[THE INVESTOR] JB Financial Group’s full ownership of Kwangju Bank will be a boon for its stock price, which has struggled to gain traction despite the banking unit’s upbeat earnings in recent years, according to local analysts on July 16.
JB Financial, the largest shareholder of Kwangju Bank with a 56.97 percent stake, said on July 13 it will acquire a remaining 43.03 percent stake in a share swap deal in October. Following the deal, the bank will become the group's fully owned subsidiary.
“JB Financial will improve its profitability and financial stability overall by acquiring the profitable banking unit,” said Yoo Seung-chang, an analyst at KB Securities. “A share swap deal that doesn’t hurt its CET1 (common equity tier 1) ratio would be a boon for investors.”
Following the share swap, JB Financial will see ROA (returns on assets) and ROE(returns on equity) increase 0.15 percent and 1.4 percent, respectively, while the debt-to-equity ratio will decrease 3.6 percent .
Kim In, an analyst at Eugene Investment and Securities, also offered a positive outlook, saying JB Financial’s stock price has not yet fully enjoyed Kwangju Bank’s upbeat earnings in recent years. Shares of Kwangju Bank soared 41 percent since 2016, while the price for JB Financial increased only 5.1 percent during the same period.
“The full ownership will help resolve a conflict of interest among JB Financial and Kwangju Bank shareholders,” he said. “As the share swap deal comes earlier than expected, concerns over possible capital increase and the undervalued stock price are also expected to be greatly eased.”
Under the share swap ratio based on stock prices over the past month, a Kwangju Bank share will be exchanged for 1.8814503 shares in JB Financial. Shareholders who oppose the deal can exercise their appraisal rights to sell their shares to the firms.
“Considering the share swap is a positive event not just for JB Financial but also for Kwangju Bank, the size of the appraisal claims will be limited,” said Jeffery Choi, an analyst at Daishin Securities, raising JB Financial’s target price to 8,500 won (US$7.53).
On July 13 when the share swap was announced, shares of JB Financial and Kwangju Bank surged 6.9 percent and 6.1 percent, respectively, to close at 6,050 won and 11,300 won.
By Lee Ji-yoon (firstname.lastname@example.org)