[Click eStock] "BNK Financial Group, Rapid Deterioration in Asset Quality... Target Price Lowered"

Target Price Lowered from 14,000 Won to 12,500 Won

On April 28, SK Securities lowered its target price for BNK Financial Group from 14,000 won to 12,500 won, citing a rapid deterioration in asset quality. The investment opinion was maintained as 'Buy'.

Seol Yongjin, a researcher at SK Securities, stated, "We have adjusted our target price downward to reflect revised earnings estimates due to the worsening of asset quality indicators." He added, "As investment risks, we point to the possibility of additional large-scale bad debt arising from a further slowdown in the regional economy, as well as concerns about a reduction in shareholder returns due to declining profits."

BNK Financial Group's first-quarter results this year fell short of market expectations. Seol explained, "BNK Financial Group's first-quarter controlling net profit was 166.6 billion won, down 33.2% year-on-year, significantly missing consensus (the average of securities firms' forecasts) due to the impact of large-scale provisions related to regional companies such as Samjeong and Geumyang." He continued, "Despite falling interest rates, the net interest margin (NIM) for the two banks was defended at 1.84%, the same level as the previous quarter, and won-denominated loans grew quarter-on-quarter by 0.6% at Busan Bank and 0.9% at Kyongnam Bank, mainly driven by small and medium-sized manufacturing companies. The credit cost rose sharply to 0.93%, attributable to provisions of 30 billion won for Samjeong, 27 billion won for Geumyang, and about 30 billion won for real estate project financing (PF) related provisions."

Improvement in asset quality indicators is not expected to come easily in the near term. Seol said, "While the conservative provisioning approach is likely to limit the occurrence of additional PF-related provisions, the ongoing sluggishness in the regional economy means it is unlikely that asset quality indicators will improve quickly." He added, "The company estimates that, compared to the plan at the beginning of the year, approximately 120 billion won in additional credit costs will be reflected annually."

The scale of shareholder returns is expected to shrink. Seol pointed out, "Although the shareholder return yield is still expected to reach about 8.5%, uncertainties have increased considering the internal and external environment, including the sluggish regional economy."