Aggressive Share Buybacks Will Benefit Shareholders

Key Takeaways

• Aggressive share buyback strategy aims to enhance shareholder value by reducing shares and increasing EPS.
  
• Strengthening nonbanking business and effective risk management are key to improved profitability and future earnings growth.
  
• Macroeconomic conditions, political uncertainties, and provisioning demands pose threats to Hana Financial Group’s profitability and market competitiveness.

Catalysts

Through its subsidiaries, provides financial services in South Korea.

• Hana Financial Group is committed to increasing shareholder value through an aggressive share buyback and cancellation strategy, which is expected to reduce the number of outstanding shares and consequently increase Earnings Per Share (EPS).
  
• The group plans to enhance its profitability and Return on Equity (ROE) by focusing on strengthening its nonbanking business portfolio. This effort includes improving the competitiveness of its nonbanking subsidiaries to drive qualitative growth, impacting net margins and earnings positively.
  
• There is an anticipated growth in fee income driven by increased retirement pension business and core banking services such as IB and payment guarantees, which could positively impact future revenue.
  
• The group has managed its asset quality effectively, maintaining stable credit cost ratios and non-performing loan ratios, suggesting an improvement in overall profitability and net margins.
  
• A focus on RORWA (Return on Risk-Weighted Assets) management and proactive risk management provides a path to higher capital efficiency and improved profitability, supporting future earnings growth.

Hana Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hana Financial Group's revenue will grow by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 30.6% today to 35.4% in 3 years time.
• Analysts expect earnings to reach ₩4327.1 billion (and earnings per share of ₩17988.4) by about March 2028, up from ₩3588.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, up from 4.6x today. This future PE is greater than the current PE for the KR Banks industry at 4.9x.
• Analysts expect the number of shares outstanding to decline by 2.33% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Hana Financial Group Future Earnings Per Share Growth

Risks

• The FX translation loss of ₩211.9 billion due to the depreciation of the won against the dollar negatively impacted group gains on disposition and valuation, which could continue to pressure future net margins and earnings.
  
• The reliance on external macroeconomic conditions and market situations could lead to significant fluctuations in actual results compared to outlooks, potentially affecting revenue and profitability.
  
• The group’s nonbanking portfolio has been sluggish, and their ROE is not meeting desired levels, which could impact earnings and market competitiveness if not improved.
  
• The ongoing domestic and international political uncertainties, along with unpredictable economic indicators like interest rates and exchange rates, present risks for asset quality and may impact credit costs.
  
• The substantial provisioning amount required for real estate PF and potential additional provisioning in 2025 might strain net income and undermine profit expectations if similar levels of reserves are needed in the future.

Valuation

• The analysts have a consensus price target of ₩81934.783 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 ₩12216.3 billion, earnings will come to ₩4327.1 billion, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of ₩58800.0, the analyst price target of ₩81934.78 is 28.2% 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.