Why foreign investors dump KB shares?

KB Financial Chairman Yoon Jong-kyoo

By Lee Kyung-min

KB Financial Group continues to see its share price drop following continued foreign sell-offs, Friday, falling further behind its rival Shinhan Financial Group.

By market capitalization, KB with about 18 trillion won ($15.8 billion) is trailing far behind Shinhan’s 28 trillion won.

According to Korea Exchange (KRX), KB shares have dropped 8.3 percent this year.

On March 13, the price fell to 41,800 won, hitting a 52-week low.

The drop is highly “troubling” given other financial-related shares saw a 3.6 percent average increase over the past three months.

The poor performance is all the more highlighted by a 5.6 percent increase of the benchmark KOSPI over the same period, largely considered an indication of a return to a bullish run after a huge tumble in the stock market in late 2018.

The notable drop is largely driven by foreign investor-dumped shares worth 184 billion won, which has put it third on the list of shares sold off by foreign investors this year.

By contrast, Shinhan Financial Group’s share price has seen an increase of 10.6 percent this year, thanks in large part to about 15 billion won in solid foreign buying.

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The share prices of the two reflected their respective earnings in the fourth quarter in 2018.

KB posted 340 billion won in operating sales for the October-December period in 2018, a 60 percent decline from a year earlier. Its net income stood at 200.5 billion won.

Shinhan logged 860 billion won in operating profit in the same period, a 154 percent increase from a year earlier. Its net income jumped 140 percent from a year earlier to 413.3 billion won.

Market analysts say poor performance of some subsidiaries, compounded by overspending on employees’ retirement benefits, led to the company’s overall decline in the three-month period.

“The group’s securities and non-life insurer arms have had losses far greater than market consensus in the fourth quarter of 2018,” a Korea Investment and Securities analyst said.

KB Securities logged a net loss of 32.4 billion won in the fourth quarter of 2018.

KB Insurance posted only 1.4 billion won in net income in the same period, falling about 100 billion won short compared to previous quarters amid overall deteriorating bottom lines in non-life insurance industries.

The group also ended up spending 286 billion won in lump sum severance pay, 82 billion more than the initially earmarked amount, the analyst said.

Meanwhile, Shinhan Financial posted a net income of 3.16 trillion won in 2018, up 8.2 percent from the year before, while KB Financial had 3.07 trillion won in net profit, followed by Hana Financial Group with 2.24 trillion won and Woori Bank Group, 2.02 trillion won.

KB Financial shares ended at 43,950 won Friday, up 3 percent from a day earlier, but still fell short of climbing back to 44,000 won mark hit in mid-February before it plunged and remained low for weeks thereafter.