Capital Strategies Will Strengthen Shareholder Value By 2027

Key Takeaways

• Hana Financial Group's strategies to enhance shareholder returns and EPS include increased share buybacks and cancellations alongside quarterly dividends.
  
• Focus on capital management and optimizing business portfolio could lead to higher ROE and improved net interest margin, boosting financial performance.
  
• Pressure on net interest margin and rising credit costs, coupled with earnings volatility and economic uncertainties, could impact Hana Financial Group's revenue growth and earnings stability.

Catalysts

Through its subsidiaries, provides financial services in South Korea.

• Hana Financial Group plans to increase its shareholder return ratio to 50% by 2027, which is likely to enhance earnings per share (EPS) through increased share buyback and cancellation.
  
• The approval of a ₩150 billion share buyback and cancellation, combined with a quarterly cash dividend, is expected to significantly increase shareholder returns, which could improve EPS by reducing the number of shares outstanding.
  
• The company's focus on RORWA improvement through business portfolio enhancement and an increased weight of RORWA in KPIs suggests potential improvements in return on equity (ROE), contributing to higher margins.
  
• With plans to maintain a CET1 ratio of 13% to 13.5% and manage RWA growth in line with nominal GDP growth, Hana Financial Group aims to optimize capital management, potentially leading to improved net margins.
  
• Expectations of a rebound in the group's net interest margin (NIM) in the fourth quarter could result in increased revenue from improved loan-to-deposit pricing and reductions in funding costs.

Hana Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hana Financial Group's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 31.8% today to 37.0% in 3 years time.
• Analysts expect earnings to reach ₩4333.2 billion (and earnings per share of ₩15651.97) by about December 2027, up from ₩3517.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ₩3754.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.5x on those 2027 earnings, up from 4.8x today. This future PE is lower than the current PE for the KR Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 0.72% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.82%, as per the Simply Wall St company report.

Hana Financial Group Future Earnings Per Share Growth

Risks

• The group's net interest margin (NIM) is under pressure due to a downward trend in market interest rates, which could impact revenue growth if it doesn't rebound as expected.
  
• Rising delinquency and non-performing loan (NPL) ratios, particularly in real estate PF and financially vulnerable borrowers, may lead to increased credit costs, which could negatively affect net margins.
  
• Hana's high dependence on non-bank sectors like securities and card may lead to earnings volatility, as seen when non-bank performance was impacted by one-off provisioning, which could affect overall earnings stability.
  
• The cautious approach towards asset growth and maintaining CET1 ratio might limit the bank's ability to generate higher revenue from loans, impacting long-term earnings potential.
  
• Economic and regulatory uncertainties, such as the impact of interest rate changes and PF loan restructuring, could pose risks to revenue and capital management, potentially affecting shareholder returns and net margins.

Valuation

• The analysts have a consensus price target of ₩81273.91 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 ₩94000.0, and the most bearish reporting a price target of just ₩64300.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be ₩11703.5 billion, earnings will come to ₩4333.2 billion, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 7.8%.
• Given the current share price of ₩59800.0, the analyst's price target of ₩81273.91 is 26.4% 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.