Country: Korea
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 07 Mar 2024Woori FG’s performance record had been less consistent than some of its more commercially focused peers, but improved in FY21-22.
However, its FY23 performance lagged behind its peers, being affected by not only the kitchen sinking provisioning exercise but also uniquely amongst the FGs, taking a hit on its other non-interest income.
Asset quality was a strength with the lowest NPL ratios and credit costs among the four FGs but has deteriorated since 2Q23. Capital standing is a relative weakness with the CET 1 ratio at 11.9% compared to 13.1-13.6% at peers.
The company signed an agreement with KDIC to purchase all of Woori FG’s shares owned by KDIC (current ownership ~1.2%) by 2024. Government support continues to be assured if required.
Business Description
AS OF 07 Mar 2024- Woori's predecessor banks were rescued by the Korea Deposit Insurance Corporation (KDIC) following the 1997 Asian Financial Crisis.
- Woori Bank is one of the 'Big Four' commercial banks in Korea. It previously owned two regional banks, Kwangju and Kyongnam, but these were spun off in 2014. Woori also sold its stake in Woori Investment Securities and its savings bank and life insurance arms to NH Financial Group.
- Woori set up a HoldCo (Woori FG) in January 2019 to expand into more diversified business lines, particularly investment banking. It used to have a HoldCo, but it was dissolved in 2014 when it was merged with Woori Bank.
- Its main subsidiaries are 100%-owned Woori Card, Woori Financial Capital (auto leasing), Woori Investment Bank and 72.3%-owned Woori Asset Trust. The group wants to acquire more non-bank financial businesses, particularly in the securities and insurance segments.
Risk & Catalysts
AS OF 07 Mar 2024Woori FG was for many years majority-owned by the Korean government via the Deposit Insurance Corporation (KDIC), but KDIC has steadily been selling down its shareholding, and Woori will purchase all the remaining shares by 2024. That said, Woori FG remains a large, systemically important bank with strong potential government backing if needed.
Woori FG is less diversified than its peers, with most of its earnings coming from the bank and small contributions from the card and leasing businesses. It has been looking for acquisitions, but it has to be particularly mindful of its CET1 ratio, which is still the lowest among the four FGs.
Due to new regulatory guidance on stress buffers, Woori FG has adjusted its mid-to-long-term CET1 ratio target from 12% to 13% in 4Q23.
The group is under investigation for mis-selling equity linked products to retail investors in 2021; fines and regulatory actions may ensue.
Key Metrics
AS OF 07 Mar 2024KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 0.90% | 0.75% | 0.99% | 1.15% | 1.10% |
ROA | 0.58% | 0.47% | 0.72% | 0.76% | 0.68% |
ROE | 9.4% | 7.1% | 11.5% | 12.7% | 10.5% |
Provisions/Loans | 0.14% | 0.28% | 0.17% | 0.26% | 0.53% |
NPL Ratio | 0.45% | 0.42% | 0.30% | 0.31% | 0.35% |
Woori Bank CET1 Ratio | 11.0% | 13.1% | 13.0% | 12.7% | 13.2% |
Equity/Assets | 7.05% | 6.70% | 6.45% | 6.58% | 6.71% |
Net Interest Margin Bank + Card | 1.70% | 1.57% | 1.62% | 1.84% | 1.82% |
CreditSights View
AS OF 09 Feb 2024Woori FG was for some years the weakest of Korea’s Big 4 Financial Groups with a less consistent track record of managing risk and returns. Operating performance had shown an improvement for the past few years but disappointed in FY23, with net income down 19.9% YoY due to weaker non-interest income and higher provisions. Woori FG has a lower CET 1 ratio target of 13%. Its rapidly growing corporate loan book may lead to higher RWA growth and make it less likely for its CET1 ratio to catch up with its peers in the near future.
Recommendation Reviewed: February 09, 2024
Recommendation Changed: April 24, 2017
Who We Recommend
Reliance Industries
JD.com
San Miguel Corporation
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 07 Mar 2024Hana Financial Group (Hana FG) had struggled for several years to make a success of its acquisition of the former Korea Exchange Bank, but from 2015, results improved dramatically as revenues grew and cost efficiencies improved.
It has produced particularly strong results since 2020 and is the most improved of the financial groups; we see improved capital adequacy and comfortable provisioning in the latest quarter, although reduced NIMs, one-off costs and increased provisions led to a 50.5% QoQ fall in 4Q23 net income.
The group is looking for inorganic growth in its non-bank businesses as it has fallen behind Shinhan FG and KBFG in this area, but has so far shied away from a large acquisition.
Business Description
AS OF 07 Mar 2024- Hana FG is the third-largest financial group in South Korea. From small origins as a finance company in the 1970s, after the 1997 Asian crisis, Hana grew by acquiring three other banks, including the much older Seoul Bank, which had a banking and trust management business.
- Hana FG bought Korea Exchange Bank (KEB) from Lone Star in 2012 after overcoming many hurdles, but could not merge it with Hana Bank until 2015 due to staff union opposition.
- Hana FG's overseas business is smaller than peers and is complemented by KEB's extensive international operations. KEB was started in 1967 as a government-owned bank specialising in foreign exchange. It has a leading share in FX transactions and trade finance among Korean banks.
- Hana FG has shown good growth in its credit card and securities non-bank businesses, but is less diversified than its larger peers KB and Shinhan, which have also acquired insurance companies. Its latest acquisition (in 2019) was a 15% stake in Vietnam's state-owned Bank for Investment & Development (BIDV). Hana FG has recently decided not to proceed with the acquisition of KDB Life Insurance after two months of due diligence.
Risk & Catalysts
AS OF 07 Mar 2024Similar to peers, Hana FG’s credit costs crept up to 39 bp in FY23 (FY22: 31 bp) but below our expectations; kitchen sinking has taken place to avoid more costs related to domestic PF and international CRE exposure.
The group’s NIM performance has been weaker than peers this year and is expected to continue to fall without any meaningful improvement expected in the foreseeable future.
The group NPL coverage ratio was lower than peers at 162% vs 180% at peers (still comfortable, though).
Hana FG took provisions in 4Q19 for a JV investment with China Minsheng Investment and for potentially mis-selling high-risk investment funds to retail investors, and in 2Q20 for private equity exposure, with limited further details. Some fines/regulatory action is expected due to the mis-selling of equity linked securities to retail investors in 2021.
Key Metrics
AS OF 07 Mar 2024KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 0.99% | 1.07% | 1.07% | 1.10% | 1.11% |
ROA | 0.60% | 0.61% | 0.74% | 0.66% | 0.59% |
ROE | 8.8% | 9.0% | 10.9% | 10.1% | 9.0% |
Provisions/Loans | 0.27% | 0.30% | 0.16% | 0.34% | 0.45% |
NPL Ratio | 0.48% | 0.40% | 0.32% | 0.34% | 0.49% |
CET1 Ratio | 12.0% | 12.0% | 13.8% | 13.2% | 13.2% |
Equity/Assets | 6.7% | 6.7% | 6.8% | 6.4% | 6.6% |
Net Interest Margin | 1.75% | 1.60% | 1.66% | 1.83% | 1.82% |
CreditSights View
AS OF 09 Feb 2024Hana FG grew through acquisitions but only in 2015 was it able to merge its two main bank units to form KEB-Hana Bank. Hana’s management has a good record but for some years struggled to extract value from its acquisitions. Its recent performance has improved significantly, and its fundamentals are looking stronger. It had a relatively good 9M23 but 4Q23 was more challenging with reduced net interest income, restructuring costs and increased provisions. Heavy provisioning has been taken during the year which hopefully has drawn a line under the PF saga. Capital is strong and reserves are adequate.
Recommendation Reviewed: February 09, 2024
Recommendation Changed: April 24, 2017
Who We Recommend
Reliance Industries
JD.com
San Miguel Corporation
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 15 Nov 2023Hyundai continued to post strong results in 3Q23 and reaffirmed FY23 guidance for double-digit consolidated operating profit growth. We expect the company to finish FY23 with strong 4Q23 results, we believe the profit growth in FY24 will be more challenging, owing to increased availability of light vehicles and rising incentive costs. However, we expect Hyundai to benefit from a broad array of affordable vehicle offerings that are more affordable than vehicles offered by most of its OEM competitors, along with a healthy supply of EV offerings. While both GM and Ford have recently announced a slowing trajectory of its EV transition plans, Hyundai plans to begin EV production at their U.S. plant in 2H24 to help take advantage of IRA tax credits that should help with customer affordability.
Business Description
AS OF 15 Nov 2023- Hyundai Motor Co., Ltd. engages in the manufacture and distribution of motor vehicles and parts. It operates through the following business areas: Vehicle, Financial and Others. The Vehicle division offers motor vehicles. The Financial division provides financing, leasing and credit cards. The Other division includes manufacture of railways. The company was founded on December 29, 1967, and is headquartered in Seoul, South Korea.
- Hyundai Capital America benefits from a support agreement with Hyundai Motor (HMC). HCA investor relations confirmed its support (keepwell) agreement contains a fixed charge coverage provision that it views as particularly strong compared to other peers. HCA’s support agreement stipulates that HMC will make cash contributions to HCA if the fixed charge coverage is below 1.1x, allowing the company to mitigate the impact on capital from losses. Key provisions of the support agreement listed in the business update include (1) HMC agrees it, its controlled subsidiaries, and entities subject to joint control, will own 100% of HCA, (2) HMC will cause HCA and its subsidiaries to maintain positive consolidated tangible net worth, (3) HMC will take all necessary actions to ensure HCA maintains a minimum Fixed Charge Coverage of 1.1x, and (4) Third-party enforceability rights.
Risk & Catalysts
AS OF 15 Nov 2023Hyundai management indicated it expects to achieve annual results near the upper end of its FY23 guidance for revenue and operating profit, both of which it previously raised with its 2Q23 earnings release. It expects consolidated revenue growth of 14% -15% and consolidated operating margin of 8% – 9%, which would represent margin expansion of 210 – 310 bp compared to FY22. Management expects its 4Q23 operating results to be driven by continued growth in key markets and product mix improvement, partially offset by modestly higher incentive spending.
Key Metrics
AS OF 15 Nov 2023KRW bn | FY19 | FY20 | FY21 | FY22 | LTM 3Q23 |
---|---|---|---|---|---|
Revenue | 82,487 | 80,577 | 94,143 | 113,718 | 128,310 |
EBIT | 3,161 | 890 | 5,459 | 8,950 | 15,190 |
EBIT Margin | 3.8% | 1.1% | 5.8% | 7.9% | 11.8% |
EBITDA | 6,993 | 5,076 | 10,015 | 13,998 | 20,339 |
EBITDA Margin | 8.5% | 6.3% | 10.6% | 12.3% | 15.7% |
Total Liquidity | 15,975 | 17,082 | 19,745 | 26,639 | 26,407 |
Net Debt | (6,749) | (4,453) | (5,202) | (11,035) | (15,082) |
Total Debt | 7,628 | 10,920 | 12,569 | 12,940 | 8,685 |
Gross Leverage | 1.1x | 2.2x | 1.3x | 0.9x | 0.4x |
Net Leverage | -1.0x | -0.9x | -0.5x | -0.8x | -0.7x |
CreditSights View
AS OF 18 Apr 2024We maintain an Outperform recommendations on Hyundai Capital America notes based on relative value, expectations of growing market share in developed markets, improved automotive profitability, its innovative EV product offerings that we believe should fuel further share gains, solid free cash flow generation, resilient automotive profit margins, and positive rating momentum.
Recommendation Reviewed: April 18, 2024
Recommendation Changed: December 20, 2023
Who We Recommend
Reliance Industries
JD.com
San Miguel Corporation
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 16 Oct 2023- KDB was established in 1954 to finance the reconstruction of South Korea after the Korean war; it financed the rapid industrialization of Korea from the 1960s.
- In 2009, KDB was restructured, spinning out Korea Finance Corp. KDB was due to be privatized but the next government scrapped the plan and revised the KDB Act to re-merge KDB and KoFC which was done at the end of 2014.
- Its policy role has been re-affirmed and, as such, KDB remains a quasi-sovereign bank. Its credit standing is based on the strong likelihood of government backing.
Business Description
AS OF 16 Oct 2023- In 2009, KDB was restructured and the aim of the government at the time was to eventually privatise KDB, which was seen to have long outgrown its policy role and to be competing with the commercial banks.
- The Park Geun-hye government subsequently reversed this plan which was opposed by KDB. This was impractical given KDB's poor returns and non-commercial management approach.
- KDB's new policy role is to support start-ups and SMEs, as well as large-scale overseas projects. Its vision is summed up as: "An advanced policy bank, at the forefront of Korea's sustainable growth". It also acts as a "market safety net", helping with the restructuring of troubled industries.
- KDB is 100% owned by the Korean government. Under Article 32 of the KDB Act is required to offset any annual losses that exceed the banks' reserves. This is a solvency guarantee and the government has in practice always undertaken proactive moves to ensure the bank remains not only solvent but also adequately capitalised.
Risk & Catalysts
AS OF 16 Oct 2023- The KDB Act continues to include a solvency guarantee from the government which is committed to supporting the bank and to keep its stake above 50%.
- KDB is therefore viewed as a Korean quasi-sovereign entity and its ratings of Aa2/AA/AA- are in line with Korea’s sovereign ratings.
- KDB has regularly incurred bad debts due to both poor risk management and its role of helping corporate Korea through difficult times, and in 2020 it stepped up to help businesses hit by the COVID-19 downturn.
- The profitability of its banking business is low, and it regularly needs and receives capital injections from the government.
Key Metrics
AS OF 16 Oct 2023KRW bn | FY18 | FY19 | FY20 | FY21 | FY22 |
---|---|---|---|---|---|
PPOP / Average Assets | 0.68% | 0.39% | 0.71% | 0.97% | 0.37% |
ROAA | 0.84% | 0.11% | 0.67% | 0.74% | (1.91%) |
ROAE | 6.3% | 0.8% | 4.7% | 5.1% | (18.3%) |
Provisions/Average Loans | 0.07% | (0.11%) | 0.84% | 0.29% | (0.03%) |
NPL Ratio | 4.23% | 2.71% | 2.48% | 1.71% | 0.73% |
CET1 Ratio | 12.7% | 12.1% | 14.3% | 13.7% | 12.3% |
Total Equity/Total Assets | 13.27% | 13.05% | 13.44% | 13.82% | 10.14% |
NIM | 0.83% | 0.52% | 0.55% | 0.68% | 0.63% |
CreditSights View
AS OF 05 Feb 2024We have a Market perform recommendation on KDB as we see it trading in an appropriate band for the quasi-sovereign credit that it is, with robust state support. KDB is 100% owned by the Korean Government. As with most policy banks, KDB has not sought to maximise returns, and together with its lending bias towards large companies, its margins are thin and asset quality is volatile as a result of its corporate restructuring portfolio. However, strong government support, including a solvency guarantee and timely capital injections received in the past, offset the weak credit.
Recommendation Reviewed: February 05, 2024
Recommendation Changed: September 22, 2020