Woori Financial Group: 1Q22 Overview: Growth Fueled by Net Interest Income

The author is an analyst at KB Securities. He can be contacted at [email protected] — Ed.

Buy maintained, target price KRW 20,000 on high profit contribution from bank subsidiaries, further stabilization of CCR

We maintain BUY and TP of 20,000 KRW on Woori FG based on:

(1) anticipated earnings growth this year, supported by the NII and strong earnings momentum, driven by relatively strong contributions from banking subsidiaries and

(2) the expected earnings stability supported by the rapid stabilization of the CCR over the past two to three years.

Woori FG has Russia risk, but 60% resides in low risk assets (e.g. demand loans) and any FX/credit rating related assessment should be deferred which should reduce any additional provision for loan losses to only KRW10-20 billion.

Consolidated NP 2022E (attributable to controlling interests) revised down by 4.6% to 2.8 tn KRW

We revise down consolidated NP 2022E (attributable to controlling interests) by 4.6% to KRW 2.8 billion to reflect ~KRW 30-40 billion of provisions and a slight decline in non-interest income in due to increasing volatility in investment and asset management conditions. Our TP, derived using the residual income model, of KRW 20,000 (implied 0.51x P/B, 5.15x P/E) assumes (1) a DPR converging towards 30%; (2) 1.5% RFR, 7.16% ERP and 2.6% TGR; and (3) the exclusion of funds raised through hybrid securities.

1Q22E Consolidated NP (attributable to controlling interests) of KRW 783.9 billion to beat consensus

We expect consolidated PN (attributable to controlling interests) for 1Q22 at KRW 783.9 billion (+16.7% YoY), 2.3% above market consensus. The banking unit is expected to support profit growth, with KRW-denominated loans at KRW 262.5 billion (+1.0% QoQ, +6.4% YoY) and NIM at 1.46 % (+4 basis points over a quarter, +11 basis points over a year). Non-interest revenue is expected to decline 0.8% year-on-year, and fee income is expected to continue to grow, largely off a weak base created by loan bond sales. The CCR is expected to remain flat year-over-year at 18 basis points, suggesting a year-over-year decline in regular CCR given Russia risk exposure and additional loss provisioning.

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