Banks/Credit Cards Earnings stability and solid dividend yields arising from improved fundamentals and business diversification Heather Kang +822-3774-1903 [email protected] 본 자료는 미래에셋대우가 제작한 것이며, 투자권유를 위한 광고물로 활용될 수 없고, 투자자에게 배포될 수 없습니다. 본 자료에 수록된 내용은 신뢰할만한 자료 및 정보로부터 Analysts얻어진 것이나who prepared 당사는 그this 정확상이나 report are 안정성을 registered 보장할 as research 수 없습니다. analysts 따라서 in Korea 어떠한 but 경우에도 not in any 본 자료는other jurisdiction, 고객의 투자 including 결과에 대한 the 법적 U.S. 책임소재에 PLEASE대한 증빙자료로 SEE ANALYST 사용될 CERTIFICATIONS 수 없습니다. AND IMPORTANT DISCLOSURES & DISCLAIMERS IN APPENDIX 1 AT THE END OF REPORT. [Summary] Bet on earnings stability and dividend yields Prepare for future via 2H19 outlook structural changes Overweight on banks (financial holding companies) Business portfolio diversification (Expansion of non-banking businesses) Solid earnings, despite market interest Revenue source rate declines diversification (Expansion of non-interest earnings, Top pick: such as commission income) Valuation merits HFG Globalization KBFG Dividend merits (Overseas expansion, SFG regional diversification) Digital transformation 2 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ① Business portfolio • The market views non-banking M&As positively, unless an excessive price is paid. diversification via • Non-banking M&As are seen as a good strategy to diversify revenue sources, particularly at a time when the medium/long-term growth of banks’ domestic loan assets is in doubt due to household debt and the economic M&As slowdown. • The market cap of KBFG exceeded that of SFG when the former moved to make KB Insurance and KB Capital into wholly-owned subsidiaries through tender offers/equity swaps (for remaining shares); SFG overtook KBFG in market cap when its move to acquire Orange Life Insurance gained approval from financial authorities and it reported solid quarterly results. Market caps of KBFG and SFG and major M&As Good Morning Sec. Source: Company data, Quantiwise, Mirae Asset Daewoo Research 3 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ① Business portfolio • SFG’s acquisition of Orange Life Insurance and Asia Trust: The financial holding company is striving to continue diversification via M&A-fueled growth, raising expectations on earnings growth; the acquisition of remaining shares of Orange Life Insurance and Asia Trust would drive further growth in SFG’s net profit attributable to controlling interests. M&As • KBFG, a financial holding company boasting the sector’s strongest capital power, is best positioned to capture attractive M&A opportunities when they arise. SFG: Net profit attributable to controlling interests KBFG: Net profit attributable to controlling interests (Wbn) (Wbn) 3,900 3,900 3,705 3,700 3,700 3,670 3,562 3,528 3,488 3,500 3,500 3,393 3,312 3,300 3,300 3,157 3,100 3,100 3,061 2,918 2,900 2,900 2,700 2,700 2,500 2,500 2017 2018 2019F 2020F 2021F 2017 2018 2019F 2020F 2021F Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research 4 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ① Business portfolio • Well-diversified business portfolios: In a low-interest-rate environment, fee & commission income and non- interest income tend to grow, and credit card or capital companies also benefit from lower funding costs, diversification via defending group net interest income. M&As • Focusing on non-banking businesses can improve earnings stability amid interest rate volatility, offer a new growth driver, and boost group ROE. • Financial holding companies (or banks) should be able to attract capital flows (deposits various financial products; indirect financing direct financing), which have been volatile amid low interest rates and capital market development. • Leveraging banks’ strengths in sales networks and customer reach, the customer base for non-banking subsidiaries can be expanded via combined branches and referral sales. SFG: Profit contributions from banking/non-banking businesses KBFG: Profit contributions from banking/non-banking businesses (before consolidation adjustments/other adjustments) (before consolidation adjustments/other adjustments) (Wbn) (Wbn) 4,000 4,000 Other Other Orange Life KB Kookmin Card 3,500 3,349 3,500 3,316 KB Securities 3,099 Shinhan Investment 3,229 280 242 KB Insurance 3,003 Shinhan Card 242 3,000 3,000 Banking 245 251 297 2,596 214 Banking 287 115 212 272 179 2,500 2,388 182 519 2,500 262 170 216 716 330 118 914 2,000 2,000 635 695 1,679 1,476 162 1,500 1,500 75 355 317 2,298 976 55 2,175 2,259 892 1,000 1,958 1,000 120 1,728 113 71 48 85 78 1,465 1,503 122 81 75 500 500 1,107 964 623 573 0 0 2014 2015 2016 2017 2018 1Q19 2015 2016 2017 2018 1Q19 Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research 5 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ① Business portfolio • SFG: Acquisition of ANZ Vietnam’s retail unit via purchase and assumption (P&A) agreement, Prudential Vietnam diversification via Financial (consumer finance company), Orange Life, and Asia Trust • KBFG: Acquisition and full ownership of capital, non-life insurance, and securities firms; ample capital and sound M&As financial structure allow for additional M&As in 2019 and beyond • HFG: Acquired remaining stake in Hana Capital, thus taking full control of the company; CET1 ratio and earnings power have improved significantly; we expect further diversification into non-bank operations via M&As. SFG’s and KBFG’s profit contributions from banking/non-banking businesses as of 2018 SFG: Earnings breakdown by subsidiary KBFG: Earnings breakdown by subsidiary (before reflecting consolidation adjustments and other factors) (before reflecting consolidation adjustments and other factors) Shinhan Other KB Asset KB Capital Other Shinhan Life Capital 1.4% Management 3.5% 2.8% Insurance 3.1% 1.2% 3.9% Shinhan Inv. KB Kookmin 7.5% Card 8.9% KB Securities Shinhan Card 5.5% 15.6% KB Insurance Banking 8.1% Banking 68.4% 70.0% Net profit Ownership Net profit Net profit Ownership Net profit (Wbn) (%) (Wbn) (%) (a) (b) (a) x (b) (a) (b) (a) x (b) Bank 2,306.4 2,279.0 68.4 Bank 2,259.2 2,259.2 70.0 Shinhan Bank 2,279.0 100.0 2,279.0 68.4 KB Kookmin Bank 2,259.2 100.0 2,259.2 70.0 Jeju Bank 27.4 71.9 0.0 0.0 Non-bank 969.6 970 30.0 Non-bank 1,057.4 1,050.7 31.6 KB Insurance 262.3 100.0 262.3 8.1 Shinhan Card 519.4 100.0 519.4 15.6 KB Securities 178.8 100.0 178.8 5.5 Shinhan Inv. 251.3 100.0 251.3 7.5 KB Kookmin Card 286.6 100.0 286.6 8.9 Shinhan Life Insurance 131.0 100.0 131.0 3.9 KB Life Insurance 14.8 100.0 14.8 0.5 Shinhan BNP Paribas 18.9 65.0 12.3 0.4 KB Asset Management 39.6 100.0 39.6 1.2 Shinhan Capital 103.4 100.0 103.4 3.1 KB Capital 111.9 100.0 111.9 3.5 Shinhan Savings Bank 19.4 100.0 19.4 0.6 KB Savings Bank 11.0 100.0 11.0 0.3 Shinhan Data System 1.3 100.0 1.3 0.0 KB Real Estate Trust 47.0 100.0 47.0 1.5 Shinhan AITAS 8.5 99.8 8.4 0.3 KB Investment 14.5 100.0 14.5 0.4 Shinhan Credit Informatio 1.4 100.0 1.4 0.0 KB Credit Information 0.2 100.0 0.2 0.0 Shinhan Alternative Inv. -0.8 100.0 -0.8 0.0 KB Data Systems 2.9 100.0 2.9 0.1 Shinhan REITs MMgmt 3.6 100.0 3.6 0.1 Total 3,228.8 3,228.8 100 Total 3,363.8 3,329.7 100 Source: Company data, Mirae Asset Daewoo Research 6 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ② Revenue source • Despite marked growth in net interest income amid recovering NIMs and steady loan asset growth, banks have diversification seen an increase in the profit contribution of non-interest income, supported by fee & commission income growth and a recovery in other non-interest income. (expansion of non- • The growth of non-interest income is encouraging from the standpoint of revenue source diversification and interest earnings) capital efficiency. Profit contributions of net interest income, net commission Net commission income growth income, and other non-interest income (2014 vs. 2018) Net interest income (Wbn) 8,000 140% Net fee & commission income Other non-interest income 7,000 120% +32.4% 0.5% 100% 19% 19% 19% 6,000 21% 18% 16% 26% 27% 80% 5,000 60% 4,000 89% 91% 40% 82% 84% 86% 84% 74% 74% 3,000 20% 2,000 0% -3% -2% -5% -2% -0.1% 1,000 -8% -9% -20% 2014 2018 2014 2018 2014 2018 2014 2018 0 KB Shinhan Hana Woori 2014 2018 Note: Based on consolidated financial statements Note: Based on consolidated financial statements Source: Company data, Mirae Asset Daewoo Research Source: Company data, Mirae Asset Daewoo Research 7 | [Banks/Credit Cards] Mirae Asset Daewoo Research Preparing for the future via structural changes ③ Overseas expansion • To secure medium/long-term growth drivers, boost profits, and diversify their domestic-oriented asset portfolios, a growing number of banks have been expanding into overseas markets like Southeast Asia, where financial demand is on the rise and margins are higher.