Hana Financial Group: Short-term Earnings Slow, but Positives in Play 

The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. -- Ed. 

Hana Financial Group (HFG)’s earnings for 2Q22 came in sluggish. But, both strategic equity swaps and plans for higher shareholder’s return represent positive factors in terms of share price rigidity.

Short-term earnings slow: Posts 2Q22 NP of W825bn (-10.1% y-y)

HFG reported 2Q22 NP of W825.1bn (-10.1% y-y), disappointing consensus. NIM improved to 1.8% for the group (+9bp q-q) and 1.59% for the banking arm (+9bp q-q). And, loan growth proved robust (+2% q-q), centering up loans to large corporations. The firm reported additional loan loss provisioning of W124.3bn.

We see the main reasons for the tepid 2Q22 results as being: 1) forex-related losses of W84.6bn; and 2) decreased earnings at Hana Securities (NP of W19.8bn, -85.8% y-y). Of particular note, Hana Securities reported both one-off losses related to its investment in a Vietnamese securities firm and equity-method losses related to its IPO business. Weighed upon by the securities arm’s disappointing results, HFG’s non-interest income dropped to W176.9bn (-75% y-y).

Positive factors: Strategic equity swaps and higher shareholders’ return

Despite languid near-term earnings, we see two significant positive factors in play. The first one is equity swaps with SK Telecom (SKT). This deal involves HFG’s acquisition of SKT’s 15% stake in Hana Card (worth W330bn), and SKT’s purchase of an equivalent amount of shares in HFG. We view this deal as having similar effects to a share buyback program for HFG.

Also boding well for investors is HFG’s willingness to expand shareholders’ return. HFG’s 1H22 DPS has been boosted to W800 (+W100 y-y). HFG is also aiming in gradual steps to push up its annual DPS and to expand its pay-out ratio to 30%. And, the firm is planning a treasury shares cancellation program in 2H22. We view HFG’s overall shareholder’s return target (sum of dividend and stock cancellation) as outshining that for peers.

Assuming a similar a pay-out ratio to that for 2021, we see 2022E DPS of W3,250 (interim W800; yearend W2,450), with 2022E DY of around 9.0%. Thus, despite HFG’s slow 2Q22 results, its strategic equity swaps and lofty 2022E DY should provide downward rigidity for its share price.