Asset Rebalancing And Diversifying Nonbanking Business Will Strengthen Shareholder Value

Key Takeaways

• Strengthening nonbanking areas like securities and insurance could diversify revenue sources and enhance shareholder value, influencing future earnings growth.
  
• Asset rebalancing and risk management may stabilize net interest margins and protect net margins, bolstering revenue stability amid changing interest rates.
  
• Economic uncertainties and slow domestic demand may limit Woori Financial's revenue and net income growth, amid challenges in asset quality and investor confidence.

Catalysts

Operates as a commercial bank that provides a range of financial services to individual, business, and institutional customers in Korea.

• Woori Financial Group plans to strengthen nonbanking business areas such as securities and insurance, which should diversify revenue sources and enhance shareholder value—potentially impacting future earnings growth.
  
• The Group is targeting improved capital allocation efficiency and shareholder returns, focusing on achieving a 12.5% CET1 ratio by 2025, which could positively influence capital adequacy and investor confidence.
  
• Asset rebalancing efforts, focusing on prime assets and high-quality industries, may lead to stable or improved net interest margins even amid declining interest rates, thereby supporting future revenue stability.
  
• Woori aims to maintain and possibly improve its credit cost ratio through proactive risk management and conservative provisioning, which could protect its net margins by reducing loan loss expenses.
  
• Initiatives such as potential non-taxable dividends and increased share buybacks and cancellations are expected to heighten shareholder returns, beneficially impacting EPS and ROE.

Woori Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Woori Financial Group's revenue will decrease by 1.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 25.5% today to 31.6% in 3 years time.
• Analysts expect earnings to reach ₩3470.4 billion (and earnings per share of ₩4756.67) by about March 2028, up from ₩2927.3 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 5.4x on those 2028 earnings, up from 4.2x today. This future PE is greater than the current PE for the US Banks industry at 5.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Woori Financial Group Future Earnings Per Share Growth

Risks

• Uncertainty about financial conditions in Korea and abroad is expected to increase, which could challenge Woori Financial Group's ability to grow noninterest income as strongly as in 2024, potentially impacting total revenue and net margins.
  
• Declines in NIM (Net Interest Margin), influenced by rate cuts from the Bank of Korea, could lead to decreased interest income despite asset rebalancing efforts, impacting net margins and overall earnings.
  
• Potential overhang issues due to significant shareholder sales in the past could impact stock performance and investor confidence, affecting capital raises and overall financial stability.
  
• The uncertain economic environment and slow domestic demand recovery may limit loan growth opportunities, impacting potential revenue increases and putting pressure on net income growth.
  
• Ongoing credit cost concerns related to real estate and economic slowdowns, despite substantial provisioning, could elevate credit risk and deteriorate asset quality, impacting financial stability and net margins.

Valuation

• The analysts have a consensus price target of ₩19973.684 for Woori 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 ₩23000.0, and the most bearish reporting a price target of just ₩16000.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₩10982.5 billion, earnings will come to ₩3470.4 billion, and it would be trading on a PE ratio of 5.4x, assuming you use a discount rate of 8.1%.
• Given the current share price of ₩16680.0, the analyst price target of ₩19973.68 is 16.5% 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.