1Q22 Consolidated NP Grows 17.5% YoY
The author is an analyst of KB Securities. He can be reached at cygun101@kbfg.com. -- Ed.
Margin normalization, stronger shareholder return policy confirmed in 1Q22 results
— Shinhan FG posted 1Q22 consolidated NP (attributable to controlling interests) of KRW1.40n, above the market consensus/our estimate by 11.3%/13.4%. The group also announced quarterly DPS of KRW400 and a cancellation of treasury shares worth KRW150.0bn.
— Bank NIM rose 6bps, or 1bps higher than estimated. Despite additional provisions of KRW745.bn (KRW31.3bn in provision reversals; net impact of KRW43.2bn), Bank earnings exceeded forecasts thanks to commission income growth.
— Non-bank subsidiaries reported stronger-than-expected results:
(1) Shinhan Investment IB commission income jumped KRW59.0bn (+160.5% YoY; KRW95.7bn).
(2) Shinhan Capital booked KRW13.7bn in provision reversals.
(3) Shinhan Card commission income rose KRW26.0bn on a KRW1.0tn increase in lease assets.
— Including KRW400 quarterly (20% of estimated annual dividend based on policy payout of 60% at quarter-ends/40% at year-end) and KRW150.0bn in canceled treasury shares, annual shareholder return should exceed 28.0% (vs. 25.2% last year).
— We are positive on the removal of non-recurring expenses affecting 2020-21 results, continually healthy Bank and Non-bank earnings and the stronger shareholder return policy.
1Q22 consolidated NP (attributable to controlling interests) grew 17.5% YoY to KRW1.40tn
— 1Q22 earnings were driven by Shinhan Bank (+31.5% YoY; -2.5% YoY for non-bank subsidiaries).
— Despite additional net provisions of KRW43.2bn (KRW74.5bn in provisions; KRW31.3bn reversed), Shinhan Bank earnings improved sharply (NII up 19.7%; non-interest income up 1.6% on commission income increase of 10.6%).
— For Shinhan Bank, KRW-denominated loans edged up 0.5% QoQ (household -0.8%, corporate +1.9%) and NIM rose 6bps QoQ (1.51%). CCR increased 2.1bps YoY to 12.0bps, which appears to be solid considering non-recurring provisions.
— For non-bank subsidiaries, earnings fell 2.5% YoY but surpassed our forecast:
(1) Shinhan Investment earnings declined just 37.8% YoY, supported by a KRW59.0bn increase in IB commission income despite sluggish brokerage commissions and trading/product income amid falling trading value and worsening conditions for investment/asset management.
(2) Shinhan Card earnings rose 4.7% on higher credit card transactions (+6.8%) and commission income (based on KRW1.0tn in lease asset growth), despite cut merchant commissions.
(3) Shinhan Capital earnings surged 83.6% YoY on growth in total assets and KRW13.7bn in provision reversals.
(4) Shinhan Life Insurance earnings fell 15.6% on declining earnings on variable products amid the slowing stock market and increasing interest rates, ~KRW20.0bn in provisions and an unfavorable base effect from disposal gains in 1Q21.
— Bank/non-bank subsidiaries beat expectations. Given unexpectedly high 1Q22 NIM and a possible base rate hike this month, earnings should continue to rise in 2Q22 on robust Bank NII.