[Click e-Stock] "Shinhan Financial Group, Substantial Overhang Issue Resolved... Target Price Raised"

Target Price Raised by 13.7% Compared to Previous Level

On June 27, KB Securities reported that the substantial overhang (potential sell-off volume) issue for Shinhan Financial Group has been resolved, and accordingly raised its target price from 73,000 won to 83,000 won. The investment rating was maintained at 'Buy'.

Kang Seunggeon, a researcher at KB Securities, explained, "The reason for raising the target price is that we have confirmed stable net interest margin (NIM) management despite solid second-quarter results and a decline in market interest rates. As a result, we have increased our 2025 earnings forecast by 2.6% to 4.8792 trillion won. In addition, with a decline in the exchange rate and effective loan growth management, the visibility of the Common Equity Tier 1 (CET1) ratio has improved, so we have raised our 2025 shareholder return rate forecast from 43.3% to 44.4%." He added, "The reason for maintaining the investment rating is that we believe the substantial overhang issue has been resolved following the completion of a block deal involving approximately 9.7 million shares on June 24. Furthermore, with improved CET1 visibility due to the lower exchange rate and effective growth management, there is potential for an accelerated shareholder return rate."

Shinhan Financial Group's second-quarter results are expected to exceed market expectations. Kang stated, "Second-quarter consolidated net profit attributable to controlling shareholders is expected to reach 1.47 trillion won, which is 4.6% higher than the consensus (the average forecast by securities firms). This represents a 2.7% increase compared to the same period last year, and the expected return on equity (ROE) is around 10.3%."

Won-denominated loans are projected to grow by 0.7% quarter-on-quarter, while the bank's NIM is expected to fall by 1 basis point (1bp = 0.01 percentage point). Kang said, "With an increase in government deposit inflows and active management of deposit interest rates, NIM management has been effective despite the decline in market interest rates." He added, "Net interest income is expected to increase by 1.3% year-on-year, while non-interest income is projected to decrease by 4.2%. Although securities valuation gains are expected to be solid, the impact of increased card-related costs will be partially reflected."

Although there are factors contributing to cost increases, these are expected to ease in the second half of the year. Kang commented, "Among non-bank subsidiaries, card companies have a relatively high contribution to profits. While there are cost increase factors due to sluggish domestic demand and intensified competition, considering the new government's commitment to economic stimulus policies, related concerns are expected to ease in the second half of the year."