Shines as a Dividend Play
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
With both its business and funding environments improving since 2017, AJU is likely to deliver NP growth of 11.1% in 2020. Based on its current share price, the firm’s dividend yield should hit 5.4%. Thus, we expect the stock to shine more as a dividend play as yearend approaches.
Earnings to keep improving despite unfavorable environment
Despite an unfavorable business environment owing to Covid-19, AJU Capital has maintained sound results, delivering 2Q20 NP of W35.5bn (+21.5% y-y). While new business sales slowed 4.3% y-y in 2Q20 due to the unfavorable conditions and increased liability management, auto loans for used cars and corporate financing both displayed double-digit growth (+10.5% and +11.8% y-y, respectively). Also, NPL ratio improved to 2.03% (vs 2.28% in 2019).
Corporate credit spreads have widened amid the Covid-19 crisis, but remain manageable in our view. 1) As new funding cost (2.0%) is still lower than the company’s average borrowing rate (2.38%), its average borrowing rate should continue to fall for the time being. 2) The pace of spread widening should slow after AJU is incorporated into Woori Financial Group in the near future.
Forecast 2020E DPS of W650 and dividend yield of 5.4%
We expect AJU to post 2020 NP of W112.9bn (+11.1% y-y). The weak economy will likely result in a slight rise in loan delinquency ratio; however, such a negative should be offset by increasing financial assets and a declining average borrowing rate.
The firm looks set to deliver 2020E DPS of W650 (dividend yield of 5.4%). In detail, we note that the company has targeted an annual dividend yield of around 5% thus far. And, given that AJU is likely to achieve earnings growth (y-y) this year, we forecast 2020 DPS of W650.
With 2020E P/B currently standing at 0.78x despite 2020E ROE of 13%, the firm boasts stable earnings and high dividend payout potential, in our view.