Hana Financial Group (086790 KS ) Interest rates are lower than during the financial crisis, but fundamentals are much stronger Banks Significant interest rate headwinds fully reflected in our NIM forecasts The Bank of (BOK) cut its benchmark interest rate by 0.5%p from 1.25% to 0.75% Company Report at an emergency meeting on March 16 th . We believe it is now more likely that bank net March 18, 2020 interest margins (NIMs) will be weaker than previously anticipated. We forecast ’s (HFG) bank NIM to contract 6bps, 7bps, and 2bps QoQ in 1Q20, 2Q20, and 3Q20, respectively, before picking up 3bps and 2bps QoQ in 4Q20 and 1Q21, respectively. For 2020 as a whole, we see NIM falling to 1.29% (-20bps YoY). That said, we note that the mix of low-cost core deposits has been increasing again, fueled (Maintain) Buy by more ample liquidity, the diminishing appeal of time deposit rates, and HFG’s efforts to improve its deposit portfolio. We believe this could contribute to a more modest NIM decline than our expectations. Target Price (12M, W) ▼ 39,000 Interest rate environment is even worse than during the financial crisis, but fundamentals are much stronger Share Price (03/17/20, W) 21,200 Mounting worries about falling interest rates and an economic recession due to the spread of COVID-19 have sent HFG’s stock plunging to below financial crisis valuations Expected Return 84% (2020F P/B of 0.2x). However, we believe the group’s fundamentals and earnings power are much stronger than they were during the crisis. First, the stake purchase in the Bank for Investment and Development of (B IDV) late last year is expected NP (20F, Wbn) 2,101 to contribute around W80-90bn in profits this year. The group is also preparing to launch an online-only bank in together with LINE (3939 JP/CP: JPY 5,030.00) Consensus NP (20F, Wbn) 2,253 and plans to establish a digital non-life insurer in Korea by acquiring The K Insurance. EPS Growth (20F, %) -12.2 But most importantly, HFG’s capital ratios have visibly improved. The group’s CET1 Market EPS Growth (20F, %) 29.6 ratio, which was just 8% in 2013-14, raising worries about an equity issue, has P/E (20F, x) 3.0 improved to 11.95% at end-2019, the second highest in the s ector after KB Financial Market P/E (20F, x) 9.3 Group (KBFG; 105560 KS/Buy/TP: W48,500/CP: W29,850 ). The group has also significantly reduced its once-high credit exposure to large corporations in cyclical KOSPI 1,672.44 industries. Along with asset quality, the group’s earnings power has also improved. Group NPL ratio, which was in the 1% range from 2009 to 2015, has steadily fallen to Market Cap (Wbn) 6,365 0.48% at end-2019, while bank delinquency ratio is the lowest among banks under our Shares Outstanding (mn) 300 coverage, at 0.20% at end-2019. Free Float (%) 86.3 Cut TP to W39,000; Cheap valuation and attractive dividends to gain Foreign Ownership (%) 67.5 attention once selloff is over Beta (12M) 1.14 We adjusted down our 2020-21 net profit forecasts by 14.3% and 10.6%, respectively, 52-Week Low 21,200 as we reduced our NIM estimates, raised our credit cost estimates in light of the risk of 52-Week High 39,550 an economic slowdown, and reflected our expectation of 1Q20 F/X translation losses on non-monetary foreign assets following the recent sharp rise in the US$/W (%) 1M 6M 12M rate. We hence cut our target price on HFG by 20.4% from W49,000 to W39,000 (target Absolute -36.4 -40.8 -44.0 P/B of 0.39x; sustainable ROE of 6.6%). Relative -14.8 -27.0 -27.1 We think it is still too early to tell how long the coronavirus outbreak will last and what its impact will be. That said, we believe the sharp decline in HFG’s stock, which is now 110 Hana Financial Group KOSPI trading at below crisis-level valuations, is excessive, given policymakers’ wide-ranging 100 support (fiscal and monetary stimulus, as well as financial aid for SMEs and micro 90 businesses) and the group’s improved fundamentals. 80 70 It should also be noted that HFG is the only financial holding company that has continued t o pay out interim dividends. Based on interim and final dividends 60 combined, we expect dividend yields of 9.4% for 2020, 10.6% for 2021, and 11.3% for 50 3.19 7.19 11.19 3.20 2022.

Mirae Asset Daewoo Co., Ltd. Fiscal year-end 12/17 12/18 12/19 12/20F 12/21F 12/22F Net interest inc. (Wbn) 5,110 5,637 5,774 5,448 5,675 5,906 [ Banks/Credit Cards ] Net non-interest inc. (Wbn) 2,490 1,927 2,437 2,270 2,587 2,660 Operating Profit (Wbn) 2,718 3,152 3,259 2,867 3,182 3,279 Heather Kang +822 -3774 -1903 Net Profit (Wbn) 2,037 2,233 2,392 2,101 2,324 2,396 [email protected] EPS (W) 6,881 7,478 7,966 6,997 7,739 7,979

EPS growth (%) 53.1 8.7 6.5 -12.2 10.6 3.1 P/E (x) 3.1 2.8 2.7 3.0 2.7 2.7 P/PPOP (x) 1.8 1.8 1.6 1.8 1.5 1.5

P/B (x) 0.25 0.23 0.23 0.21 0.20 0.18 ROE (%) 8.6 8.6 8.6 7.2 7.4 7.1 Dividend Yield (%) 7.3 9.0 9.9 9.4 10.6 11.3 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

March 18, 2020 Hana Financial Group

Significant interest rate headwinds are fully reflected in our NIM forecasts

The BOK cut its benchmark interest rate by 0.5%p from 1.25% to 0.75% at an emergency meeting on March 16 th . We believe it is now more likely that bank NIMs will be weaker than previously anticipated. We forecast HFG’s bank NIM to contract 6bps, 7bps, and 2bps QoQ in 1Q20, 2Q20, and 3Q20, respectively, before picking up 3bps and 2bps QoQ in 4Q20 and 1Q21, respectively. For 2020 as a whole, we see NIM falling to 1.29% (-20bps YoY).

Given the rate-sensitive asset/liability structures of banks under our coverage (including HFG), and all else being equal (regulations, competitive dynamics, and loan/deposit portfolios and strategies), we estimate that a rate cut of 25bps causes NIM to contract 3- 4bps in the first three months and another 2-3bps during the subsequent three months, because assets that are repriced due to the decline in interest rates are greater than liabilities that are repriced. NIM generally rebounds 2-3bps after six to 12 months, as liabilities that are repriced due to the decline in interest rates are greater than assets that are repriced. Simply put, a rate cut of 25bps causes NIM to fall 3-4bps in the first subsequent quarter and 2-3bps in the second quarter, before expanding 2-3bps in the third and fourth quarters. On a combined basis, this amounts to a 3-4bps decline. We thus believe our NIM forecasts adequately reflect the steep fall in bond yields sparked by the spread of COVID-19, as well as the latest interest rate cut by the BOK.

On a positive note, the mix of low-cost core deposits has been increasing again, fueled by more ample liquidity, the diminishing appeal of time deposit rates, and HFG’s efforts to improve its deposit portfolio. We believe this could contribute to a more modest NIM decline than our expectations.

Table 1. HFG: Quarterly bank NIM (%, %p) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F 1Q21F 2Q21F 3Q21F 4Q21F NIM 1.57 1.57 1.55 1.56 1.55 1.54 1.47 1.41 1.35 1.28 1.26 1.29 1.31 1.31 1.31 1.31 %p chg 0.04 0.00 -0.02 0.01 -0.01 -0.01 -0.07 -0.06 -0.06 -0.07 -0.02 0.03 0.02 0.00 0.00 0.00 Source: Company data, Mirae Asset Daewoo Research

Table 2. HFG: Annual bank NIM (%, %p) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F NIM 2.00 1.97 1.70 1.52 1.47 1.39 1.39 1.49 1.56 1.49 1.29 1.31 1.31 %p chg 0.32 -0.03 -0.27 -0.17 -0.05 -0.08 0.00 0.10 0.07 -0.07 -0.20 0.02 0.00 Source: Company data, Mirae Asset Daewoo Research

Figure 1. HFG: Bank loan breakdown by interest rate type (4Q19)

2.3%

23.3% 21.9% Fixed rate Bank debenture COFIX (new) 5.2% COFIX (outstanding balance) CD 9.9% Other 37.4%

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 2 March 18, 2020 Hana Financial Group

Figure 3. Bank debenture rates: AAA , Figure 2. Bank debenture rates: AAA, 3M Figure 4. Bank debenture rates: AAA, 1Y 6M

(%) (%) (%) 2.2 1.9 2.0 1.9 1.8 2.0 1.8 1.7 1.7 1.6 1.8 1.6 1.5 1.5 1.6 1.4 1.4 1.4 1.3 1.3 1.2 1.2 1.2 1.1 1.1 1.0 1.0 1.0 1/17 10/17 7/18 4/19 1/20 1/17 10/17 7/18 4/19 1/20 1/17 10/17 7/18 4/19 1/20

Source: KOSCOM, Mirae Asset Daewoo Research Source: KOSCOM, Mirae Asset Daewoo Research Source: KOSCOM, Mirae Asset Daewoo Research

Figure 7. Bank debenture rates: AAA , Figure 5. Bank debenture rates: AAA, 2Y Figure 6. Bank debenture rates: AAA, 5Y 10Y

(%) (%) (%) 3.2 2.4 3.0 2.8 3.0 2.2 2.8 2.6 2.6 2.0 2.4 2.4 2.2 1.8 2.2 2.0 2.0 1.6 1.8 1.8 1.4 1.6 1.6 1.4 1.4 1.2 1.2 1.2 1.0 1.0 1.0 1/17 10/17 7/18 4/19 1/20 1/17 10/17 7/18 4/19 1/20 1/17 10/17 7/18 4/19 1/20

Source: KOSCOM, Mirae Asset Daewoo Research Source: KOSCOM, Mirae Asset Daewoo Research Source: KOSCOM, Mirae Asset Daewoo Research

Table 3. HFG: Low-cost core deposits (Wbn, %, %p) 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 YoY QoQ Won -denominated 181,787 187,915 192,685 194,108 195,652 199,865 203,659 211,701 213,309 218,325 223,305 230,041 8.7 3.0 deposits Low-cost deposits 72,377 74,722 74,521 77,349 78,712 78,372 76,329 78,274 81,780 83,313 81,841 86,755 10.8 6.0 Core deposits 46,631 49,134 49,837 49,655 51,291 52,121 51,068 52,620 54,474 55,600 56,691 59,620 13.3 5.2 MMDA 25,746 25,588 24,684 27,694 27,421 26,251 25,262 25,655 27,306 27,713 25,150 27,135 5.8 7.9 Time deposits 100,044 103,228 107,074 105,103 106,214 110,577 117,005 119,921 119,261 122,229 129,560 133,367 11.2 2.9 Installment deposits 7,897 7,836 7,977 8,217 7,943 7,422 7,478 7,422 7,194 7,094 7,338 7,022 -5.4 -4.3 Marketable deposits 1,468 2,126 3,113 3,439 2,782 3,494 2,847 6,083 5,074 5,689 4,566 2,897 -52.4 -36.6 Core deposit s as % of 39.8 39.8 38.7 39.8 40.2 39.2 37.5 37.0 38.3 38.2 36.6 37.7 0.7 1.1 total Source: KOSCOM, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 3 March 18, 2020 Hana Financial Group

Table 4. HFG: Earnings forecast revisions Revised Previous % chg. (Wbn) 2020F 2021F 2020F 2021F 2020F 2021F Net interest income 5,448 5,675 5,809 6,055 -6.2 -6.3 Net non-interest income 2,270 2,587 2,354 2,532 -3.6 2.2 Total net operating income 7,718 8,262 8,163 8,587 -5.5 -3.8 SG&A expenses 4,082 4,148 4,082 4,148 0.0 0.0 PPOP 3,636 4,115 4,081 4,439 -10.9 -7.3 Provisions 769 933 726 872 5.9 6.9 Operating profit 2,867 3,182 3,355 3,567 -14.5 -10.8 Non-operating income 84 79 84 79 0.0 0.0 Pretax profit 2,951 3,261 3,439 3,646 -14.2 -10.6 Net profit 2,101 2,324 2,452 2,600 -14.3 -10.6 Source: Mirae Asset Daewoo Research estimates

Table 5. HFG: TP calculation

Sustainable ROE 6.60% Growth 2.00% Cost of equity 13.90%

Cost of equity 13.90% Risk-free rate 2.50% Beta 1.90 Market premium 6.00%

Fair P/B (x) 0.39 2020F BPS (W) 100,791 TP (W) 39,000 Source: Mirae Asset Daewoo Research estimates

Table 6. HFG: Valuation metrics at TP of W39,000 2017 2018 2019 2020F 2021F 2022F

P/B (x) 0.47 0.43 0.42 0.39 0.36 0.33 P/E (x) 5.7 5.2 4.9 5.6 5.0 4.9 ROE (%) 8.6 8.6 8.6 7.2 7.4 7.1 EPS growth (%) 53.1 8.7 6.5 -12.2 10.6 3.1 Dividend yield (%) 4.0 4.9 5.4 5.1 5.8 6.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 4 March 18, 2020 Hana Financial Group

Figure 8. HFG: 12-month forward P/B band I Figure 9. HFG: 12-month forward P/B band II

(x) (W) 140,000 1.4 1.30x

1.2 120,000 1.05x 1.0 100,000 Target 0.80x 0.8 80,000 +2 SD 0.6 +1 SD 60,000 0.55x Avg. 0.4 -1 SD 40,000 * 0.30x -2 SD 0.2 20,000

0.0 0 02 04 06 08 10 12 14 16 18 20 02 04 06 08 10 12 14 16 18 20 Source: Quantiwise, company data, Mirae Asset Daewoo Research Source: Quantiwise, company data, Mirae Asset Daewoo Research

Figure 10. HFG: 12-month forward P/E band Figure 11. HFG: 12-month forward P/PPOP band

(W) (W) 120,000 100,000 90,000 100,000 80,000 6.3x 13.00x 70,000 80,000 10.75x 5.1x 60,000

60,000 8.50x 50,000 3.9x 40,000 6.25x 2.7x 40,000 30,000 4.00x 20,000 20,000 1.5x 10,000 0 0 02 04 06 08 10 12 14 16 18 20 02 04 06 08 10 12 14 16 18 20 Source: Quantiwise, company data, Mirae Asset Daewoo Research Source: Quantiwise, company data, Mirae Asset Daewoo Research

Figure 12. HFG: 12-month forward P/B and ROE

(x) 12MF P/B (L, lower x-axis) ROE (R, upper x-axis) (%) 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 1.2 12

1.0 10

0.8 8 +2 SD +1 SD 0.6 6 Avg. P/B 0.4 -1 SD 4 -2 SD 0.2 2

0.0 0 09 10 11 12 13 14 15 16 17 18 19 20

Source: Quantiwise, company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 5 March 18, 2020 Hana Financial Group

Figure 13. HFG: Net interest income Figure 14. HFG: Net fee income

(Wbn) (Wbn) 1,600 600 1,500 550 1,400 500 1,300 1,200 450

1,100 400 1,000 350 900 300 800

700 250 1Q20F 3Q20F 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 1Q 19 3Q 19 1Q2 3Q2 1Q 12 3Q 12 1Q 13 3Q 13 1Q 14 3Q 14 1Q 15 3Q 15 1Q 16 3Q 16 1Q 17 3Q 17 1Q 18 3Q 18 1Q 19 3Q 19 … …

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Table 7. HFG: Quarterly non-interest income (Wbn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Non-interest income 547.7 452.9 505.5 415.2 559.9 550.4 422.8 920.6 Fee income 581.9 609.5 518.0 514.7 544.9 590.1 535.0 586.6 Credit cards 200.7 206.2 201.7 221.6 197.0 198.3 196.2 214.6 Banking fees 121.3 125.1 118.4 109.0 121.6 138.5 134.6 127.7 Guarantees 17.2 18.2 17.9 18.1 17.5 17.8 18.2 20.8 Loans/other 50.0 46.1 43.3 32.0 49.2 53.4 49.2 38.9 F/X 44.7 46.5 45.5 46.3 41.6 53.1 52.2 52.9 Operating leases 9.6 10.5 12.0 12.9 13.2 14.2 14.9 15.1 Asset management fees 178.1 184.4 149.3 152.1 162.2 182.0 165.2 158.3 Beneficiary certificate sales 40.4 38.5 36.8 34.0 40.1 40.5 33.9 28.4 Wrap/operations 13.1 15.8 9.4 9.6 10.3 10.2 14.0 11.3 Brokerage 46.8 41.7 28.3 27.6 27.2 28.0 24.5 24.6 Trust 69.2 80.5 67.1 70.6 75.3 93.1 83.5 85.5 Bancassurance 8.5 7.6 7.3 9.8 9.3 10.2 9.3 8.5 M&A advisory 31.6 54.7 26.2 39.7 53.0 57.1 25.5 74.7 Other 50.1 39.2 22.3 -7.6 11.0 14.2 13.5 11.2 Other non-interest income (ex-fee income) -34.2 -156.6 -12.5 -99.5 15.0 -39.7 -112.2 334.0 Disposal/valuation gains 135.8 22.1 154.9 65.1 168.4 88.0 61.0 479.0 Other operating profit -170.0 -178.7 -167.4 -164.6 -153.4 -127.7 -173.2 -145.0 Loan sales 9.8 32.5 11.8 13.7 13.0 14.8 18.9 9.5 Dividend income 39.6 20.1 35.8 24.2 48.3 63.9 41.5 70.3 Deposit insurance/other -219.4 -231.3 -215.0 -202.5 -214.7 -206.4 -233.6 -224.8 Note: Based on company IR materials (standards for some fee income and disposal/valuation gains differ from those in financial statements) Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 6 March 18, 2020 Hana Financial Group

Table 8. HFG: Total net operating income 2019 (Wbn, %) 2017 2018 2019 breakdown Total net operating income 7,599.8 7,558.4 8,227.2 100.0 Net interest income 5091.0 5,637.2 5,773.7 70.2 Non-interest income 2,508.8 1,921.2 2,453.5 29.8 Fee income 2,026.0 2,224.1 2,256.5 27.4 Credit cards 806.3 830.1 806.1 9.8 Banking fees 452.9 473.8 522.3 6.3 Asset management fees 593.2 663.9 667.8 8.1 M&A advisory 92.0 152.2 210.3 2.6 Other 81.6 104.0 50.0 0.6 Other non-interest income (ex-fee income) 482.8 -302.9 197.0 2.4 Disposal/valuation gains 1,017.9 377.8 796.4 9.7 Other -535.1 -680.7 -599.5 -7.3 Loan sales 153.0 67.8 56.2 0.7 Dividend income 95.2 119.8 224.0 2.7 Deposit insurance/other -801.8 418.2 -674.1 -8.2 Note: Based on company IR materials (standards for some fee income and disposal/valuation gains differ from those in financial statements) Source: Company data, Mirae Asset Daewoo Research

Figure 15. HFG: NPL ratio

(%) 1.80

1.60 1.61 1.40 1.48 1.20 1.33 1.35 1.27 1.21 1.00 1.15 1.12

0.80 0.92 0.78 0.60 0.59 0.40 0.48 0.20

- 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Company data, Mirae Asset Daewoo Research

Figure 16. Bank delinquency ratio trends

(%) 1.4 KB Kookmin Bank 1.2 KEB Hana Bank

1.0 Woori Bank

0.8

0.6

0.4

0.2

0.0 2009 2010 2011 2012 2013 2014 2015 2016 1Q17 2Q17 3Q17 2017 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 7 March 18, 2020 Hana Financial Group

Figure 17. HFG: Credit costs and credit cost ratio

(Wbn) (%) 1,800 1.20

1,600 Provisioning for compensation 1.00 1,400 DSME provisioning related to DLF 1,200 (W350bn) sales (W160bn) 0.80 1,000 0.60 800 600 0.40 400 0.20 200 0 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F2021F2022F

Provisioning expenses (L) % of total credit (R)

Source: Company data, Mirae Asset Daewoo Research

Figure 18. HFG: Cost-to-income ratio

(%) 70

65 67.7

60 62.3 62.5 61.7 55

50 53.1 52.2 52.9 50.8 50.8 50.2 49.2 45

40

35

30 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Figure 19. HFG: ROE trend and forecasts

(%)

10.0

8.0

6.0

4.0

2.0

0.0 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 8 March 18, 2020 Hana Financial Group

Figure 20. HFG: CET1 ratio

(%) 14.00

12.00

10.00

8.00

6.00

4.00

2.00

0.00 2012 2013 2014 2015 2016 2017 2018 2019P

Source: Company data, Mirae Asset Daewoo Research

Figure 21. Financial group BIS ratios (4Q19P) Figure 22. Bank BIS ratios (4Q19P)

(%) (%)

20 Tier 1 capital ratio Tier 2 capital ratio CET1 ratio 20 Tier 1 capital ratio Tier 2 capital ratio CET1 ratio 18 18 15.85 16.00 16.12 16.12 15.38 15.34 16.02 16 16 14.45 14.42 14.48 1.17 2.24 2.05 2.25 14.12 13.96 2.63 2.23 0.61 13.94 14 2.44 1.52 14 13.16 2.50 12.95 14.38 2.65 1.56 1.28 12.34 12 13.80 13.32 13.59 11.89 12.82 12.80 12 11.95 1.82 1.99 1.41 10 11.17 10.96 11.46 10.96 11.41 10 2.04 9.54 10.28 9.56 9.67 8 14.68 14.07 8.39 13.37 13.88 13.15 12.90 12.90 13.77 8 6 11.95 11.47 13.87 6 12.40 12.66 4 11.13 10.93 11.17 9.85 2 4 0 Shinhan HanaKEB Kyongnam Daegu KB KB Kookmin Woori Busan Kwangju Jeonbuk 2 IBK

0 KBFG SFG HFG WFG BNKFG DGBFG JBFG

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Figure 23. HFG: Dividend payout ratio and DPS Figure 24. HFG: Dividend yield trend

(W) (%) (%) DPS (L) Dividend payout ratio (R) 2,500 30 12.0 Dividend yield (based on current share price) 10.6 Dividend yield (based on respective year-end share price) 9.9 25 9.4 2,000 10.0 9.0

20 8.0 7.3 1,500 15 6.0 5.0 1,000 10 4.0 3.3 2.8 2.8 3.1 500 1.9 2.1 1.9 5 2.0 0.9

0 0 0.0

Note: Interim and final dividends combined Notes: Interim and final dividends combined; blue bars represent dividend yield based Source: Company data, Mirae Asset Daewoo Research on March 17, 2020 closing price (W21,200) Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 9 March 18, 2020 Hana Financial Group

Figure 25. HFG: Earnings breakdown by subsidiary in 2018 Figure 26. HFG: Earnings breakdown by subsidiary in 2019 (before reflecting consolidation adjustments and other (before reflecting consolidation adjustments and other factors) factors)

KEB Hana Hana Capital Hana Life Card 4.8% 0.8% KEB Hana Hana Capital Hana Life Hana Savings 3.6% Card 4.1% 0.9% Bank Hana Savings 1.8% 0.7% Bank Hana 0.6% Financial Hana Investment Financial 6.1% Investment 10.6%

Banking 84.0% Banking 81.9%

Net profit Ownership Net profit Net profit Ownership Net profit (Wbn) (%) (Wbn) (%) (a) (b) (a) x (b) (a) (b) (a) x (b) Banking 2,092.8 2,092.8 84.0 Banking 2,156.5 2,156.5 81.9 KEB Hana Bank 2,092.8 100.0 2,092.8 84.0 KEB Hana Bank 2,156.5 100.0 2,156.5 81.9 Non-banking 414.9 398.9 16.0 Non-banking 484.2 475.8 18.1 Hana Financial Investment 152.1 100.0 152.1 6.1 Hana Financial Investment 280.3 100.0 280.3 10.6 KEB Hana Card 106.7 85.0 90.7 3.6 KEB Hana Card 56.3 85.0 47.9 1.8 Hana Capital 120.4 100.0 120.4 4.8 Hana Capital 107.8 100.0 107.8 4.1 Hana Life 19.5 100.0 19.5 0.8 Hana Life 23.7 100.0 23.7 0.9 Hana Savings Bank 16.2 100.0 16.2 0.7 Hana Savings Bank 16.1 100.0 16.1 0.6 Total 2,507.7 2,491.7 100 Total 2,640.7 2,632.3 100

Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research

Mirae Asset Daewoo Research 10 March 18, 2020 Hana Financial Group

Table 9. HFG: Quarterly earnings

(Wbn) 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20F 2Q20F 3Q20F 4Q20F Net interest income 1,339.5 1,402.4 1,427.1 1,468.1 1,426.6 1,460.0 1,458.8 1,428.3 1,372.1 1,338.6 1,351.1 1,386.1 Net non-interest income 549.5 568.5 493.7 457.4 509.8 541.0 498.5 547.9 510.0 526.9 512.9 536.8 Net other income 3.9 -101.9 18.1 -61.8 49.9 9.3 -75.5 355.8 11.3 90.3 92.7 -10.9 Total net operating income 1,892.9 1,869.0 1,938.9 1,863.7 1,986.4 2,010.2 1,881.7 2,332.0 1,893.4 1,955.8 1,956.7 1,911.9 SG&A expenses 914.5 917.7 1,039.4 1,075.3 1,072.8 928.9 986.6 1,186.1 986.0 984.6 993.7 1,117.1 PPOP 978.3 951.3 899.5 788.4 913.6 1,081.4 895.1 1,145.9 907.3 971.2 963.0 794.7 Provisions 88.9 36.0 66.0 274.5 164.4 100.6 115.6 396.7 176.4 182.9 195.0 214.8 Operating profit 889.5 915.4 833.5 513.9 749.2 980.7 779.6 749.2 730.9 788.3 767.9 579.9 Non-operating income 35.7 -2.1 7.9 -43.8 12.9 -63.6 392.1 -191.9 37.0 32.0 42.0 -27.0 Pretax profit 925.1 913.2 841.3 470.0 762.1 917.1 1,171.7 557.3 767.9 820.3 809.9 552.9 Net profit 668.6 634.1 589.4 341.2 546.1 658.4 836.7 350.4 546.1 584.8 577.4 392.7 Source: Company data, Mirae Asset Daewoo Research estimates

Table 10. HFG: Annual earnings

(Wbn) 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F Net interest income 4,485.0 4,653.9 4,538.9 4,642.1 5,109.5 5,637.2 5,773.7 5,447.9 5,675.1 5,906.1 Net non-interest income 1,592.8 1,617.8 1,696.4 1,639.9 1,876.6 2,069.0 2,097.1 2,086.6 2,269.0 2,342.8 Net other income 99.3 30.8 454.3 330.3 613.7 -141.8 339.5 183.3 318.0 317.0 Total net operating income 6,177.1 6,302.5 6,689.6 6,612.3 7,599.8 7,564.4 8,210.4 7,717.8 8,262.1 8,565.8 SG&A expenses 3,846.3 3,936.2 4,531.0 4,076.9 4,039.1 3,946.9 4,174.4 4,081.5 4,147.6 4,214.8 PPOP 2,330.8 2,366.3 2,158.6 2,535.4 3,560.7 3,617.6 4,036.0 3,636.3 4,114.5 4,351.1 Provisions 1,165.8 1,122.9 1,148.1 921.3 842.6 465.4 777.3 769.2 932.6 1,072.3 Operating profit 1,165.0 1,243.4 1,010.5 1,614.1 2,718.1 3,152.2 3,258.7 2,867.1 3,181.9 3,278.7 Non-operating income 105.3 9.1 185.9 205.9 80.5 -2.4 149.5 84.0 78.8 83.0 Pretax profit 1,270.3 1,252.6 1,196.4 1,820.0 2,798.7 3,149.7 3,408.1 2,951.1 3,260.7 3,361.7 Net profit 933.9 937.7 909.7 1,330.5 2,036.8 2,233.3 2,391.6 2,100.9 2,323.6 2,395.5 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 11 March 18, 2020 Hana Financial Group

Hana Financial Group (086790 KS/Buy/TP: W39,000)

Comprehensive Income Statement (Summarized) Statement of Financial Condition (Summarized) Year-end 12 (Wbn) 12/19 12/20F 12/21F 12/22F Year-end 12 (Wbn) 12/19 12/20F 12/21F 12/22F Interest income 11,118 10,020 10,116 10,531 Cash & dues 23,719 23,950 24,472 25,465 Interest expense 5,344 4,572 4,441 4,625 Securities 89,742 90,586 92,368 95,673 Net interest income 5,774 5,448 5,675 5,906 Net loans and receivables 282,306 283,216 295,195 307,008 Net fees and commissions 2,097 2,087 2,269 2,343 Tangible assets 4,852 4,909 4,967 5,027 Net other non-interest income 340 183 318 317 Other assets 20,887 21,218 21,562 21,919 Total net operating income 8,210 7,718 8,262 8,566 Total assets 421,506 423,878 438,564 455,093 G&A expenses 4,174 4,082 4,148 4,215 Deposits 272,794 255,215 266,285 277,023 PPOP 4,036 3,636 4,115 4,351 Borrowings 20,699 22,090 22,850 24,166 Total provision expenses 777 769 933 1,072 Debentures 43,661 45,918 47,172 49,311 Operating profit 3,259 2,867 3,182 3,279 Other liabilities 55,366 69,495 68,689 68,542 Net non-operating income 149 84 79 83 Total liabilities 392,521 392,718 404,996 419,042 Income before income taxes 3,408 2,951 3,261 3,362 Capital stock 1,501 1,501 1,501 1,501 Income tax expense 983 812 897 924 Hybrid securities 1,245 1,245 1,245 1,245 Net profit 2,143 2,101 2,324 2,396 Capital surplus 10,582 10,582 10,582 10,582 Net profit (ex. minority interest) 2,392 2,101 2,324 2,396 Retained earnings 15,965 18,102 20,469 22,910 Normalized net profit 2,143 2,101 2,324 2,396 Capital adjustments -315 -315 -315 -315 Other comprehensive income 0 0 0 0 Core income 7,706 7,871 7,534 7,944 Non-controlling interests 860 899 939 981 Core PPOP 3,759 3,696 3,453 3,797 Total shareholders' equity 28,985 31,161 33,568 36,051

DuPont analysis (%) Key ratios (%) Interest income 2.76 2.37 2.35 2.36 Growth (YoY) Interest expense 1.33 1.08 1.03 1.04 W loan growth (Bank) 7.8 3.9 4.4 4.2 Net interest income 1.43 1.29 1.32 1.32 Net loans & receivables growth 8.3 0.3 4.2 4.0 Net commissions income 0.52 0.49 0.53 0.52 Deposit growth 9.8 -6.4 4.3 4.0 Net other non-interest income 0.08 0.04 0.07 0.07 Shareholders' equity growth 3.6 7.5 7.7 7.4 Total net operating profit 2.04 1.83 1.92 1.92 Total assets growth 9.5 0.6 3.5 3.8 G&A expenses 1.04 0.97 0.96 0.94 Net interest income growth 2.4 -5.6 4.2 4.1 PPOP 1.00 0.86 0.95 0.97 Net fee income growth 1.4 -0.5 8.7 3.3 Total provision expenses 0.19 0.18 0.22 0.24 PPOP growth 11.6 -9.9 13.2 5.7 Net non-operating income 0.04 0.02 0.02 0.02 Operating profit growth 3.4 -12.0 11.0 3.0 Income before income taxes 0.85 0.70 0.76 0.75 Net profit growth 7.1 -12.2 10.6 3.1 Income tax expense 0.24 0.19 0.21 0.21 Profitability Net profit (non-controlling) 0.01 0.01 0.01 0.01 Net interest spread (Bank) 1.44 1.24 1.26 1.26 ROA 0.59 0.50 0.54 0.54 Net interest margin (Bank) 1.49 1.30 1.31 1.31 Leverage (x) 14.6 14.5 13.7 13.2 PPOP margin 1.0 0.9 1.0 1.0 ROE 8.63 7.20 7.39 7.08 ROA 0.6 0.5 0.5 0.5 Asset quality (%) ROE 8.6 7.2 7.4 7.1 NPL ratio 0.48 0.46 0.44 0.42 Liquidity Broad NPL ratio 1.32 1.22 1.09 0.95 W LDR (excl. CDs) (Bank) 94.4 94.4 94.4 94.4 NPL coverage ratio 264.2 268.0 275.2 292.6 Loans to assets 67.0 66.8 67.3 67.5 Reserves to total credits 1.3 1.2 1.2 1.2 Capital adequacy Credit cost (% of total loans) 0.28 0.27 0.32 0.35 Total CAR 13.9 14.3 14.6 14.9 Credit cost (% of total credit) 0.27 0.27 0.31 0.35 Tier 1 CAR 12.7 13.2 13.7 14.1 Per share items (W) Tier 2 CAR 1.3 1.1 0.9 0.7 EPS (reported) 7,966 6,997 7,739 7,979 Operating efficiency EPS (normalized) 7,139 6,997 7,739 7,979 Cost to income 50.8 52.9 50.2 49.2 BVPS 93,673 100,791 108,674 116,804 Cost to assets 1.0 1.0 0.9 0.9 DPS (common share) 2,100 2,000 2,250 2,400 Dividend PPOP/ share 13,442 12,111 13,704 14,492 Payout ratio 25.8 27.8 28.2 29.2 Source: Company data, Mirae Asset Daewoo Research estimates

Mirae Asset Daewoo Research 12 March 18, 2020 Hana Financial Group

APPENDIX 1

Important Disclosures & Disclaimers 2-Year Rating and Target Price History

Company (Code) Date Rating Target Price (W) Hana Financial Group Hana Financial Group (086790) 03/18/2020 Buy 39,000 80,000 01/22/2020 Buy 49,000 10/22/2019 Buy 51,000 60,000 01/21/2019 Buy 58,500 12/04/2018 Buy 62,000 40,000 07/05/2018 Buy 64,000 20,000 01/31/2018 Buy 70,000

0 Mar 18 Mar 19 Mar 20

Stock Ratings Industry Ratings Buy : Relative performance of 20% or greater Overweight : Fundamentals are favorable or improving Trading Buy : Relative performance of 10% or greater, but with volatility Neutral : Fundamentals are steady without any material changes Hold : Relative performance of -10% and 10% Underweight : Fundamentals are unfavorable or worsening Sell : Relative performance of -10% Ratings and Target Price History (Share price (─), Target price (▬), Not covered ( ■), Buy (▲), Trading Buy (■), Hold (●), Sell ( ◆)) * Our investment rating is a guide to the relative return of the stock versus the market over the next 12 months. * Although it is not part of the official ratings at Mirae Asset Daewoo Co., Ltd., we may call a trading opportunity in case there is a technical or short-term material development. * The target price was determined by the research analyst through valuation methods discussed in this report, in part based on the analyst’s estimate of future earnings. * The achievement of the target price may be impeded by risks related to the subject securities and companies, as well as general market and economic conditions.

Equity Ratings Distribution & Investment Banking Services Buy Trading Buy Hold Sell Equity Ratings Distribution 84.05% 9.82% 6.13% 0.00% Investment Banking Services 76.67% 13.33% 10.00% 0.00% * Based on recommendations in the last 12-months (as of December 31, 2019)

Disclosures As of the publication date, Mirae Asset Daewoo Co., Ltd. has acted as a liquidity provider for equity-linked warrants backed by shares of Hana Financial Group as an underlying asset; other than this, Mirae Asset Daewoo has no other special interests in the covered companies.

Analyst Certification The research analysts who prepared this report (the “Analysts”) are registered with the Korea Financial Investment Association and are subject to Korean securities regulations. They are neither registered as research analysts in any other jurisdiction nor subject to the laws or regulations thereof. Each Analyst responsible for the preparation of this report certifies that (i) all views expressed in this report accurately reflect the personal views of the Analyst about any and all of the issuers and securities named in this report and (ii) no part of the compensation of the Analyst was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report. Mirae Asset Daewoo Co., Ltd. (“Mirae Asset Daewoo”) policy prohibits its Analysts and members of their households from owning securities of any company in the Analyst’s area of coverage, and the Analysts do not serve as an officer, director or advisory board member of the subject companies. Except as otherwise specified herein, the Analysts have not received any compensation or any other benefits from the subject companies in the past 12 months and have not been promised the same in connection with this report. Like all employees of Mirae Asset Daewoo, the Analysts receive compensation that is determined by overall firm profitability, which includes revenues from, among other business units, the institutional equities, investment banking, proprietary trading and private client division. At the time of publication of this report, the Analysts do not know or have reason to know of any actual, material conflict of interest of the Analyst or Mirae Asset Daewoo except as otherwise stated herein.

Disclaimers This report was prepared by Mirae Asset Daewoo, a broker-dealer registered in the Republic of Korea and a member of the Korea Exchange. Information and opinions contained herein have been compiled in good faith and from sources believed to be reliable, but such information has not been independently verified and Mirae Asset Daewoo makes no guarantee, representation or warranty, express or implied, as to the fairness, accuracy, completeness or correctness of the information and opinions contained herein or of any translation into English from the Korean language. In case of an English translation of a report prepared in the Korean language, the original Korean language report may have been made available to investors in advance of this report. The intended recipients of this report are sophisticated institutional investors who have substantial knowledge of the local business environment, its common practices, laws and accounting principles and no person whose receipt or use of this report would violate any laws or regulations or subject Mirae Asset Daewoo or any of its affiliates to registration or licensing requirements in any jurisdiction shall receive or make any use hereof. This report is for general information purposes only and it is not and shall not be construed as an offer or a solicitation of an offer to effect transactions in any securities or other financial instruments. The report does not constitute investment advice to any person and such person shall not be treated as a client of Mirae Asset Daewoo by virtue of receiving this report. This report does not take into account the particular investment objectives, financial

Mirae Asset Daewoo Research 13 March 18, 2020 Hana Financial Group

situations, or needs of individual clients. The report is not to be relied upon in substitution for the exercise of independent judgment. Information and opinions contained herein are as of the date hereof and are subject to change without notice. The price and value of the investments referred to in this report and the income from them may depreciate or appreciate, and investors may incur losses on investments. Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents do not accept any liability for any loss arising out of the use hereof. Mirae Asset Daewoo may have issued other reports that are inconsistent with, and reach different conclusions from, the opinions presented in this report. The reports may reflect different assumptions, views and analytical methods of the analysts who prepared them. Mirae Asset Daewoo may make investment decisions that are inconsistent with the opinions and views expressed in this research report. Mirae Asset Daewoo, its affiliates and their directors, officers, employees and agents may have long or short positions in any of the subject securities at any time and may make a purchase or sale, or offer to make a purchase or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case either as principals or agents. Mirae Asset Daewoo and its affiliates may have had, or may be expecting to enter into, business relationships with the subject companies to provide investment banking, market-making or other financial services as are permitted under applicable laws and regulations. No part of this document may be copied or reproduced in any manner or form or redistributed or published, in whole or in part, without the prior written consent of Mirae Asset Daewoo.

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Mirae Asset Daewoo Research 14 March 18, 2020 Hana Financial Group

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Mirae Asset Daewoo Research 15