The author is an analyst of Shinhan Investment Corp. He can be reached at firstname.lastname@example.org. — Ed.
Sharpest profit growth expected in 2023 if forex stabilizes
Hana Financial Group is the most sensitive to forex conditions among listed Korean banks. Although its exposure to foreign currency assets has been reduced compared to the past, a KRW10 change in the USD/KRW exchange rate affects the pre-tax profit by KRW10-12bn. A strong dollar has driven up the rate by more than KRW100 in 3Q22 vs. end-2Q22. Forex translation loss of more than KRW120bn looks inevitable based on simple calculation. The market consensus for 3Q earnings is likely to be lowered once the loss is fully reflected. We project the group to post net profit attributable to controlling interest of KRW915.2bn (-1.5% YoY, +10.9% QoQ) in 3Q, falling short of the consensus estimate by 7.1%.
Hana Financial Group boasts solid fundamentals, aside from accounting issues linked to forex conditions. Net interest margin (NIM) has continued on an uptrend with a 4bp rise from a quarter earlier in 3Q. Ordinary provisions and SG&A have been maintained at stable levels. Assuming downward stabilization of the USD/KRW rate from current levels, the group’s net profit of controlling interest and ROE are forecast to reach KRW4tr (+14.9% YoY) and 10.3% (+0.6%p YoY) in2023, respectively, which will be the steepest growth among the listed peers.
Shareholder return methods to be strengthened
Hana Financial Group has paid out interim dividends since 2005 with the exception of 2009 during the global financial crisis. The group met investors’ expectations for interim dividend in 2020 even when uncertainties were heightened due to the COVID-19 pandemic. Earlier this year, KB Financial Group and Shinhan Financial Group announced they would make quarterly payouts starting from 1Q. Hana Financial Group plans to follow suit and modify its articles of incorporation to payout quarterly dividend to shareholders. Given that it maintains the highest capital ratio in the sector, we believe its total shareholder return rate and methods are unlikely to fall behind peers. This could lead to a smaller discount and narrow the gap with rival banks.
Initiate coverage with BUY and a target price of KRW52,000 for sector top pick
We initiate our coverage on Hana Financial Group with BUY for a target price of KRW52,000. We recommend the group as one of our sector top picks in light of the sharpest profit growth expected in 2023, improvements in shareholder return policy, cheap valuations at a trailing PBR of 0.33x, and decent liquidity conditions with SK Telecom’s acquisition of the group shares worth a total of KRW330bn (roughly KRW160bn after sale of Hana Card stake to the group).