[Click eStock] "Focus on Common Equity Tier 1 Ratio" Woori Financial Group, Target Price Maintained

On the 4th, Korea Investment & Securities maintained its buy rating and target price of 20,000 KRW for Woori Financial Group, stating, "The controlling net profit for the third quarter of this year is expected to be 926.1 billion KRW, exceeding market expectations by 9%." The closing price on the previous trading day was 15,460 KRW.

On the same day, Baek Doo-san, a researcher at Korea Investment & Securities, explained, "The target price was calculated by applying a price-to-book ratio (PBR) of 0.51 times to the book value per share (BPS) of the second quarter. The return on equity (ROE) and capital cost embedded in the target PBR are 9.9% and 17.4%, respectively."

Due to the decline in the KRW-USD exchange rate in the third quarter, foreign currency translation gains are expected to be 31 billion KRW. The related capital ratio improvement is 21 basis points (bp) (1 bp = 0.01 percentage points). Researcher Baek stated, "Bank won-denominated loans are expected to increase by 4.3% compared to the previous quarter," adding, "This is due to steady growth in both household and corporate loans. In particular, Woori Bank appears to have benefited from the expanded growth of mortgage loans in the banking sector last August."

The bank's quarterly net interest margin (NIM) is forecasted to decline by 4 bp from the previous quarter to 1.43%. This is because the market interest rate has already factored in the expected base rate cut despite efforts to grow core deposits. The group's quarterly loan loss ratio is expected to rise by 3 bp from the previous quarter and 16 bp compared to the same period last year, reaching 0.45%.

Researcher Baek emphasized, "The completion of the acquisitions of Dongyang Life Insurance and ABL Life Insurance is expected to be delayed until after the first quarter of next year due to supervisory issues," but added, "Upon acquisition, the common equity tier 1 ratio will only decrease by 8 bp, and the annual net profit is expected to increase by around 230 billion KRW."

He also added, "The key to the stock price is the improvement in earnings and whether the common equity tier 1 ratio will exceed 12.5%. If it does, the shareholder return ratio could improve significantly." He continued, "The timing of exceeding this ratio is expected next year, but there is room to improve the ratio through loan growth or adjustments in equity stakes. It is necessary to closely monitor related capital reallocation policy trends."