20160308-三星证券-Banking_OVERWEIGHT_Macro_doubts_ease_trading-buy_approach_advised_11页_654kb

Sector Update Summary: Banking (OVERWEIGHT)

Core Content Overview

This report provides an analysis of the Korean banking sector and its performance in relation to global financial markets, particularly focusing on the impact of monetary policy decisions from the European Central Bank (ECB) and the Bank of Japan (BOJ). The overall sentiment is cautiously optimistic, with a recommendation to adopt a trading-buy approach rather than follow-through buying, due to limited upside potential from current valuations.

Main Points and Key Information

Market Performance

• Korean banking shares have rebounded 10.3% from recent lows, currently trading at an average P/B of 0.45x.
• European and Japanese banking shares have declined 14% and 25.3% year-to-date, respectively, due to concerns over margin squeeze, asset quality deterioration, and CoCos (contingent convertible bonds).

Key Drivers for Recovery

• Stabilization of global financial markets following ECB and BOJ rate meetings is expected to positively impact Korean banking shares.
• 1Q earnings are forecast to exceed expectations, supported by:
  • Absence of one-off SG&A costs
  • Recognition of dividend income
  • Stabilization of NIM (net interest margin)
  • Credit costs stabilizing after corporate restructuring

Limitations and Risks

• Despite the recent rebound, the report advises against follow-through buying due to:
  • Temporary improvements in earnings and industry conditions
  • Credit review concerns for large corporations due in May
  • Potential further rate cuts by central banks in response to economic weakness

Valuation and Target Prices

• KB Financial Group (KBFG) is highlighted as the top pick with a target price of KRW40,000 (upside of 25.8%).
• Other banks and their target prices and upside:
  • SFG: KRW48,000 (22.6%)
  • HFG: KRW27,000 (21.1%)
  • IBK: KRW14,000 (13.4%)
  • BNKFG: KRW10,000 (8.7%)
  • DGBFG: KRW10,000 (17%)
  • JBFG: KRW6,200 (12.1%)
  • Kwangju: KRW8,300 (3.2%)

Capital Adequacy and Asset Quality

• KBFG has a strong CET1 ratio of 13.7%, which is higher than its peers, and low exposure to risky industries, making it a more defensive investment.
• Asset quality concerns remain, especially in Europe and Southeast Asia, with NPL (non-performing loans) ratios rising and CoCos impacting investor confidence.

Outlook for Korean Banking Shares

• The report forecasts that Korean banking shares will continue to move in tandem with global peers, with limited upside beyond a 15% increase.
• If shares rise another 15%, they would trade at a P/B of 0.52x, which is still considered undervalued based on 2016 ROE forecasts.

Sector Valuation Matrix

Bank	Current Price (KRW)	Target Price (KRW)	Upside (%)	Target P/B	Target P/E
KBFG	31,800	40,000	25.8	0.5	9.6
SFG	39,150	48,000	22.6	0.7	10.1
HFG	22,300	27,000	21.1	0.4	6.9
IBK	12,350	14,000	13.4	0.5	7.8
BNKFG	9,200	10,000	8.7	0.5	5.9
DGBFG	8,550	10,000	17.0	0.5	6.5
JBFG	5,530	6,200	12.1	0.5	7.4
Kwangju	8,040	8,300	3.2	0.3	6.6

Sector Overview

• Korean banking shares are undervalued and could benefit from global market stabilization.
• Real-estate market measures by the government are expected to ease concerns and improve the banking sector's performance.

Conclusion

• The banking sector is overweight due to improved valuations and potential for short-term gains.
• KBFG is recommended as the top pick due to its strong capital ratios, low exposure to risky industries, and potential synergies with non-banking affiliates.
• Investor sentiment is expected to improve if global macroeconomic conditions stabilize, but long-term fundamental improvements are still needed for sustained growth.