Top Pick: Woori Financial Group
The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed.
Major financial groups are forecast to deliver robust earnings in 2H22, building on 1H22. And, backed by base rate hikes and higher market interest rates, NIM at banking players is highly likely to jump in 2H22 as well. Annual NIM should also expand by 12~17bp (y-y). Despite a likely contraction in household loans and an expected rise in delinquency rates due to higher loan rates, related concerns are to be mostly offset by rising demand for corporate and housing loans and by pre-emptive allocation of provisioning.
On the back of booming industry conditions, 2022E NP at the four financial groups under our coverage is projected to arrive at W16.47tn (+13.2% y-y), surpassing the record high seen in 2022. Increased interest rates, high DYs, and treasury shares cancellation programs all bode well for them. Although valuations are still being weighing upon by concerns over economic slowdown and government regulations, we believe that their share prices will eventually come to reflect solid earnings and booming business conditions.
That said, given that earnings growth of non-banking affiliates (securities, insurance, card, capital) is expected to lag that for banking domains in both 1H22 and 2H22, we suggest Woori Financial Group (WFG) as our top pick for 2H22, noting that its non-banking portion is the lowest among the four major financial holding companies. Trading at a 2022 P/B of 0.42x, WFG also offers relative valuation merit compared to its peers. We also point out that share overhang risk has narrowed of late following the KDIC’s disposal of a 2.33% stake via a block deal.