Kakaobank: foreigners rush where locals fear to step

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KakaoBank, a Korean digital lender, is the latest company to explain the doctrinal divide between tech fans and investors with a focus on fundamentals. Enthusiasts believe that the high prices not only reflect the devastating potential, but can increase it with a change in the currency “counterfeit until you do”. Skeptics avoid stocks whose valuations are contrary to traditional metrics.

At market value, KakaoBank has done it before. The stock has almost doubled from the price set for the IPO last Friday. As a result, it has a market capitalization of $ 32 billion, making it the largest local lender in South Korea.

There is a reason to be bullish. Unlike most fintechs, KakaoBank is profitable and has been for two years. It has more than 16 million customers and approximately $ 25 billion in assets. It is sold not only as a bank but also as a platform.

There are also very cautious causes. South Korean investors, another enthusiastic buyer of new listings, have shown little interest. Foreigners bought four times as many shares as local institutions.

They are unlikely to have signed up to the recent tightening of local banking rules. Regulators are starting to view KakaoBank as a bank. They demand an increase in the percentage of loans to clients with low to medium credit ratings, from 12% to 30% of the total. This should mean lower margins and more bad debt.

Shares of KakaoBank are trading at 11.3 times the price-to-book ratio, compared to 0.47 times that of KB Financial, South Korea’s largest traditional financial group. KakaoBank’s $ 25 billion assets are nowhere near KB’s $ 565 billion. Even with the current annual growth rate of 23%, it will take more than 10 years to catch up.

Three-quarters of last year’s operating profit came from interest income. Only 8% of businesses are attractive businesses linked to platforms that consist primarily of credit card and equity account partnerships. This group has a negative margin on non-interest income. The balance of benefits lies with skeptical fundamentalists, not tech evangelists, in the case of KakaoBank.

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