By Nam Hyun-woo
The shares of Kakao showed a downturn Wednesday, following an analyst's report suggesting a "sell" opinion on the operator of Korea's dominant messaging app Kakao Talk and the leading entity of the new online-only bank, Kakao Bank.
Kakao ended at 114,500 won, down 2.97 percent from 118,000 won a session earlier. The KOSPI stock made a weak start, once retreating to 111,000 won in the morning. A slight recovery followed in the afternoon, but it never made it to the 118,000 won level, due to strong offloading by foreigners.
The drop came after a UBS Securities report which issued a sell opinion on Kakao and kept its price target at 75,000 won, far lower than Wednesday's closing price. It is a rare case of a securities company issuing a sell opinion on a domestic firm.
In the report, analyst Kim Tae-won said Kakao's stock is "overvalued," adding the recent frenzy on Kakao Bank seems meaningful but Kakao won't be able to expect substantial profits from the internet-only bank.
"Compared to similar internet service providers, the current stock price of Kakao is overvalued," the report read.
The report put a damper on Kakao's recent surge came after the launch of Kakao Bank on July 27. Kakao stocks jumped from 105,500 won to 111,000 won and peaked at 120,000 won on July 31.
Kakao Bank enjoyed explosive popularity after its launch, with the number of accounts opened topping 1 million just five days after the launch. As of Monday, it extended loans worth 323 billion won ($287.14 million) and received 344 billion won.
Despite its successful start, not only UBS analysts but also others at domestic securities firms doubt the bank's short-term profitability.
"In order to draw customers, Kakao Bank declined the margin between lending and savings interests, as well as cutting profits from fees," Hanwha Investment & Securities analyst Kim So-hye said.
"Also its huge marketing costs will make it difficult for the bank to reach its break-even point within three years."
Kakao Bank started with 300 billion won capital, but Kim estimated it now has less than 200 billion won, putting itself in desperate need of a capital injection from Kakao.
Kakao is playing the leading role in Kakao Bank but the info-tech company's share in the bank remains at 10 percent, because of Korea's law separating banking from commerce. Korea Investment Holdings has a 58 percent share in the bank.
To meet the purpose of bringing in a technological touch to finance, a revision to the Banking Act allowing info-tech companies to have up to a 50 percent share in internet-only banks is pending at the National Assembly, but it is yet to show noticeable progress.
The shares of Kakao showed a downturn Wednesday, following an analyst's report suggesting a "sell" opinion on the operator of Korea's dominant messaging app Kakao Talk and the leading entity of the new online-only bank, Kakao Bank.
Kakao ended at 114,500 won, down 2.97 percent from 118,000 won a session earlier. The KOSPI stock made a weak start, once retreating to 111,000 won in the morning. A slight recovery followed in the afternoon, but it never made it to the 118,000 won level, due to strong offloading by foreigners.
The drop came after a UBS Securities report which issued a sell opinion on Kakao and kept its price target at 75,000 won, far lower than Wednesday's closing price. It is a rare case of a securities company issuing a sell opinion on a domestic firm.
In the report, analyst Kim Tae-won said Kakao's stock is "overvalued," adding the recent frenzy on Kakao Bank seems meaningful but Kakao won't be able to expect substantial profits from the internet-only bank.
"Compared to similar internet service providers, the current stock price of Kakao is overvalued," the report read.
The report put a damper on Kakao's recent surge came after the launch of Kakao Bank on July 27. Kakao stocks jumped from 105,500 won to 111,000 won and peaked at 120,000 won on July 31.
Kakao Bank enjoyed explosive popularity after its launch, with the number of accounts opened topping 1 million just five days after the launch. As of Monday, it extended loans worth 323 billion won ($287.14 million) and received 344 billion won.
Despite its successful start, not only UBS analysts but also others at domestic securities firms doubt the bank's short-term profitability.
"In order to draw customers, Kakao Bank declined the margin between lending and savings interests, as well as cutting profits from fees," Hanwha Investment & Securities analyst Kim So-hye said.
"Also its huge marketing costs will make it difficult for the bank to reach its break-even point within three years."
Kakao Bank started with 300 billion won capital, but Kim estimated it now has less than 200 billion won, putting itself in desperate need of a capital injection from Kakao.
Kakao is playing the leading role in Kakao Bank but the info-tech company's share in the bank remains at 10 percent, because of Korea's law separating banking from commerce. Korea Investment Holdings has a 58 percent share in the bank.
To meet the purpose of bringing in a technological touch to finance, a revision to the Banking Act allowing info-tech companies to have up to a 50 percent share in internet-only banks is pending at the National Assembly, but it is yet to show noticeable progress.
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