Can Kbank exceed W5 tril. in IPO valuation?

Kbank headquarters in central Seoul / Courtesy of Kbank

Kbank, one of three domestic internet-only banks along with KakaoBank and Toss Bank, aims to pursue an initial public offering (IPO) again this year, after it withdrew its listing plan last year amid worsening market conditions. Industry watchers' attention is now on how high a valuation the internet-only lender can get from the stock market.

An official from Kbank told The Korea Times on Friday that the plan to go public this year was approved in a board meeting the previous day. Following the board's resolution, the digital bank has officially kicked off the listing process.

With the goal of completing the procedure by the end of this year, the bank plans to re-select its lead and joint underwriters for the IPO. In 2022 it had previously selected NH Investment, J.P. Morgan and Citigroup Global Markets as lead underwriters, with Samsung Securities as a joint underwriter, targeting an IPO by 2023. Yet the contracts have since expired, and the bank plans to newly designate the group of underwriters in the near future.

The key to the success of the bank's IPO is the valuation level.

Now the investment banking industry is expecting Kbank's valuation to be around 5 trillion won ($3.73 billion) at this year's IPO, considering the average price-to-book ratio (PBR) of comparable peer group companies.

In September 2022 when the internet-only bank passed a preliminary review for its listing at the Korea Exchange (KRX), the bank expected its corporate valuation to be at least 7 trillion won. But its valuation plunged below 4 trillion won due to global interest rates soaring in early 2023, so the digital bank decided to withdraw the IPO plan to seek out a better timeline in the future.

Kbank's entire capital stood at 1.8 trillion won, as of the end of the third quarter last year. Given the PBR of KakaoBank — the representative peer group company of Kbank — is 2.28 times, one traditional calculation method for corporate valuation suggests Kbank's market value can exceed 4.27 trillion won at least.

Improvements in the internet-only bank's financial soundness and profitability throughout the past year, in addition to the recent upward trend of KakaoBank shares, have also contributed to the increased possibility of Kbank's successful IPO.

Market insiders view that Kbank's corporate valuation can exceed 5 trillion won during the underwriting and bookbuilding process, considering KakaoBank determined its valuation based on the average PBR of 7.3 times, when comparing with foreign internet banks.

The fact that the brokerage sector recently proposed Toss's market valuation to be 15 trillion won to 20 trillion won at its future IPO also raises the bar for K bank's expectations.

Another market analyst points out that the global interest rate cuts expected later this year could offer a boon factor for the digital bank.

"When the market enters the phase where interest rates remain low, an internet-only bank's valuation will be impacted positively, as its financial soundness will be improved with the expected growth in platform and loan businesses," said Baek Doo-san, a researcher at Korea Investment & Securities.

All in all, market expectations are on the rise. Kbank's unlisted shares were traded at 11,200 won at an over-the-counter market platform on Friday, marking a 10.98 percent increase from the previous day. The bank's market cap based on the traded price will be 5.15 trillion won, when applying the bank's previous plan of offering 98 million new shares during its IPO, in addition to its existing 375.7 million shares.

Since opening as Korea's very first internet-only bank in April 2017, Kbank has continued its solid growth. The bank highlighted that the number of its customers increased to 9.53 million at the end of last year, from 2.19 million at the end of 2020. During the same period, the deposit balance rose from 3.75 trillion won to 19.6 trillion won, while the loan balance increased from 2.99 trillion won to 13.84 trillion won, roughly fivefold.

The bank has also demonstrated its stable profitability. After recording its first annual net profit in 2021, the bank went on to log a net annual profit of 83.6 billion won in 2022, and 38.2 billion won during the first three quarters of last year.