By Lee Kyung-min
Korea's top two financial groups _ KB and Shinhan _ are extending their cut-throat competition to the stock market in the wake of the latter's recent acquisition of Orange Life Insurance, formerly ING Life Korea.
Shinhan is beating KB in terms of total assets, as the latest acquisition has increased these by 31 trillion won to 484 trillion won, compared to KB's 463 trillion won as of June. But, in market capitalization, KB is still ahead of Shinhan.
However, the 2.29 trillion won ($2.06 billion) deal, which Shinhan signed with MBK Partners, a major local private equity, Sept. 5, has shortened the market capitalization gap between the two to about 63.18 billion won ($56.7 million) as of Sept. 3 from 5 trillion won in February.
Shinhan, whose nine-year lead over KB in assets from 2008 to 2017 came to a sudden end last year due to the latter's aggressive M&As, is set to take back its former position through the group's third-largest acquisition. The two previous acquisitions were the 7.2 trillion-won takeover of LG Card in 2007 and 3.4 trillion won it paid for Chohung Bank in 2006.
Shinhan saw a drop of 8.11 percent in its market cap between February and September, where the aggregate value of KB's stock declined by 20.36 percent, a far greater drop triggered due to a lack of price-hiking “good news” such as M&As or company stock buybacks, according to an analyst.
“Shinhan Card, the major cash cow of the group, will continue to struggle for the time being due to the government's tightened regulations. But the recent acquisition could signal higher profit prospects for the group through non-card subsidiaries,” said Kang Hye-seung a researcher at Mirae Asset Daewoo.
However, another analyst said the post-merger integration between Shinhan and Orange will be the key to determining the future course of Shinhan shares, noting that there could be some conflict because Orange was previously managed by ING Group, a global financial company.
“Whether Shinhan would overtake KB in the stock market hinges on how well company management handles possible conflicts between the two entities with very different corporate cultures during the process of integration,” said Jeffery Choi, a general manager at Daishin Securities.
According to FnGuide, a financial information services provider, Orange Life Insurance is estimated to generate 35 billion won in profit in 2018, which would in turn increase the group's profit by over 20 billion won in 2019.
The market capitalization of KB and Shinhan was valued at 23.24 trillion won and 21.41 trillion won, respectively, Tuesday, with their shares ending at 54,500 won and 45,350 won.
Shinhan's net income is estimated to have exceeded that of KB, following the merger with Orange Life, which reported 340 billion won in net income in 2017. Shinhan and KB posted net income of 1.79 trillion won and 1.91 trillion won, respectively, in the first half of 2018.