Quality Corporate Loans And SME Financing Will Secure Future Success

Key Takeaways

• Maintaining stable SG&A and credit costs with proactive provisioning will sustain improved net margins and enhance future earnings.
  
• Strategic market expansion through SME financing and enhanced fee income will diversify revenues and boost future earnings growth.
  
• Global tariffs and geopolitical tensions, regulatory changes, and rising credit costs threaten international operations, net margins, capital ratios, and asset quality.

Catalysts

Through its subsidiaries, provides financial services in South Korea.

• Hana Financial Group plans to increase loan asset growth in line with domestic nominal GDP growth, focusing on quality corporate loans and risk-weighted assets management. This focus on qualitative growth is expected to enhance future revenue and earnings.
  
• The group's strategy of maintaining stable management of SG&A and credit costs, along with proactive provisioning, supports the long-term sustainability of their improved net margins and earnings.
  
• Continuing efforts to enhance fee income, such as the rise in overseas card spending, are aimed at contributing to the group's future earnings growth fundamentals.
  
• The share buyback program and fixed total dividend amount for 2025 are expected to enhance earnings per share and return value to shareholders, indicating a potential increase in shareholder returns and corporate value.
  
• Hana Financial Group's strategy to participate in a consortium to expand SME financing could potentially diversify revenue streams and improve future earnings through strategic market expansion.

Hana Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hana Financial Group's revenue will decrease by 0.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.4% today to 36.9% in 3 years time.
• Analysts expect earnings to reach ₩4303.0 billion (and earnings per share of ₩15866.2) by about May 2028, up from ₩3681.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩3668.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.8x on those 2028 earnings, up from 4.9x today. This future PE is greater than the current PE for the KR Banks industry at 5.3x.
• Analysts expect the number of shares outstanding to grow by 0.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Hana Financial Group Future Earnings Per Share Growth

Risks

• The potential impact of global tariffs and geopolitical tensions, such as the Russia-Ukraine conflict, could affect international operations and lead to valuation losses, impacting earnings from overseas affiliates.
  
• An upward trend in delinquency rates and non-performing loan (NPL) ratios, especially in the small office/home office (SOHO) sector, could lead to higher credit costs, affecting net margins.
  
• Regulatory changes leading to an increase in risk-weighted assets (RWA) for non-banking subsidiaries could impact the capital ratio, affecting earnings and the ability to expand shareholder returns.
  
• Policy rate cuts, though managed via proactive rebalancing efforts, could pressure net interest margins (NIM), influencing bank profitability and overall revenue.
  
• The ongoing decline in the coverage ratio due to a high share of collateral-backed loans poses a risk if economic conditions worsen, as this could lead to a deterioration in perceived asset quality and an increase in credit costs.

Valuation

• The analysts have a consensus price target of ₩81729.167 for Hana Financial Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₩93000.0, and the most bearish reporting a price target of just ₩65500.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩11654.9 billion, earnings will come to ₩4303.0 billion, and it would be trading on a PE ratio of 6.8x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of ₩64500.0, the analyst price target of ₩81729.17 is 21.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.