[Click eStock] "Stable Soundness... Woori Financial Group, Target Price Maintained"

Daishin Securities maintained a buy rating and a target price of 20,000 won on the 31st for Woori Financial Group, stating that "the impact of the common equity tier 1 (CET1) ratio decline due to the acquisition of Dongyang Life Insurance and ABL Life Insurance will be limited." The previous trading day's closing price was 15,900 won.

On the same day, Hyejin Park, a researcher at Daishin Securities, said, "The CET1 was initially expected to decrease by 8bp (1bp=0.01%) due to the merger and acquisition (M&A), but the impact will be less significant as the inclusion timing has been delayed." CET1 is a financial soundness indicator calculated by dividing common equity capital by risk-weighted assets (RWA).

If the inclusion is approved in the first half of next year, the common equity capital will increase, and the evaluation gains from the revaluation of ABL Life Insurance's assets will be reflected, increasing the bargain purchase gain. The bargain purchase gain is an accounting profit that occurs when the acquisition price paid is lower than the net assets of the acquired company, which can raise CET1.

According to the Banking Act's offsetting deduction method for insurance company acquisitions, 250% of the investment amount is applied as a risk weight within 10% of the common equity capital. Researcher Park said, "As of the end of last month, Woori Financial's common equity capital was 28.5 trillion won, so 10% or 2.85 trillion won is the deduction limit," adding, "The previously invested amounts in Lotte Card and K-Bank total 900 billion won, leaving 1.95 trillion won of capacity. Of this, only about 4.9 trillion won, which is 250%, will be reflected in RWA."

She further explained, "As of the end of June, Dongyang Life Insurance, which has net assets of 2.2 trillion won, was acquired under a contract for 1.55 trillion won including ABL Life Insurance shares. Therefore, a bargain purchase gain of about 600 billion won occurred." According to Woori Financial, Dongyang Life Insurance's annual profit is currently in the 300 billion won range, and after acquisition, it could expand up to 400 billion won through synergies with banks such as bancassurance.

Researcher Park said, "Woori Financial plans to manage RWA at around 4% annually, which is expected to increase CET1 by 40bp each year," adding, "The year-end target is 12.2%, and the target for the end of next year is 12.5%, aiming to achieve this earlier than initially planned."

Meanwhile, Woori Financial aims to increase the profit ratio of its non-bank sector, currently below 10%, to 20%. If the M&A proceeds smoothly in the first half of next year, non-bank affiliate profits are expected to increase by 300 billion won compared to this year, with 200 billion won from the insurance sector and 100 billion won from the capital and securities sectors.