The author is an analyst for NH Investment & Securities. He can be reached at junsup@nhqv.com -- Ed.
From now forward, we believe that the key to determining the value of financial sector plays is to be the existence of specific shareholder return policies and the market's level of trust in them.
Boosting value of financial stocks requires specific and persuasive shareholder return policies
The Financial Services Commission and KRX recently unveiled its Corporate Value-up Program. The main contents include encouraging listed companies to undertake voluntary measures to boost their EV, inducing investment in the market for superior companies, and establishing a Value-up Support System. Specific tax benefit announcements are expected to follow, and Value-up Guidelines are also scheduled to be confirmed within 1H24.
With many investors having up until now approached financial sector plays from the perspective of policy expectations, we now expect to see a switch to the perspective of separating the grain from the chaff. In our view, the key issues moving ahead are to be: 1) whether a company presents a mid/long-term shareholder return policy that well reflects its ability and willingness to benefit shareholders; and 2) how persuasive such policies are in the eyes of the market.
Banks: Most advanced in terms of shareholder return policies
Among the financial industry segments, banking stocks are judged to be ahead of other financial segments in terms of policy. Korea’s four financial holding companies have all presented and expanded specific mid/long-term shareholder return policies, resulting in total shareholder return rate hikes of 3~4bp y-y in 2023. Standing to benefit amid the new landscape are the share prices of banking plays that meet a CET1 of 13% (currently KB, Shinhan, and Hana) and for whom shareholder return rate uptrends are predicted to continue over the mid/long-term haul. Although short-term adjustments are possible, such players’ share prices are to be bolstered by anticipated stable earnings.
Insurance: Need shareholder return policy that meets market expectations
No insurance company has yet announced a clear shareholder return policy, but several of them are preparing to announce specific measures within this year. In our view, whether their policies satisfy market expectations will determine share price rise. Currently, we consider Samsung Life as being the most advanced insurance play in terms of shareholder return capacity, willingness, and policy initiatives.
Securities: Time to recognize importance of enhancing shareholder value
We expect securities firms to participate actively in improving their EV status, viewing their PF-related share price declines over the past two years as having been excessive. We point out that their financial burdens were eased by completing write-offs of large-scale non-performing loans in 2023. Recently, market expectations toward Mirae Asset Securities have upped, with the company being the first to announce an upgraded shareholder return plan. And, Kiwoom Securities is soon expected to start implementing its shareholder return improvement plans.