Personal Credit Bureau Business to Expand

The authors are analysts of NH Investment & Securities. They can be reached at kyeongkeun.kang@nhqv.com and midas.sohn@nhqv.com, respectively. — Ed.

We expect SCI to enjoy a steady rise in profitability, driven by: 1) the expansion of its personal CB business thanks to amendments to Korea’s three major data privacy laws; 2) business restructuring; and 3) margin normalization at its credit rating subsidiary. We also foresee greater dividend payouts on solid financial conditions and healthy cash flow.

Personal CB business to expand on amendments to major data privacy laws

SCI Information Service’s personal credit bureau (CB) business should benefit from amendments to Korea’s three major data privacy laws. As its parent company is not a financial institute, SCI has so far faced difficulties building databases, a key for CB businesses. As the amendments are set to take effect in the not too distant future, however, SCI will soon be able to obtain databases from outside sources. Demand for CB ratings is likely to pick up in line with the expected rollout of new financial products at MyData and fintech companies. Accordingly, SCI is predicted to form partnerships with related companies (via equity investment and other methods), which should lead to synergy effects.

Undervalued; dividends to increase on improving profitability

SCI is undervalued, trading at a 2020E P/E of 15.0x (below the industry average P/E of 24.0x). However, its valuations are likely to re-rate on: 1) the expansion of the personal CB business, led by amendments to major data privacy laws; 2) profitability improvement on business restructuring and margin normalization at its credit rating subsidiary; and 3) greater dividend payouts thanks to its solid financial conditions and healthy cash flow.

We expect SCI to display a steady rise in profitability, backed by: 1) the expansion of the high-margin tech credit bureau (TCB) and asset management company (AMC) busineses; and 2) OPM improvement at subsidiary Seoul Credit rating (-47.5% in 2018→ 15.7% in 2019 → 19.5% in 2020E). In 2020, we estimate SCI’s 2020 sales at W56.69bn (+7.8% y-y) and OP at W10.57bn (+52.6%; OPM of 18.6%).

Considering its: 1) robust financial conditions, with net cash of W20bn as of end-2019; 2) dividend payout ratio of 48.9%, and 3) healthy cash flow from improving profitability, SCI is likely to increase its dividends going forward.