The author is an analyst for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
WFG’s CET1 ratio is now at 11.9%. While we positively view y-y improvement in the figure, we believe that CET1 ratio needs to be actively strengthened in order for WFG to meet market expectations for shareholder return.
Slightly raise TP
We raise our TP for WFG from W16,000 to W18,000, reflecting a risk premium adjustment (6% → 5.2%) now that market capitalization tops W10tn. Our new TP was calculated by applying a target P/B of 0.43x to 2024E BPS of W40,582.
Capital ratio to be key: CET1 ratio of 13% needs to be achieved early
Recently, expectations/demands for increased shareholder return have been amplifying throughout the stock market. Looking at the recent capital regulation environment, consensus regarding the necessary conditions for increasing shareholder returns for banking stocks is a CET1 ratio of 13%. In the future, it is highly likely that the level of shareholder return and share prices for banking players will hinge upon whether CET1 ratio exceeds 13%.
WFG’s CET1 ratio at end-2023 stood at 11.9%, showing a q-q decline on higher loan growth than at its peers. Although it is positive that the company is displaying active efforts to defend DPS (DPS W1,000, -13% y-y) despite poor performance in 2023, shareholder return and a widening share price gap with competitors appear inevitable at the current capital ratio. In our opinion, it seems necessary to achieve a CET1 ratio of 13% early through active improvement of return on risk weighted assets (RORWA) and/or controlling of loan growth.
4Q23 review: Books NP of W78.5bn, -84.5% y-y
WFG posted 4Q23 NP (excluding minority interest) of W78.5bn, significantly missing consensus. We mainly attribute this disappointing performance to the booking of non-recurring provisioning of W525bn (W229bn reflecting the bank’s future economic outlook, W200bn for non-bank real estate PFs, and W96bn related to Taeyoung E&C). Financial support program costs of W170bn were also reflected.