KB Financial Group, Inc. :KB-US: Earnings Analysis: Q3, 2017 By the Numbers : December 4, 2017

KB Financial Group, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of KB Financial Group, Inc. – Mizuho Financial Group, Inc. Sponsored ADR, Shinhan Financial Group Co., Ltd. Sponsored ADR, Bank of New York Mellon Corporation, ICICI Bank Limited Sponsored ADR, Australia and New Zealand Banking Group Limited Sponsored ADR, National Australia Bank Ltd Sponsored ADR, Mitsubishi UFJ Financial Group, Inc. Sponsored ADR and Woori Bank Sponsored ADR (MFG-US, SHG-US, BK-US, IBN-US, ANZBY-US, NABZY-US, MTU-US and WF-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 5,641.42 million, Net Earnings of USD 794.29 million.
  • Net interest income margins narrowed from 53.22% to 32.78% compared to the same period last year.
  • Net loan assets changed 6.39% compared to same period last year and 2.32% from previous period, total deposits changed 3.05% compared to same period last year and 2.35% from previous period.
  • Year-on-year change in operating cash flow of -121.39% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings grew despite decline in operating margins and pre-tax margins compared to same period last year.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 5641.42 5476.9 3337.18 2681.84 2744.57
Revenue Growth (%YOY) 105.55 114.9 40.05 2.29 19.29
Earnings (mil) 794.29 873.25 765.69 386.75 507.44
Earnings Growth (%YOY) 56.53 74.56 67.45 29 46.98
Net Margin (%) 14.08 15.94 22.94 14.42 18.49
EPS 1.97 2.19 1.92 0.97 1.34
Return on Equity (%) 2.73 3.06 2.83 1.46 1.92
Return on Assets (%) 0.85 0.98 0.94 0.49 0.65

Access our Ratings and Scores for KB Financial Group, Inc.

Market Share Versus Profits

Revenues History
Earnings History

KB-US’s change in revenue this period compared to the same period last year of 105.55% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that KB-US is holding onto its market share. Also, for comparison purposes, revenues changed by 3.00% and earnings by -9.04% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

KB-US’s earnings rose year-on-year. But this growth has not come as a result of improvement in net interest income margins or any loan loss improvement activities in its operations. Net interest income margins were 32.78% compared to 31.99% in the immediate last period. Net interest income after provisions margins were 30.08% this period compared to 31.14% in the previous period. In addition, loan loss provisions as a percentage of net interest income were 8.24% this period and 11.95% a year ago.

Net Interest Income Margin Versus Loan Loss Provisions Margin

Quadrant label definitions. Hover to know more

High Risk; High Reward Loans, Risky Loan Portfolio, Conservative Loan Portfolio, Safer Loan Portfolio
Net Interest Income Margin History
Loan Loss Provisions Margin History

Net Loans and Total Deposits

A financial institution’s core operations represented by Net Interest Income and Net Interest Income after Provisions are dependent on both the growth and quality of its deposits as well as the growth and quality of its loans. A firm could boost its interest income in the short-term by just increasing its loan assets with less concern about their quality – but this would eventually lead to greater loan loss provisions. Similarly a drive to increase deposits could result in higher interest expenses and eventually effect the firm’s equity. It is thus important to understand net interest income performance in context to loan loss provisions, loan assets and deposits.

Loan Assets Growth Rate History (Qtr YOY)
Total Deposits Growth Rate History (Qtr YOY)

The firm’s decline in net interest income margins was influenced by both the relative drops in the levels of net loan assets and the level of total deposits as a percentage of equity. On an absolute basis, net loan assets changed 6.39% compared to the same period last year and 2.32% from the previous period. Total deposits changed 3.05% compared to the same period last year and 2.35% from the previous period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

KB-US’s change in operating cash flow of -121.39% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating’s margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin History
PreTax Margin History
EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables

Access our Ratings and Scores for KB Financial Group, Inc.

Company Profile

KB Financial Group, Inc. is a holding company that engages in providing financial services through its subsidiaries. It operates through the following segments: Corporate Banking, Retail Banking, Other Banking Services, Credit Card, Life Insurance, Investment and Securities business. The Corporate Banking business segment provides services such as loans, overdrafts, deposits, credit facilities and other foreign currency activities. The Retail Banking business segment offers services such as private customer current accounts, savings, deposits, consumer loans and mortgage loans. The Other Banking business segment provides services relating to banking business besides corporate banking and retail banking services. The Credit Card business segment offers services such as domestic as well as overseas credit and debit card operations. The Investment and Securities business segment provides services such as investment banking and brokerage. The Life Insurance business segment provides products such as life insurance and wealth management. The company was founded on September 29, 2008 and is headquartered in Seoul, South Korea.

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