International Expansion And Loan Diversification Will Strengthen Future Prospects

Key Takeaways

• Strategic loan portfolio diversification and expanding international projects could drive future revenue and earnings growth.
  
• Strong asset quality maintained by controlled costs and prudent credit administration could sustain net interest margins positively.
  
• Disciplined expense management and strategic growth initiatives position Hanmi Financial for potential revenue diversification and improved profitability through credit quality and loan portfolio growth.

Catalysts

Operates as the holding company for Hanmi Bank that provides business banking products and services in the United States.

• The company is focusing on diversifying and expanding its loan portfolio, with significant increases in commercial real estate, commercial and industrial, and residential loan production. This could lead to revenue growth given the higher yields from these loan categories.
  
• Hanmi Financial is capitalizing on market opportunities by selling residential mortgage loans, which helps diversify revenue streams and strengthen the balance sheet, potentially impacting net margins positively.
  
• Strategic growth initiatives, such as the Corporate Korea project, are showing promising loan production increases and could drive future earnings growth by tapping into a new client base and expanding internationally.
  
• The upcoming opening of a new branch in the metro Atlanta area and evaluation of further opportunities to optimize the branch footprint could lead to cost savings and an expanded revenue base, impacting overall earnings growth.
  
• Lower borrowing and deposit costs, combined with the disciplined approach to underwriting and credit administration, should maintain strong asset quality, helping to sustain and potentially improve net interest margins.

Hanmi Financial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Hanmi Financial's revenue will grow by 8.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 26.9% today to 27.6% in 3 years time.
• Analysts expect earnings to reach $81.5 million (and earnings per share of $2.72) by about December 2027, up from $62.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $62 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2027 earnings, down from 12.6x today. This future PE is lower than the current PE for the US Banks industry at 13.1x.
• 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 6.23%, as per the Simply Wall St company report.

Hanmi Financial Future Earnings Per Share Growth

Risks

• Hanmi Financial reported strong growth in its loan portfolio, with significant increases in commercial real estate, commercial and industrial, and residential loans, potentially boosting future revenue and earnings.
  
• The company demonstrated disciplined expense management, leading to a decrease in noninterest expense, which could positively impact net margins and profitability.
  
• There was a notable growth in deposits, particularly noninterest-bearing deposits, which can lower the average cost of funds and support an improved net interest margin.
  
• Hanmi successfully resolved several criticized and nonaccrual loans, and the overall credit quality of the loan portfolio remains strong, potentially reducing risks to earnings.
  
• The implementation of strategic growth initiatives, like the Corporate Korea initiative and the filing for a representative office in Seoul, sets the stage for potential revenue diversification and future growth.

Valuation

• The analysts have a consensus price target of $25.5 for Hanmi Financial 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 $30.0, and the most bearish reporting a price target of just $21.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $295.6 million, earnings will come to $81.5 million, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 6.2%.
• Given the current share price of $26.39, the analyst's price target of $25.5 is 3.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.