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Korean Banks: Woori is the top pick, Hana retained on buy list
Financials
Victor Galliano reviews 6 South Korean banks using profitability and credit-quality screens, together with his proprietary weighted scorecard, to identify attractive value and sustainable-return potential. Woori Financial is the deep-value top pick, supported by a very attractive PEG ratio and high dividend yield; strong credit quality credentials, as well as strong capital adequacy ratio. Its PBV discount to KB Financial has widened to more than 35%, greater than one standard deviation from the 3 year mean and a level rarely sustained for long. Hana remains attractive on valuations vs. returns, with appealing equity risk premia and dividend yield. Importantly, pre- and post-provision returns have been on a steady upward trend over the last 5 quarters, helped by interest margin resilience in a dovish interest rate environment.
Big cap GEM Bank investment recommendations for 2024
Financials
Victor Galliano favours four longs and one short as his conviction calls for the year ahead. 1) Bank Mandiri (Indonesia) continues to generate improving returns and has strong capital ratios, credit quality and liquidity metrics. 2) KB Financial (South Korea) is a deep value pick. 3) China Merchants Bank is a contrarian pick, which looks well positioned to confront concerns re. Chinese NPLs and also on very attractive valuations. 4) Banco do Brasil screens well re. valuations and returns; its growth potential also looks particularly appealing. 5) Victor’s key sell is Kotak Mahindra Bank (India) as it is richly valued, exposed to low prospective earnings growth and has low credit quality coverage.
Financials
Korea's leading financial services provider boasts an impressive PH Score™ of 8.8 (top quartile globally from 2000+ banks). This is a solid, diversified, franchise, that offers enhanced capital returns at an attractive valuation - FV of 6%, PBV of 0.5x, Earnings Yield of 19.8%, Dividend Yield of 2.9%, and a Total Return Ratio of 2.2x. KB’s Q321 results highlight improvements in profitability, NIM/Spread, efficiency, provisioning, and headline asset quality. In addition to its stake in Kakao Bank, KB offers exciting growth opportunities with its new digital platform, super app ‘KB Star Banking’.
