Korea Investment & Securities: Banking Sector Q3 Net Profit to Exceed Expectations... "Overweight" Top Pick Is Shinhan Financial Group

On October 1, Korea Investment & Securities maintained its "overweight" recommendation on the banking sector, stating that third-quarter net profits are expected to exceed consensus, while regulatory risks are easing and conditions are emerging for renewed attention to shareholder returns. Shinhan Financial Group was selected as the top pick in the sector. The target prices for Woori Financial Group and JB Financial Group were raised to 34,000 won and 27,500 won per share, respectively.

Paek Doosan, a research analyst at Korea Investment & Securities, stated in a banking sector analysis report titled "Q3 Preview: The Function of Earnings and Regulation" released on this day that the sector's net profit for the third quarter is projected to reach 6.4 trillion won. This estimate is 4% higher than the consensus.

Paek first noted, "The KRX Bank Index rose 5.6% quarter-on-quarter in the third quarter, but underperformed the KOSPI by 5.9 percentage points," highlighting that the index, which declined in August due to disappointment over tax reform plans and concerns about regulatory risks, rebounded in September. He stated, "It is time for the share price to rise again," and maintained an overweight view on the banking sector, citing solid earnings and favorable internal and external conditions.

He presented three specific reasons. First, he pointed out that the sector is at the initial stage of easing regulatory risks. He explained, "Issues regarding mortgage loans and stock risk weights have been resolved, and concerns over ELS fines are also subsiding." He also cited the expectation that shareholder return issues will regain attention due to the benefits of capital activation policies. Most banks meet the requirements for high-dividend companies, and the implementation of separate taxation on dividend income is expected to improve conditions for individual investors. He assessed that uncertainties related to reduced dividends have also disappeared due to the tax reform plan. Lastly, Paek stated, "Concerns over asset quality have passed their peak," and predicted that the situation would improve by next year.

Additionally, Paek said, "We maintain Shinhan Financial Group as our top pick in the sector," noting, "We are focusing on the turnaround in the non-banking segment, proactive shareholder returns, and valuation merits." Third-quarter controlling net profit is expected to reach 1.33 trillion won, which is generally in line with consensus. The buy rating and target price of 96,000 won were both maintained.

For Woori Financial Group, the target price was raised by 17% from 29,000 won to 34,000 won. Paek commented, "Thanks to the acquisition of an insurance company, third-quarter net profit is expected to exceed consensus by 25%," and added, "Despite the expansion of productive finance and the insurance company acquisition, the common equity tier 1 ratio is expected to exceed 12.5% by the end of 2025, and the mid-term capital ratio is also improving rapidly, supporting expectations for increased shareholder returns." He further noted, "This is a phase where improvements in capital ratios and dividend merits are acting as a premium."

Similarly, JB Financial Group also saw its target price raised. Third-quarter controlling net profit is expected to reach 198.1 billion won, in line with consensus. Paek maintained a buy rating on JB Financial Group and raised the target price by 17% from 23,500 won to 27,500 won. Regarding overhang concerns related to Samyang Corporation and Align Partners, he pointed out that the increase in shareholder value from treasury stock cancellation outweighs these concerns, assessing the overhang risk as excessive.

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