[Click eStock] "DGB Financial Group, a Bank Stock with High Investment Appeal"

Hana Securities Report

[Asia Economy Reporter Minji Lee] Hana Securities maintained a buy rating and a target price of 14,500 KRW for DGB Financial Group on the 5th, based on an analysis that it will continue to show solid growth in the second quarter.

The estimated net profit for the second quarter is expected to be 148 billion KRW, a 5% decrease compared to the same period last year, slightly below market expectations. This is because both household and corporate sectors are showing balanced growth, and the loan growth rate in the second quarter is expected to be 2.5%, the highest among banks. The net interest margin (NIM) is projected to rise by 7 basis points from the previous quarter to 2.01%, leading to a 5.7% increase in the group's net interest income compared to the previous quarter. Non-interest income is also expected to perform well due to continued inflows of PF fees and occurrences of bond sales.

DGB Capital is expected to maintain a favorable net profit flow of around 25 billion KRW per quarter. Hi Investment & Securities anticipates losses from over-the-counter derivative hedges and reduced brokerage income, but expects that investment banking (IB) and project financing (PF) revenues will continue to perform well, so the decline in profits is not expected to be significant.

Jungwook Choi, a researcher at Hana Securities, said, “Due to the regulatory authority’s conservative recommendation for additional provisions, an additional loan loss expense of about 30 billion KRW will be set aside, which is expected to cause the results to fall short of market expectations,” adding, “This reflects the preemptive recognition of some additional burden factors originally scheduled for the second half of the year.”

Recently, negative investor sentiment toward bank stocks has been expanding. This is because criticism over the rise in net interest margins due to the sharp increase in interest rates is spreading. In particular, over the past two years, household loan margins have risen sharply due to total volume regulations, and political circles are demanding a review of net interest margins to protect highly leveraged borrowers, putting pressure on lowering loan interest rates focused on household loans.

In the case of Daegu Bank, the proportion of household loans to total loans is 31.9%, which is the lowest except for the government policy bank, Industrial Bank of Korea. Researcher Choi said, “The low proportion of household loans is positive in terms of growth rate and regulatory issues during periods of household loan contraction,” adding, “The recent government decision to lift real estate regulations in 17 areas including Daegu is also a factor improving investment sentiment.”

The dividend payout ratio is expected to be maintained at the same level as last year. The expected dividend per share (DPS) this year is 720 KRW, with an anticipated dividend yield of 9.3%. Researcher Choi explained, “This is among the highest levels in bank stocks, and the strong dividend appeal will firmly support the downside of the stock price.”