Non-banking Profit Rising
The author is an analyst of KB Securities. He can be reached at scyoo@kbfg.com. -- Ed.
Maintain BUY and TP of KRW11,500
We maintain BUY and our TP of KRW11,500 for Woori Financial Group. 4Q20 earnings missed the market consensus by a wide margin but was in line with the market consensus factoring in various one-offs (incl. a massive employee buyout program). Woori FG stopped short of announcing a payout ratio, but we expect it to be about 20%, within financial authorities’ guideline. The current stock price is at only 0.31x end-2021 P/B (7.5% 2021E ROE).
4Q20 NP (to control. int.) of KRW166.5bn (-19.4% YoY) misses market consensus by 36.6%, but at recurring level considering one-offs
Woori FG delivered 4Q20 consolidated NP (attributable to control. int.) of KRW166.5bn (-19.4% YoY), missing the market consensus of KRW262.8bn by 36.6%. Noteworthy one-offs include: (1) KRW202.0bn in costs incurred from the employee buyout program; (2) KRW53.2bn in COVID-19-related provisions and KRW58.0bn in provisions involving the sale of private equity funds (incl. funds of Lime Asset Management); and (3) KRW110.0bn in gains from the liquidation of funds/bargain purchases associated with the acquisition of Aju Capital. The credit cost ratio, which has been a major drag on earnings, came in at a sound 27bp (+7bp QoQ), defying COVID-19 provisions. Woori FG’s 4Q20 NIM fell 4bp QoQ to 1.53%, but net interest income climbed 5.6% QoQ, as KRW-based loans grew 2.9% QoQ. Core operating income continued to be solid, coming in at KRW1.85tn (+6.6% YoY/+7.7% QoQ).
2021E NP (to control. int.) to climb 20.2% YoY with normalization of profit-determining factors as well as rising non-banking profit
Woori FG saw 2020 NP (to control. int.) burdened by loan loss provisions and the employee buyout program, but we estimate 2021 NP (to control. int.) at KRW1.63tn (+20.2% YoY) with the normalization of major profit-determining factors as well as the non-banking unit receiving an uplift from the acquisition of Aju Capital. COVID-19 could continue to be a drag on profitability and capital adequacy, but a heavy blow seems unlikely. Attention should be paid to the increase in capital ratio as well as the non-banking unit’s profitability gains.