[Click e-Stock] "Woori Financial Group's High Dividend Appeal to Stand Out Even More"

Higher Proportion of 4Q Dividends
Capital Reduction Dividends Also a Positive Factor

The dividend appeal of Woori Financial Group is expected to become more prominent in the second half of the year. With the introduction of capital reduction dividends, the tax burden will also be reduced, which is expected to further increase the perceived return for individual investors.

On July 8, NH Investment & Securities raised its target price for Woori Financial Group by 26.1% to 29,000 won, citing these factors. The previous day's closing price was 23,450 won.

Although there are no plans to announce a share buyback, the company's dividend attractiveness is expected to stand out. At the end of last month, Woori Financial Group's Common Equity Tier 1 (CET1) ratio improved by about 14 basis points (bp; 1bp=0.01%), but due to several considerations such as the acquisition of insurance companies and a capital ratio that is still lower than competitors, a share buyback is not expected.

However, as the year-end approaches, the dividend appeal becomes more pronounced. Unlike other companies that pay equal dividends in each of the first to fourth quarters, Woori Financial Group pays a larger portion of its dividend per share (DPS) in the fourth quarter, resulting in a higher expected year-end dividend yield. The expected dividend yield for the fourth quarter is estimated at 2.9%, which is nearly three times higher than the 0.8% to 1.1% projected for Shinhan Financial Group and Hana Financial Group.

In addition, with the introduction of capital reduction dividends starting from the year-end settlement, individual investors' perceived dividend yield is expected to increase further. Ordinary dividends are based on profits (retained earnings) generated through business activities and are subject to a dividend income tax of 15.4%. In contrast, a 'capital reduction dividend' returns a portion of the capital reserve to shareholders by converting it into retained earnings. This is effectively a return of capital contributed by existing shareholders, and as such, it is considered a capital transaction and is not subject to taxation.

With the inclusion of Tongyang Life and ABL Life as subsidiaries, a bargain purchase gain (an accounting profit that occurs when an acquired company is purchased at a price below its net asset value) is expected. However, there is potential for fluctuation in the process of capital efficiency improvements, such as changes in capital and contract service margin (CSM). Jung Joonseop, an analyst at NH Investment & Securities, analyzed that "rather than being a short-term positive, this is favorable from the perspective of building a mid- to long-term financial portfolio and improving non-interest income."

Meanwhile, the group's net profit attributable to controlling shareholders for the second quarter of this year is expected to be 741.6 billion won, which would represent a slight slowdown. This is a decrease of 20.4% compared to the same period last year. While recurring results (net interest income and non-interest income) remain solid, the credit loss ratio is expected to rise by 65bp due to factors such as additional provisions for trust accounts under book-reserved type accounting.

Yonhap News