Hana Securities on July 20 maintained an 'overweight' investment rating on Korean banking stocks while recommending Woori Financial Group and iM Financial Group as top picks based on valuation attractiveness, according to analyst Choi Jung-wook. The recommendation follows the Bank of Korea's July 16 decision to raise the base interest rate by 0.25 percentage points from 2.50% to 2.75%, the first increase in three years and six months. Choi noted that while banking stocks have shown recent strength driven by institutional buying and interest rate increases, short-term consolidation remains possible given the significant price gains, though the sector's mid-to-long-term upward trend is expected to continue.
Hana Securities Forecasts Short-Term Consolidation Despite Banking Sector Strength
Choi identified several factors driving the recent banking stock rally: inflows from domestic institutional investors, interest rate increases following the Bank of Korea's base rate hike, expectations of improved banking fundamentals due to the won-dollar exchange rate decline, and the defensive appeal of banking stocks as the semiconductor sector underwent corrections. The analyst stated that while the mid-to-long-term upward trend in banking stocks is expected to continue, the recent significant price increases warrant consideration of short-term adjustment possibilities.
Woori Financial and iM Financial Identified as Undervalued Stocks
Hana Securities maintained KB Financial, Shinhan Financial Group, and Hana Financial Group as mid-to-long-term preferred stocks, but projected that Woori Financial and iM Financial are likely to close the valuation gap in the short term based on undervaluation appeal. Woori Financial's stock price increase this year has been significantly lower than competing financial holding companies, yet its current price-to-book ratio (PBR) stands at only 0.57x, which Choi assessed as excessive undervaluation. The analyst forecast that while second-quarter results would only slightly exceed market expectations, the stock price could rebound around the earnings announcement.
iM Financial also lacks significant earnings improvement momentum, but Choi diagnosed high corporate value attractiveness with a PBR of 0.44x. The analyst expected that approximately 50 billion won in share buybacks in the second half, common equity tier 1 (CET1) ratio improvements, and value-up plan announcements would serve as catalysts for stock price increases.
JB Financial-BNK Financial Merger Proposal Faces Practical Limitations
Regarding the merger proposal between JB Financial Group and BNK Financial Group suggested by activist fund Align Partners, Choi assessed that positive effects and practical limitations coexist. The analyst evaluated that even if the merger of the two financial holding companies materializes, substantial synergy effects from asset scale expansion could be limited. However, Choi noted that effects such as funding cost reduction from credit rating improvements upon integration, elimination of duplication in IT and artificial intelligence (AI) investments, and cost efficiency improvements could be expected, and that the possibility of Morgan Stanley Capital International (MSCI) index inclusion due to market capitalization expansion represents a positive factor. The analyst added that the actual likelihood of materialization is not high given the considerable challenges to resolve, including governance structure, merger ratio, and regional base differences, and that in the short term, individual financial holding companies' value-up policies and shareholder return expansion are more likely to determine stock prices than merger expectations.
FAQ
Why did Hana Securities recommend Woori Financial Group and iM Financial Group on July 20?
Hana Securities recommended Woori Financial Group and iM Financial Group based on valuation attractiveness, with Woori Financial trading at a PBR of 0.57x and iM Financial at 0.44x. Analyst Choi Jung-wook assessed both stocks as excessively undervalued compared to their peers, with potential to close the valuation gap despite limited short-term earnings catalysts.
What is the likelihood of the JB Financial-BNK Financial merger proposed by Align Partners?
Hana Securities analyst Choi Jung-wook stated that the actual likelihood of the merger materializing is not high, citing considerable challenges including governance structure issues, merger ratio determination, and regional base differences that need resolution. The analyst noted that short-term stock price movements are more likely to be determined by individual financial holding companies' value-up policies and shareholder return expansion rather than merger expectations.
