[Click eStock] "Woori Financial, 2Q Earnings Expected to Decline... Target Price Down"

[Asia Economy Reporter Hwang Yoon-joo] Kiwoom Securities announced on the 20th that Woori Financial Group's second-quarter earnings are expected to decline. Accordingly, the investment rating of 'Buy' was maintained, but the target price was lowered to 16,000 KRW.

Seo Young-soo, a researcher at Kiwoom Securities, stated, "The second-quarter net income attributable to controlling shareholders is estimated to be 672.3 billion KRW, down 11% compared to the same period last year." Considering market concerns about future poor performance, the results are evaluated as relatively favorable.

Researcher Seo explained, "The interest income segment's performance significantly improved due to the faster-than-expected rise in interest rates, which led to an improvement in net interest margin, and the additional provision amount is expected to be smaller than initially anticipated." If the current trend continues, the additional provisions are expected to be around 150 to 200 billion KRW.

Seo expects the company to achieve quarterly results exceeding expectations but believes the possibility of future performance deterioration has increased.

He said, "From the second half of the year, when the base rate hike is somewhat settled due to accelerated deposit interest rate competition among banks, the net interest margin is expected to shift to a downward trend," adding, "Looking at past cases, when time deposits exceeded 3%, bank deposits rapidly shifted from low-cost deposits to high-cost deposits such as time deposits."

He also forecasted, "Due to the steep rise in interest rates, changes in financial companies' lending attitudes and increased interest burdens from rising loan interest rates are expected to lead to a full-scale deterioration in asset quality."

Considering that most banks' loan structures are centered on interest-only and variable-rate loans, the impact of asset quality deterioration due to interest rate hikes is expected to progress faster than market expectations.

Researcher Seo analyzed, "However, for the time being, the decline in non-bank sectors such as securities is expected to be greater than that of banks," and "The company's earnings decline will be relatively smaller due to its low non-bank ratio." This implies a relatively higher investment attractiveness compared to other financial holding companies.

He added, "The 2023 earnings estimates have been lowered by 20%, and accordingly, the target price has also been adjusted downward."

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