Woori Financial Group: Premium Warrants as “Pure Banking Play”

The author is an analyst at NH Investment & Securities. He can be reached at [email protected] — Ed.

We expect WFG to post double-digit NP growth (excluding minority interests) for 1Q22. We draw attention to the high share of profits that its banking subsidiary occupies within the financial group.

High share for the banking subsidiary; profits improve significantly

Despite recent macroeconomic uncertainties, 2022 earnings forecasts for the banking sector remain bright. In line with the authorities’ efforts to ease loan regulations, loan growth figures are expected to be solid. In February, the Korean 3-year Treasury bill rate was 2.62%, while the COFIX rate was 1.7% for new loans and 1.44% for outstanding loans. Given this, we see ample room for expansion in loan interest rates. Going forward, the headline lending rate and NIM numbers are both expected to continue to climb, although additional interest for loans may lose ground.

We expect the banking businesses of financial sector groups to post strong earnings this year, but their non-banking subsidiaries are likely to experience some earnings deterioration. Thus, WFG’s results should stand out thanks to the relatively high share (compared to its peers) represented by its core banking business in its overall result. Additionally, as major financial groups strive to increase shareholder returns lately, WFG must be positioned to deliver incremental shareholder returns.

Preview 1Q22E: to display NP of W781.3bn, +16.3% yy

We expect WFG to post a NP in 1Q22 (excluding minority interests) of W781.3 billion, believing that it will be the only major financial group to post double-digit (yy) NP growth. With WFG holding itself relatively insulated from profit declines in non-banking subsidiaries, its NP numbers going forward should continue to improve in line with increases in interest income.

Noting that WFG’s NIM has improved significantly in 4Q21, we expect WFG’s NIM for 1Q22 to prove up to qq. In terms of loan growth, credit loans will likely show a qq decline in both higher loan interest and loan repayments as business incentives are distributed; however, mortgage and business loan growth numbers are expected to be healthy. We estimate won-dominated total loan growth at 1.1% qq. Seeing no issues in terms of asset quality, we expect credit costs to come in at around 0.15%, remaining stable year-on-year.

Despite a 2022E ROE (excluding minority interests and hybrid bonds) of 11.3%, WFG is trading at a 2022E P/B of just 0.43x. Given 2022E DY of 6.6%, we consider its shares to offer an attractive investment vehicle.

Comments are closed.