Woori Financial Group: Exceeded Expectations with Excellent Non-Interest Earnings

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The author is an analyst at KB Securities. He can be contacted at [email protected] — Ed.

Hold BUY, target price 16,500 KRW

We maintain BUY and TP of 16,500 KRW on Woori FG. Although 2Q22 earnings were higher than expected, the stock is trading at just 0.3x 12m fwd BVPS; we estimate the dividend yield at 8.7% taking into account 1,050 KRW of DPS (including 150 KRW of interim dividend). Additionally, we believe profitability has improved as Bank’s earnings contribution outpaces that of competing holding companies and CCR continues to normalize.

Always the best choice in the industry

Reflecting 2Q22 earnings, we are increasing consolidated NP 2022E (attributable to controlling interests) by 0.8% to KRW3.09 tn. We maintain Woori FG as the top pick in the sector due to its relatively low valuations and high dividend yield.

2Q22 consolidated NP (attributable to controlling interests) at KRW 922.2 billion, beating KB’s estimate by 5.9%

2Q22 consolidated NP (attributable to controlling interests) was KRW 922.2 billion, beating our estimate by 5.9%. Profits related to Bank IB were strong and Woori Capital’s profit was KRW 75.8 billion, beating our estimate. Additionally, a one-time gain of approximately KRW 40 billion was reflected in non-operating revenue.

Woori FG’s KRW bank lending in 2Q22 was up 1.3% qoq (households -0.7%; corporates +3.5%) and NIM was up 9 bps qoq to 1.58% . The Group’s non-interest income increased by 4.4% quarter-on-quarter and commission income increased by 8.6% quarter-on-quarter. Group CCR increased by 18.6 bps QoQ to 38.1 bps, due to economic downturn related RC value adjustment and additional provisioning of KRW 130 billion . Compared to its competitors, Woori FG recorded strong revenues from non-bank subsidiaries. While Woori Card’s revenue fell 42.9% QoQ to KRW 48.8 billion due to base effect (KRW 36 billion gain on loans in 1Q22), Woori Capital recorded an increase of 54.4% to 75.8 billion KRW thanks to an increase of approximately 2,000,000,000 kRW in assets (including leasing assets), and Woori Investment Bank recorded an increase of 26, 8% to reach KRW 25.3 billion.

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