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Morgan Stanley (NYSE:MS) downgraded KakaoBank Corp (KS:323410:KS) from Overweight to Equalweight on Wednesday, setting a price target of KRW29,500.00. The research firm described the move as a "tactical downgrade" following a recent rally that pushed the stock price near its target.
The downgrade comes despite Morgan Stanley’s continued view that KakaoBank is "a high quality operation with lower funding costs than incumbents and innovative products/services." The firm had previously upgraded KakaoBank to Overweight in August 2024.
A key rationale for the earlier upgrade was KakaoBank’s potential to overcome regulatory tightening on retail lending through growth in small office/home office (SoHo) lending. Morgan Stanley noted that SoHo lending has grown at a slower pace than anticipated, which it attributes to the "tough operational backdrop for SoHo."
The research firm suggested that a strong push into SoHo lending "may need to be delayed" given current market conditions. It also indicated that KakaoBank would likely be less affected by capital market reform than its peers.
Morgan Stanley further explained that KakaoBank’s "capital management upside is lower than large-cap banks" and its "non-interest income growth is expected to be less levered to a macro recovery," factors that contributed to the rating change.
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