation, they are still attractive, and look poised to rise.
At a recent 40,300 won, the shares trade for 0.6 times book value, and represent a 20% discount to close competitor Shinhan Bank. Better governance will help to narrow the discount as will an expected improvement in earnings. In the next year, the stock could pop 25%.
KB has one of the largest banking franchises in South Korea, with assets of KRW308 trillion. KB handles consumer and commercial banking, credit cards, asset management, capital markets activities, and international banking.
KB has its roots in two government-formed banks, and its political ties have long been viewed as a conflict in how the bank was managed. Many of its leaders have been former government officials, rather than banking executives.
In the past six years, KB has witnessed six top management changes. Last September, CEO Lim Young Rok was forced out for mishandling the bank’s computer-system overhaul. Rok, a former vice finance minister, joined KB in 2010.
Under Yoon, KB has been overhauling corporate governance, and in February, nominated seven new independent directors and two executives, to the board. The changes could lead to better management selection in the future.
Business is also due to improve. KB has traditionally focused on mortgage lending, but is now adjusting its strategy. To boost profitability, management is expanding its commercial lending operation, a more lucrative business.
Daehyun Kim, an analyst at CIMB Securities, forecasts small and medium-sized business loans grew 3.5% in the March quarter, well above the three-year annual rate of 1.8%.
