20160414-三星证券-Net_profit_to_exceed_usual_levels_25页_1mb

Sector Update Summary: Banking (OVERWEIGHT)

Core Content

This document provides an analysis of the Korean banking sector, focusing on the first-quarter (1Q) performance, earnings forecasts, and valuation trends. The report highlights that banks under the coverage of Samsung Securities are expected to report stronger-than-usual net profits, driven by increasing interest income, stabilized credit costs, and improved credit card business results. Despite this positive outlook, the report advises a short-term trading approach due to lingering macroeconomic uncertainties.

Main Points

• Strong 1Q Earnings Outlook: Banks are projected to post stronger-than-usual net profits in 1Q 2016, with interest income rising and credit costs remaining low.
• Valuation Attractive: Banking shares are currently the cheapest in the Kospi sector, making them appealing despite macroeconomic concerns.
• Short-Term Focus: Due to uncertainties around economic recovery, corporate restructuring, and potential global credit squeezes, a short-term trading strategy is recommended.
• KB Financial Group (KBFG) as Top Pick: KBFG is highlighted as the top pick due to its structural improvements, strong capital adequacy, and growing contributions from non-banking affiliates.
• Interest Income Growth: Interest income is expected to rise q-q and y-y, supported by stable net interest margins and low-cost deposits.
• Credit Costs Stabilizing: Credit costs are expected to trend downward in 1Q, with limited provisioning due to the absence of major credit events.
• Loan Growth: Loan growth remains robust, particularly in household and SME segments, despite tighter regulations on real estate and corporate lending.
• Forex Impact: Forex gains are expected to be a significant one-off factor in 1Q, especially for HFG and IBK, due to the won strengthening against the dollar.
• Valuation Metrics: Banks are trading at 6.9x P/E and 0.46x P/B, near their 2008 levels and the lowest among Kospi sectors.

Key Information

Earnings Forecasts

• 1Q16E Earnings Forecast Increase: Earnings forecasts for banks are raised by 8.7% for 1Q and 5.4% for 2016.
• Samsung Card: Earnings forecast for Samsung Card is raised by 20.4% for 1Q16 and 7.1% for 2016E.

Target Price Revisions

• KBFG: Target price increased to KRW42,000 (up 5.0%) with an upside of 30.6%.
• SFG: Target price increased to KRW51,000 (up 6.3%) with an upside of 28.1%.
• HFG: Target price increased to KRW28,000 (up 3.7%) with an upside of 20.4%.
• BNKFG: Target price increased to KRW10,500 (up 5.0%) with an upside of 16.0%.
• DGBFG: Target price increased to KRW10,500 (up 6.0%) with an upside of 18.0%.
• JBFG: Target price increased to KRW6,400 (up 3.2%) with an upside of 14.3%.
• Samsung Card: Target price increased to KRW45,000 (up 2.3%) with an upside of 16.4%.

1Q Earnings Highlights

• KBFG: 1Q16E net profit forecast at KRW464.8b (up 34.1% q-q, 22.4% y-y).
• SFG: 1Q16E net profit forecast at KRW562.9b (up 37.6% q-q, 4.4% y-y).
• HFG: 1Q16E net profit forecast at KRW331.1b (up 11.3% q-q, 14.2% y-y).
• IBK: 1Q16E net profit forecast at KRW333.8b (up 48.5% q-q, 12.2% y-y).
• BNKFG: 1Q16E net profit forecast at KRW157.8b (up 775.4% q-q, 8.2% y-y).
• DGBFG: 1Q16E net profit forecast at KRW98.3b (up 686.7% q-q, 7.9% y-y).
• JBFG: 1Q16E net profit forecast at KRW42.4b (up 86.6% q-q, 17.5% y-y).
• Samsung Card: 1Q16E net profit forecast at KRW91.5b (up 20.4% q-q, 10.6% y-y).

Loan Growth Trends

• Household Loans: Grew 0.8% over January-February, driven by presale activity.
• Corporate Loans: Showed a slower growth trend, with concerns over economic uncertainties and risk management.
• Mortgage Loans: Continued to grow, with a 13.1% increase over a five-year average.

Credit Cost Trends

• Credit costs are expected to remain low in 1Q, with limited provisioning due to the absence of significant credit events.
• Concerns about credit costs rising in 2Q due to corporate restructuring and potential global credit squeeze remain.

Valuation and Market Outlook

• Banks are undervalued relative to other Kospi sectors, with P/E and P/B ratios at historical lows.
• Despite the positive 1Q earnings, the report suggests a more conservative outlook for the full year due to macroeconomic uncertainties.

Conclusion

The banking sector in South Korea is poised for a strong 1Q performance, with improved net profits, stable credit costs, and solid interest income. However, medium- to long-term growth is uncertain due to factors like the potential policy rate cut, corporate restructuring, and global credit conditions. KB Financial Group is highlighted as the top pick due to its structural improvements, strong capital adequacy, and diversified loan portfolio. Investors are advised to take a short-term trading approach, given the current market conditions and uncertainties.