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Kookmin Bank Update Report – 1Q 08 Results Focus on growing non-banking businesses to support long term growth Common Stock
Ticker: Target price: Current price:

30 June 2008


Fundamental research indicates an 18% upside in the common stock over the next 6–12 months. We have calculated the target price based on fundamental factors, using a weighted average of target prices obtained through DCF and comparative valuation methodologies.

060000.KS KRW72,900 KRW61,700 We reiterate the common stock a BUY on fundamental grounds, with a 6-12 month target price of KRW72,900.

Ticker: Target price: Current price:

KB US$100.14 US$58.86

The ADR is expected to appreciate by approximately 70% over the next 6–12 months. In addition to the 18% fundamental upside, we anticipate around 52 percentage points’ further upside attributable purely to the appreciation of the Korean won against the US dollar over the same period. We continue to value the company over 6-12 months, as we anticipate a significant currency impact on the ADR in the medium term1. We reiterate the ADR (1 ADR = 1 common share) a BUY, with a 6-12 month target price of US$100.14.

Supervisor: Somnath Banerjee Analyst: Vishal Narnolia Editor: James Smithies Global Research Director: Satish Betadpur, CFA Next news due: 2Q 08 results, 29 July-02 August 2008

Investment horizon - short term actionable trading strategies
This report addresses the needs of strategic investors with a long term investment horizon of 6-12 months. If this report is provided to you by your broker under the Global Settlement, you may now also access (free of charge) the short term trading outlook that we publish from time to time for this issuer, looking at the coming 5-30 days for readers with a shorter trading horizon. These are available online only at

Report summary
Kookmin Bank’s (Kookmin) 1Q 08 Net Interest Income (NII) and adjusted2 net income were both short of our estimates, despite growth in the loan portfolio, due to lower Net Interest Margin (NIM) and a decline in non-interest income. Despite growth in the bank’s loan portfolio, the bank’s Non-performing Loan (NPL) ratio improved to 0.79% (1.0% in 1Q 07), reflecting improvement in asset quality. However, on a q-o-q basis, there has been marginal deterioration in asset quality. Going forward, we remain concerned about the possibility of higher interest rates by the Bank of Korea, in response to inflationary pressures, which would lift the bank’s cost of funding and have a negative impact on its NIM. However, we expect the inflationary pressure to decline, going forward, favoring the bank over the long term. In addition, the bank’s plan to form a financial holding company and fold its credit card unit into a new subsidiary will enable the company to focus on growing its non-banking businesses, enhancing its future growth potential. Therefore, we believe that the Kookmin common stock represents an attractive investment opportunity at current levels.

Currency impact for US investors1
The impact by itself of the anticipated currency movements on the ADR (now US$58.86), without considering changes in the share price, is positive and is expected to be: Over 6 months: US$72.59 Over 12 months: US$84.75

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Refer to page 4 for footnotes