[Click eStock] "Shinhan Financial Group, It's Too Early to Be Disappointed Even Without Treasury Stock Cancellation"

Hana Financial Investment Report

[Asia Economy Reporter Minji Lee] Hana Financial Investment maintained a buy rating and a target price of 56,000 KRW for Shinhan Financial Group on the 10th. This is based on the judgment that most of the problematic investment products causing uncertainty have been cleared, significantly reducing concerns about earnings, and that the company is expected to actively implement shareholder return policies going forward.

Net profit in the fourth quarter of last year decreased by 1% year-on-year to 460 billion KRW, falling short of market expectations. This was influenced by Shinhan Bank and Shinhan Financial Investment recognizing 304.7 billion KRW in costs related to investment products and an additional 187.9 billion KRW provision for COVID-19. An additional 30.4 billion KRW provision for overseas alternative investments was added, resulting in a total loss of 523 billion KRW.

Choi Jung-wook, a researcher at Hana Financial Investment, said, “In the case of investment products, besides compensation decided by the Dispute Mediation Committee, most proactive private settlements have been pursued and reflected in costs.” He added, “About 30% of private settlements have not yet been completed, and additional losses of approximately 90 to 200 billion KRW may occur from this. Since this process could take up to 3 to 5 years, it is not expected to be a short-term burden.”

Due to the decline in net profit, the dividend per share slightly decreased from expectations. There was also no share buyback announced as KB Financial had done. However, this should be interpreted as a difference in shareholding status. Researcher Choi explained, “For already held treasury shares, since they are already deducted from capital, canceling them does not affect capital ratios. But if new treasury shares are purchased and canceled, it inevitably reduces capital, so the regulatory authorities likely expressed reluctance.”

Rather, the focus should be on the company’s capacity to implement shareholder return policies after the end of COVID-19 financial support. Currently, the common equity tier 1 capital ratio stands at 13%, showing solid capital strength compared to other banks. Researcher Choi analyzed, “Once the COVID-19 situation calms down and financial sector COVID-19 support ends, there is sufficient capacity to conduct share buybacks and cancellations. The company’s willingness to actively implement shareholder return policies is quite strong, as evidenced by being the first in the industry to conduct quarterly dividends.”

Since most of the problematic investment product issues causing uncertainty have been resolved, concerns about earnings are expected to be greatly alleviated. Accordingly, the company is projected to achieve a net profit of around 4.8 trillion KRW this year. Researcher Choi explained, “Won-denominated loans increased by 2.8% in the fourth quarter, and NIM (net interest margin) also rose by 5 basis points. If the expected earnings growth is about 19%, the profit growth rate in 2022 will be the highest among banks.”

This content was produced with the assistance of AI translation services.