Overhang Risk Alleviating
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Benefiting from sound CIR and credit cost figures, WFG’s 3Q21 results show its highest-ever consolidated NP for a 3Q. Moreover, share price discount factors such as overhang risk and low capital ratio are being resolved.
Raise TP to W17,000
We raise our TP on WFG from W15,000 to W17,000, reflecting 1) upward adjustments to our earnings forecasts amid favorable macro conditions (3yr-avg ROE: 9.5→9.8%); and 2) a change in BPS base year for our calculations (2021E BPS → 2022F BPS). We calculated our new TP by applying a target P/B of 0.49x to 2022F BPS of W35,033.
Overhang risk alleviating, CET1 improving; DY remains high despite recent share price rise
Valuation discount factors for WFG appear to be resolving. In detail: 1) KDIC is in the process of selling a 10% stake in WFG, saying that around 20 institutions are interested in buying the stake—upon likely successful completion of the stake sale, overhang risk should dissipate gradually; and 2) the firm is about to be approved for internal rating—upon such, CET1 ratio should improve 1%p from the current 10.1%. Aiming to increase its capital capacity, WFG is seeking M&A deals with securities or venture capital players. If such M&As materialize, revenue diversification and ROE improvement can be expected to accompany.
We see full-year 2021E NP of W2,407bn. Assuming a DPR of 25.7%, we estimate an annual DPS of W850 and DY of 6.5%. Despite a recent share price upsurge, WFG’s DY remains the most attractive among banking plays.
3Q21 review: NP of W779bn, +62.1% y-y
WFG announced 3Q21 NP of W779bn, topping consensus (W685bn). Credit costs proved stable at 0.11% (+3bp q-q), with CIR showing a sharp 43.9% improvement (-1.7%p q-q, -8.6%p y-y). Although NIM did not improve in 3Q21 (Bank: NIM 1.36%, -1bp q-q), it should pick up from 4Q21 (4Q21E: 1.4%; 2022F: to exceed 1.4%).