Korea Morning Focus
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July 22, 2019 Korea Morning Focus Company News & Analysis Major Indices Close Chg Chg (%) Shinhan Financial Group (055550/Buy/TP: W60,000) KOSPI 2,094.36 27.81 1.35 Key strength lies in business portfolio and risk management KOSPI 200 274.55 3.88 1.43 KOSDAQ 674.06 8.91 1.34 Sector News & Analysis Turnover ('000 shares, Wbn) Media (Overweight) Volume Value Both CJ ENM and Studio Dragon have sold off, but CJ ENM will be the first to KOSPI 386,118 4,198 KOSPI 200 85,703 2,956 rebound KOSDAQ 743,056 3,950 Market Cap (Wbn) Economy & Strategy Update Value BOK Monitor KOSPI 1,396,345 A timely rate cut; Additional rate cuts unlikely in the near future KOSDAQ 231,950 KOSPI Turnover (Wbn) Buy Sell Net Foreign 1,243 1,112 131 Institutional 1,169 831 338 Retail 1,719 2,183 -463 KOSDAQ Turnover (Wbn) Buy Sell Net Foreign 364 385 -21 Institutional 186 167 19 Retail 3,383 3,380 3 Program Buy / Sell (Wbn) Buy Sell Net KOSPI 1,099 876 224 KOSDAQ 324 352 -27 Advances & Declines Advances Declines Unchanged KOSPI 661 183 51 KOSDAQ 880 331 79 KOSPI Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Samsung Electronics 46,800 700 373 Foosung 10,700 -450 286 KODEX Leverage 12,410 355 259 Hynix 76,800 2,100 200 KODEX 200 Futures 7,340 -225 178 Inverse 2X KOSDAQ Top 5 Most Active Stocks by Value (Wbn) Price (W) Chg (W) Value Kukil Paper 4,430 560 180 Dongjin Semichem 15,800 200 134 Soulbrain 66,000 -3,000 116 A-Jin Industry 3,310 -40 109 CMG Pharm. 3,190 330 108 Note: As of July 19, 2019 This document is a summary of a report prepared by Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) and published on our website. Please review the compliance notices contained in the original report. Information and opinions contained herein have been compiled in good faith from sources deemed to be reliable. However, the information has not been independently verified. Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy or completeness of the information and opinions contained in this document. Mirae Asset Daewoo accepts no responsibility or liability whatsoever for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. Information and opinions contained herein are subject to change without notice. This document is for informational purposes only. It is not and should not be construed as an offer or solicitation of an offer to purchase or sell any securities or other financial instruments. This document may not be reproduced, further distributed or published in whole or in part for any purpose. Shinhan Financial Group (055550 KS) Key strength lies in business portfolio and risk management Banks Steady profit growth over the past five years + inorganic growth momentum Company Report Shinhan Financial Group (SFG) has recorded steady net profit growth since 2013, which we largely attribute to the earnings stability resulting from the group’s diversified July 19, 2019 business portfolio and strong risk management capabilities. For financial (bank) holding companies, business diversification across banks and non- banks can be a major advantage that provides earnings stability during times of interest rate changes. While a decline in interest rates is negative to the net interest (Maintain) Buy margins (NIMs) of banks, and sentiment on the sector tends to be correlated to interest rate moves, lower interest rates can also drive non-interest income by Target Price (12M, W) 60,000 increasing fixed income-related gains and boosting commission income, including trust fees from the sale of equity-linked securities (ELS) and equity-linked trusts (ELT), Share Price (07/18/19, W) 45,250 and wealth management fees. As lenders, credit card and finance companies raise funds by issuing corporate debt or ABS. Therefore, a fall in interest rates leads to a fall in their funding costs, providing a cushion for group net interest income. In the case of Expected Return 33% SFG, the relatively high earnings exposure to its credit card subsidiary had been a source of concern due to regulatory headwinds (i.e., merchant fee cuts). However, we believe the recent fall in interest rates and BOK rate cut are more positive than NP (19F, Wbn) 3,451 negative for credit card companies. From 2002 to 2007, SFG made a series of Consensus NP (19F, Wbn) 3,373 acquisitions, including Good Morning Securities, LG Card, and Chohung Bank. Following a 10-year break, the group purchased Orange Life Insurance and Asia Trust EPS Growth (19F, %) 9.3 in 2018. As such, we expect the group to see inorganic profit growth momentum. We Market EPS Growth (19F, %) -24.5 also project SFG’s bank subsidiary to generate robust earnings, supported by solid P/E (19F, x) 6.2 loan growth and stable SG&A expenses. Market P/E (19F, x) 12.4 W400bn share buyback underway KOSPI 2,066.55 On May 10th, SFG signed a trust agreement for a W400bn share buyback lasting from Market Cap (Wbn) 21,458 May 13th to November 13th (six months), 2019. Of the W400bn, the group has so far Shares Outstanding (mn) 492 bought back around W180bn worth of shares (as of July 17th). Further taking into Free Float (%) 80.8 account the previous W200bn share repurchase program announced on September th th Foreign Ownership (%) 67.0 5 , 2018 and completed on April 9 , 2019, SFG will own a total of W600bn worth of th Beta (12M) 0.55 treasury shares by November 13 , 2019. We believe SFG will use its treasury shares to acquire the remaining shares in Orange Life Insurance that it does not already own. If 52-Week Low 38,350 so, we expect net profit (attributable to controlling interests) to gain additional growth 52-Week High 48,000 momentum. (%) 1M 6M 12M Earnings stability to stand out amid macro worries and falling interest rates Absolute -0.8 11.0 0.7 We are positive on SFG’s strategy to: 1) secure profit growth drivers and diversify its Relative 0.8 14.1 11.6 income base via M&As; 2) expand its global business by advancing into Vietnam, which 120 Shinhan Financial Group has higher growth/margin potential than the domestic market; and 3) strengthen its KOSPI capital market competitiveness in the domestic market. Despite macro worries and 110 falling interest rates, we believe SFG will display earnings stability on the back of its 100 diversified business portfolio and strong risk management capabilities. We maintain 90 our Buy rating and target price of W60,000 on SFG. 80 70 7.18 11.18 3.19 7.19 Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/16 12/17 12/18 12/19F 12/20F 12/21F Net interest inc. (Wbn) 7,205 7,843 8,580 9,767 10,100 10,496 [ Banks/Credit Cards] Net non-interest inc. (Wbn) 1,577 1,341 1,399 1,255 1,286 1,342 Operating profit (Wbn) 3,109 3,829 4,499 5,011 5,231 5,468 Heather Kang +822-3774-1903 Net profit (Wbn) 2,775 2,918 3,157 3,451 3,569 3,713 [email protected] EPS (W) 5,767 6,153 6,657 7,277 7,424 7,452 EPS growth (%) 18.2 6.7 8.2 9.3 2.0 0.4 P/E (x) 7.8 7.4 6.8 6.2 6.1 6.1 P/PPOP (x) 5.0 4.9 4.1 3.6 3.5 3.3 P/B (x) 0.69 0.65 0.60 0.56 0.54 0.51 ROE (%) 9.0 9.1 9.2 9.3 9.0 8.6 Dividend yield (%) 3.2 3.2 3.5 3.9 4.1 4.2 Note: All figures are based on consolidated K-IFRS; NP refers to net profit attributable to controlling interests Source: Company data, Mirae Asset Daewoo Research estimates Analysts who prepared this report are registered as research analysts in Korea but not in any other jurisdiction, including the U.S. PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. Media Both CJ ENM and Studio Dragon have sold off, but CJ ENM will be the first to rebound Overweight (Maintain) Shares of CJ ENM and Studio Dragon have sold off The market values of CJ ENM and Studio Dragon currently remain below W4tr and Industry Report W2tr, respectively. For CJ ENM, that is the lowest level since the July 2018 merger; for July 22, 2019 Studio Dragon, that is the lowest level since the beginning of 2018. Their continued share price declines are attributable to 1) the sharp margin contraction seen in recent earnings results (4Q18 for Studio Dragon and 1Q19 for CJ ENM media) and 2) the poor performance of the much-anticipated Arthdal Chronicles, the most expensive drama Mirae Asset Daewoo Co., Ltd. ever made (W54bn). Given that ads and licensing for Arthdal Chronicles had been sold ahead of the drama’s airing, any impact on earnings is likely to be limited at both [Media] companies. However, there were high expectations that the drama would have spill- Jeong-yeob Park over effects beyond ratings from the use of its intellectual property. From this +822-3774-1652 perspective, the drama’s initial weak showing has dimmed the prospects of potential [email protected] business expansion into other areas.