Asia Pacific Equity Research 22 October 2009 Overweight Busan Bank 005280.KS, 005280 KS 3Q09 results review: Solid earnings and extended Price: W14,100 ▲ Price Target: W17,500 visibility Previous: W14,000 • Solid earnings by Busan Bank in 3Q09: Busan Bank (BSB) reported South Korea a net profit of W84 billion for 3Q09, which was substantially higher Banks / Bank-centric FHCs than our forecast of W65 billion and the consensus estimate of W69 Gil Hyung KimAC billion. During the quarter, BSB recognized a one-off gain of ~W3 (82-2) 758-5900 billion from the gain on the sale of investment securities.
[email protected] • Scott YH Seo Earnings upside mainly driven by improved asset quality: Credit (82-2) 758 5759 costs for BSB (adjusted for the net loss on loan sales) decreased to
[email protected] 80bp over average loans in 3Q09 from 96bp in 2Q09 and 210bp in J.P. Morgan Securities (Far East) Limited 1Q09 due to improved credit quality at BSB (pre-charge off/NPL sale Price Performance delinquency ratio of 1.81% in 3Q09 from 2.06% in 2Q09). The quarterly net interest margin was maintained at 3.1% from a quarter 16,000 ago, when adjusted for one-off items (i.e. credit card fee income of W 10,000 +2bp in 2Q09 and FX impact of 5bp in +3Q09). On the other hand, non-interest income declined by around W10 billion in 3Q09 from the 4,000 previous quarter due to lower fee and securities-related income. Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 005280.KS share price (W KOSPI (rebased) • We maintain OW on BSB: We believe BSB offers high earnings YTD 1m 3m 12m visibility due to: (1) resistant NIM due to its strong deposit franchise Abs 152.8% 7.6% 34.3% 82.7% (stability in low-cost deposit flow); (2) prudent management of Rel 105.7% 10.1% 23.2% 44.4% overhead costs (5% reduction in salaries in 4Q09 and 50% cut on the reimbursement of unused vacations in 2010); and (3) persistent asset Company data quality trend.