Regional Company Focus Woori Bank Bloomberg: 000030 KS, Reuters: 000030.KS Refer to important disclosures at the end of this report
DBS Group Research . Equity 24 Jul 2018
BUY, KRW16,600 KOSPI: 2,269.3 More reversals on credit losses, (Closing price as of 23/7/18) profit growth likely Price Target 12-mth: KRW22,000 Reason for Report: 2Q18 earnings review Substantial reversals of credit losses provision Potential catalyst: Reversals of credit losses provision drove 2Q18 earnings surprise Where we differ: We are more optimistic than the market on Provision reversals, conversion to holding potential reversals of credit losses provision and inorganic growth company to boost share price
Retain BUY, KRW22,000 TP Analyst Regional Research Team Higher than projected NIM improvement in 2Q18. Woori Bank [email protected] posted controlling-interest NP of KRW716.1bn (+21.4% q-o-q), 38% and 25% above our/consensus estimates in 2Q18. Its net Price Relative interest margin (NIM) was stronger than expected, at 1.52% for
25,000 130 the bank (+2bps q-o-q) and 2% including its credit card business 120 20,000 (+3bps q-o-q). Loans grew 1.1% q-o-q (KRW2.4tr – KRW1tr for 110 conglomerates, KRW0.8tr for SMEs). Although its loan growth 15,000 100 (1.9% YTD) is lower than other commercial banks that reported 10,000 90 80 2Q earnings, it is solid compared to its annual target of 4%. 5,000 70 Sizeable credit losses provision reversals likely. This positive 0 60 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Oct-17 May-18 surprise is attributed to the reflection of i) higher than expected Stock price(LHS,KRW) Rel. to KOSPI(RHS,pts) reversal of credit losses provision for STX Engine (KRW120bn), Forecasts and Valuation and ii) in line reversal of credit losses provision for Kumho Tire FY Dec (KRW bn) 2017A 2018F 2019F 2020F (KRW192bn) in 2Q18. Even if we exclude these reversals, Woori Net operating income 2,964 3,205 3,459 3,634 Growth (%) 23.1% 8.1% 7.9% 5.1% Bank’s recurring credit losses provision stands at KRW160bn and Pre-provision profit 2,756 3,135 3,422 3,597 its credit cost ratio is solid at 23bps. For 3Q18, it is expecting a Growth (%) 15.5% 13.8% 9.2% 5.1% credit losses reversal of KRW50bn (STX). Meanwhile, the bank’s Consolidated net profit 1,512 2,145 2,021 2,144 credit losses provision for Kumho Tire stands at KRW120bn Growth (%) 19.9% 41.9% -5.8% 6.1% despite the latter’s proceeds from a rights issue. Although the ROA (%) 0.5 0.7 0.6 0.6 bank’s exposure to Kumho Tire in 2Q18 is estimated at over ROE (%) 7.4 10.1 8.8 8.7 KRW400bn, we expect some of the credit losses provision to be EPS (KRW) 2,236 3,172 2,988 3,171 reversed given the bank’s relatively high provisioning ratio for Growth (%) 19.9% 41.9% -5.8% 6.1% precautionary-grade assets (20-30%). We estimate a total reversal P/E (x) 7.0 5.2 5.5 5.2 BPS (x) 32,569 35,454 37,979 40,647 of KRW100bn for 3Q18 and raise our 2018F controlling-interest Growth (%) 0.1% 8.9% 7.1% 7.0% NP estimates by 18%. P/BV (x) 0.5 0.5 0.4 0.4 Inorganic growth and provision reversals to be catalysts. With DPS 400 550 600 600 Dividend payout ratio 17.8 17.3 20.1 18.9 rising funding rates, expectations of Woori Bank’s top-line growth Dividend(%) yield (%) 2.5 3.3 3.6 3.6 may need to be scaled down, unless base rates are raised. Since the market is already aware of the possibility of a reversal of Earnings Rev (%): 18.1 3.9 9.6 Consensus EPS (KRW): 2,789 2,813 2,897 Kumho Tire credit losses provision, a significant spike in share Other Broker Recs: B : 16 S : 0 H : 0 price is unlikely. However, we believe Woori Bank still stands out ICB Industry: Banking among other banks. It is attractive based on the possibility of ICB Sector: Financials further credit losses provision reversals and inorganic growth that Principal Business: Woori Bank provides a full range of commercial is expected to follow its conversion to a holding company. Woori banking services. The Bank offers deposits, loans, insurance, security investments, online banking, credit cards, funds, and Bank is trading at 2018F P/BV of 0.5x (ROE 9.9%). pensions. Woori Bank operates in Korea. At A Glance Issued Capital (m shrs) 676.00 Source of all data on this page: Bloomberg Finance L.P., Company, Mkt. Cap (KRWbn/US$m) 11,222/9,918 DBS Bank Major Shareholders Korea Deposit Insurance Corporation (%) 18.4 Free Float (%) 60.71 Avg. Daily Vol.(‘000) 1,996
ed: KK / sa: LEY, CS / AH
Company Focus Woori Bank
Stable commission income in 2Q18 despite sluggish stock markets. Despite subdued stock markets, Woori Bank remove the enterprise resource planning (ERP) cost of delivered solid commission income of KRW297.3bn (-2.6% KRW21bn. Nonetheless, the increase was mostly due to q-o-q) in 2Q18. SG&A expenses increased slightly to one-off IT system replacements. For 4Q18, we reflect an KRW827.7bn (+11.9% q-o-q, +5.5% y-o-y) even if we additional ERP cost of KRW150bn.
Earnings review Unit: KRW bn, % Preliminary earnings Vs. our estimates y-o-y q-o-q Vs. consensus estimates ‘18.06P ‘18.06F Diff. (%) ‘17.06A Diff. (%) ‘18.03A Diff. (%) ‘18.06F Diff. (%) Total operating income 1,662.7 1,599.8 3.9 1,737.8 -4.3 1,682.5 -1.2 Interest income 1,397.3 1,387.3 0.7 1,288.4 8.5 1,367.2 2.2 Non-interest income 265.4 212.5 24.9 186.7 42.2 10.0 2,541.8 SG&A expenses 827.7 754.6 9.7 784.2 5.5 739.7 11.9 Provision for credit losses -151.3 116.3 -230.1 204.5 -174.0 122.4 -223.6 Operating profit 986.4 728.9 35.3 606.5 62.6 820.4 20.2 777.7 26.8 Pre-tax profit 995.5 712.3 39.8 601.3 65.6 805.1 23.6 734.3 35.6 Controlling-interest NP 716.1 518.0 38.2 460.8 55.4 589.7 21.4 571.2 25.4
Note: Based on consolidated K-IFRS Source: DBS Bank
Woori Bank: Quarterly earnings (KRW bn, %) 2Q17 2Q17 4Q17 1Q18 2Q18P QoQ YoY Notes Total operating income 1,737.8 1,697.6 1,735.6 1,682.5 1,662.7 (1.2) (4.3) Bank NIM +2bps, Bank+credit card NIM +3bps, Net interest income 1,288.4 1,532.0 1,318.8 1,367.2 1,397.3 2.2 8.2 total loan growth +1.1% Net commission income 262.7 276.9 255.9 305.3 297.3 (2.6) 13.2 Non-interest income 186.7 68.7 160.7 10.0 -31.9 TTR TTR SG&A expenses 784.2 1,108.6 883.7 739.7 827.7 11.9 5.5 ERP cost of KRW21bn Reversal KRW312bn (STX Engine KRW120bn, Credit losses provision 204.5 217.3 284.1 122.4 -151.3 TTR TTR Kumho Tire KRW192bn) Operating profit 606.5 318.0 354.9 820.4 986.4 20.2 62.6 Non-operating gain/loss -5.2 54.0 -206.9 -15.3 9.1 TTB TTB Pre-tax profit 601.3 372.0 148.0 805.1 995.5 23.6 65.6 Controlling-interest NP 460.8 280.2 133.6 589.7 716.1 21.4 55.4
Source: Woori Bank, DBS Bank
Revision to annual earnings forecasts (KRW bn) Previous Revised Difference (%) 2018F 2019F 2020F 2018F 2019F 2020F 2018F 2019F 2020F Total operating income 6,435 6,714 6,944 6,482 6,770 7,002 0.7 0.8 0.8 Net interest income 5,507 5,814 6,046 5,554 5,870 6,104 0.9 1.0 1.0 Non-interest income 928 900 899 928 900 899 0.0 0.0 0.0 SG&A expenses 3,305 3,356 3,442 3,346 3,349 3,405 1.3 (0.2) (1.1) Credit losses provision 568 651 779 121 610 616 (78.7) (6.3) (20.9) Operating profit 2,562 2,707 2,724 3,014 2,812 2,981 17.6 3.9 9.4 Pre-tax profit 2,493 2,670 2,687 2,945 2,774 2,944 18.1 3.9 9.6 Controlling-interest NP 1,816 1,945 1,957 2,145 2,021 2,144 18.1 3.9 9.6
Source: DBS Bank
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Company Focus Woori Bank
Woori Bank: NIM trends Woori Bank: Total loan growth
(%) 8 (%) SMEs Conglomerates Bank+credit card Bank 2.2 Households Total loans 2.00 6 1.94 1.97 2.0 4 2 1.8 0 1.6 -2 -4 1.52 1.4 1.50 -6 1.47 -8 1.2
-10
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17
1Q18
2Q18
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17 1Q18 2Q18 Source: Woori Bank, DBS Bank Source: Woori Bank, DBS Bank Woori Bank: Net increase in loans in arrears, precautionary- Woori Bank: Ratio of non-performing loans grade loans, and non-performing loans (NPL) (KRW bn) Arrears (%) 5.0 Total전체 1,000 Precautionary Household가계 800 NPL 4.0 기업Business 600 3.0 400 200 2.0 0 1.0 0.75 -200 0.63 0.51 -400 0.0
-600
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17 1Q18
2Q18
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
4Q16
1Q17
2Q17
3Q17
4Q17 1Q18 2Q18 Source: Woori Bank, DBS Bank Source: Woori Bank, DBS Bank
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Company Focus Woori Bank
Balance Sheet Income Statement (Unit:KRWbn) 2016 2017 2018F 2019F 2020F (Unit:KRWbn) 2016 2017 2018F 2019F 2020F Cash & dues 22,407 15,777 16,092 16,414 16,742 Net interest income 5,020 5,221 5,554 5,870 6,104 Securities 37,893 35,221 36,254 37,342 38,462 Net commission income 937 1,070 1,109 1,093 1,102 Loans and receivables 234,845 250,875 260,910 271,346 282,200 Financial instrument income 0 0 0 0 0 Tangible assets 2,458 2,478 2,497 2,517 2,537 Non-interest income -70 203 -181 -192 -204 Other assets 12,857 11,681 11,798 11,916 12,035 Total operating income 5,887 6,494 6,482 6,770 7,002 Total assets 310,443 316,009 327,529 339,513 351,955 SG&A expenses 3,478 3,531 3,277 3,311 3,368 Deposits 221,020 234,695 242,166 250,379 258,883 Net operating income 2,408 2,964 3,205 3,459 3,634 Borrowings 18,735 14,755 15,224 15,741 16,275 Non-operating income -21 -207 -69 -37 -37 Pre-provisioning operating Debentures 23,693 27,900 28,788 29,764 30,775 profit 2,387 2,756 3,135 3,422 3,597 Other liabilities 26,449 18,094 18,965 19,648 20,356 Provision for credit loss 834 807 190 647 653 Total liabilities 289,897 295,444 305,143 315,532 326,289 Pre-tax income 1,553 1,950 2,945 2,774 2,944 Capital 3,381 3,381 3,381 3,381 3,381 Corporate taxes 276 419 775 730 774 (Common stock) 3,381 3,381 3,381 3,381 3,381 Total net income 1,278 1,530 2,170 2,045 2,170 Hybrid securities 3,575 3,018 3,018 3,018 3,018 Net income in minority interest 16 18 25 24 25 Capital surplus 286 286 286 286 286 Consolidated net profit 1,261 1,512 2,145 2,021 2,144 Retained earnings 14,612 15,620 17,496 19,145 20,883 Other comprehensive income and capital -1,468 -1,939 -1,995 -2,051 -2,107 adjustments Non-controlling interests 160 199 201 203 205 Total capital 20,546 20,565 22,387 23,981 25,666
Major indicators Major indicators (%) 2016 2017 2018F 2019F 2020F (KRW, x) 2016 2017 2018F 2019F 2020F Profitability Per-share data ROE 6.4 7.4 10.1 8.8 8.7 EPS (KRW) 1,865 2,236 3,172 2,988 3,171 ROA 0.4 0.5 0.7 0.6 0.6 BVPS (KRW) 32,539 32,569 35,454 37,979 40,647 ROA (pre-provisioning) 0.8 0.9 1.0 1.1 1.1 Revised BVPS (KRW) 30,195 30,165 32,856 35,211 37,699 Multiples (x, %) Growth (y-o-y) PE 6.8 7.0 5.2 5.5 5.2 Total assets 6.4 1.8 3.6 3.7 3.7 P/BV 0.39 0.48 0.47 0.43 0.41 Total loans 4.4 6.8 4.0 4.0 4.0 Revised P/BV 0.42 0.52 0.50 0.47 0.44 Total deposit 5.7 6.2 3.2 3.4 3.4 Dividend Total operating profit 7.6 10.3 -0.2 4.5 3.4 DPS 400 400 550 600 600 Net profit 19.1 19.9 41.9 -5.8 6.1 Dividend yield (%) 3.1 2.5 3.3 3.6 3.6 Dividend payout ratio (%) 21.4 17.8 17.3 20.1 18.9 Asset quality & capital Efficiency/productivity adequacy Loan-to-deposit ratio 106.3 106.9 107.7 108.4 109.0 NPL ratio 0.97 0.84 0.51 0.55 0.55 Provision for credit loss (% of Cost-income ratio 59.1 54.4 50.6 48.9 48.1 total assets) 0.4 0.3 0.1 0.2 0.2
Source:Source: KTB DBS Investment Bank & Securities Note:Note: Results Results are consolidated are consolidated
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Company Focus Woori Bank
Stock Ratings
The stock investment opinion below is based on the expected return of the recommended stock over the next 12 months relative to the closing price of the day it is recommended.
STRONG BUY: Expected to produce a return of at least 50% from the closing price of the day the stock is recommended BUY: Expected to produce a return between 15% and 50% from the closing price of the day the stock is recommended HOLD: Expected to produce a return between -5% and 15% from the closing price of the day the stock is recommended REDUCE: Expected to produce a return of less than -5% from the closing price of the day the stock is recommended RATING UNDER REVIEW: Temporary suspension of recommendation when there is material uncertainty in corporate value. TP is not provided.
The investment opinion presented in this report is based on the industry’s outperformance relative to the market, and may differ from that of an individual stock. Overweight: The industry’s return is expected to outperform the average total return of the KOSPI over the next 12 months. Neutral: The industry’s return is expected to be in line with the average total return of KOSPI, over the next 12 months. Underweight: The industry’s return is expected to underperform the average total return of KOSPI, over the next 12 months.
Notes) The industry’s return is on a risk-adjusted basis
Recent 2yr. Rating and TP Change
Woori Bank (000030 KS) Date 2016.01.04 2016.04.22 2016.07.20 2016.09.26 2016.10.20 Rating BUY BUY BUY BUY BUY Analyst TP 11,000 12,000 13,000 15,000 16,000 changed Date 2018.01.23 2018.04.23 Rating BUY BUY TP 19,000 22,000 Source: DBS Bank Analyst Name: Regional Research Team Recent 2yr. TP Change Woori Bank (000030 KS) (KRW) 30,000 Stock price Target price 25,000 20,000 15,000 10,000 Analyst changed 5,000 0 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Source: DBS Bank Analyst Name: Regional Research Team
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Company Focus Woori Bank
Completed Date: 24 Jul 2018 11:42:30 (HKT) Dissemination Date: 24 Jul 2018 15:20:12 (HKT)
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Company Focus Woori Bank
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Company Focus Woori Bank
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Company Focus Woori Bank
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United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent.
United States This report was prepared by DBS Bank Limited. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.
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DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3 Singapore 018982 Tel. 65-6878 8888 e-mail: [email protected] Company Regn. No. 196800306E
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Company Focus Woori Bank
DBS Regional Research Offices
HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 18th Floor Man Yee Building 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 68 Des Voeux Road Central Capital Square, Marina Bay Financial Centre Tower 3 Central, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 2820 4888 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E
INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand
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