Strong Earnings Improvement
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
WFG is anticipated to show the largest profit increase, the lowest valuation, and the highest dividend yield among major financial holding companies.
Initiate coverage with Buy and TP of W15,000
Initiating coverage on Woori Financial Group (WFG), we present a TP of W15,000. Our TP is derived by applying a target P/B of 0.46x (2021~2023 avg ROE of 9.5%, COE of 8.4%, 60% discount rate) to 2021E BPS of W32,303. We present a Buy rating in light of: 1) strong earnings improvement; 2) valuation merit; and 3) possible interest rate hikes.
Small non-banking portion works to its benefit now
Among major financial holding companies, WFG has the smallest non-banking portion. There are both upsides and downsides to this. One downside is that the recent solid earnings in the non-banking sector has benefited other financial holding companies. However, given that interest rates are highly likely to be raised soon, having a large banking portion leads to a greater NIM improvement. Moreover, as the financial sector is rapidly being reshaped to embrace banking platform trends, we believe that it is better to create a new subsidiary portfolio focusing on digital capabilities rather than trying to include a host of traditional financial companies.
2021E NP of W2,294bn (+75.5% y-y)
Backed by improving NIM and solid loan growth, we expect WFG’s2021E NP to grow 75.5% y-y to W2,294bn, well exceeding the average growth of 22~24% at the top financial holding companies.
Although the firm’s 2Q21 CET1 ratio stands at only 10.2%, it should improve by 1%p once an internal ratings based approach (IRB) is applied in 2H21. Believing that capital adequacy is unlikely to affect dividends, we apply DPS of W800 to arrive at a dividend yield of 7.3%, the highest among the banking players under our coverage.