1Q22E Preview: To Show NP of W781.3bn, +16.3% y-y
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
We expect WFG to report double-digit NP (excluding minority interests) growth for 1Q22. We draw attention to the high earnings portion its banking subsidiary occupies within the financial group.
High portion for banking subsidiary; earnings improving notably
Despite recent macro uncertainties, 2022 earnings expectations for the banking industry remain shiny. In line with authorities’ efforts to ease loan regulations, loan growth figures should be strong. In February, the 3-year Korea treasury bond rate was at 2.62%, while the COFIX rate was 1.7% for new loans and 1.44% for outstanding loans. Given such, we see ample room for loan interest rate expansion. Moving ahead, overall lending rate and NIM numbers should both continue to climb, although add-on interest for loans might lose some ground.
We expect financial industry groups’ banking businesses to enjoy solid earnings this year, but their non-banking subsidiaries are likely to suffer some earnings deterioration. Accordingly, WFG’s earnings should stand out thanks to the relatively high portion (versus peers) represented by its core banking business among its overall earnings. Moreover, with top financial groups striving to beef up shareholder’s return as of late, WFG is to be positioned to deliver additional shareholder’s return.
1Q22E preview: To show NP of W781.3bn, +16.3% y-y
We forecast that WFG will post 1Q22 NP (excluding minority interests) of W781.3bn, believing that it will be the only major financial group to show double-digit (y-y) NP growth. With WFG standing relatively free of earnings decreases at non-banking subsidiaries, its NP figures going forward should continue to improve in line with interest income hikes.
Noting that WFG’s NIM improved sharply in 4Q21, we expect WFG’s NIM for 1Q22 to prove on a par q-q. Looking at loan growth, credit loans will likely show a q-q drop on both higher loan interests and loan repayments upon corporate incentive distribution; however, mortgage loan and corporate loan growth figures should come in healthy. We estimate total won-dominated loan growth of 1.1% q-q. Seeing no issues in terms of asset quality, we expect credit costs to come in around 0.15%, remaining stable y-y.
Despite 2022E ROE (excluding minority interests and hybrid bonds) of 11.3%, WFG is trading at a 2022E P/B of only 0.43x. Given 2022E DY of 6.6%, we view its shares as offering an attractive investment vehicle.