[Click eStock] "Shinhan Financial Group, Current Price Undervalued Despite Profitability Concerns"

[Asia Economy Reporter Oh Ju-yeon] KB Securities forecasted that Shinhan Financial Group's controlling shareholder net profit for the first quarter of this year will be 866.7 billion KRW, a 5.6% decrease compared to the same period last year, falling short of market consensus. Additionally, the controlling shareholder net profits for 2020 and 2021 were revised downward to 3.1441 trillion KRW and 3.1475 trillion KRW, respectively, representing reductions of 8.8% and 10.3%.

However, despite concerns about profitability, the current stock price level is considered undervalued. The target price was lowered by 22.6% to 41,000 KRW, but the investment rating was maintained at 'Buy.'

Researcher Yoo Seung-chang stated, "Considering the market interest rate decline due to a 50 basis point cut in the base rate, the net interest margin assumption was adjusted from 1.92% to 1.90%, and the loan growth rate was revised from 4.5% year-on-year to 4.0%. These adjustments are the main reasons for the downward revision in earnings." He added, "Although there is a profit increase factor from Orange Life becoming a wholly owned subsidiary, it is expected to be difficult to offset the decrease in interest income."

He also noted that there are earnings volatility factors due to the scale of additional cost recognition related to Lime and other issues at Shinhan Financial Investment.

Accordingly, the target price was also revised downward. However, considering the potential for price appreciation, the investment rating was maintained as a buy.

Researcher Yoo analyzed, "Shinhan Financial Group's current stock price is at a low level with a 12-month forward price-to-book ratio (12M FWD PBR) of 0.32 (based on an average ROE of 7.5% over the next three years)." He added, "Despite lowering the expected dividends per share for 2020 and 2021 to 1,700 KRW following the downward revision of net income forecasts, the dividend yield remains attractive at 6.2%."

He also referred to the 150 billion KRW share buyback and cancellation announced by Shinhan Financial Group on the 26th, stating, "At the time of Orange Life's full acquisition as a subsidiary, a share buyback and cancellation ranging from 50 billion to 356.8 billion KRW was scheduled and announced." He concluded, "Such share buyback and cancellation is positive from a shareholder return perspective, and the scale is within expected levels."