[E-Daily Reporter Shin Ha-yeon ] On the 2nd, Shinhan Investment Securities projected that HanaFinancialGroupInc.(086790)would see improvements in earnings, capital ratios, and shareholder returns due to the decline in the won-dollar exchange rate. Although there was no significant change in annual earnings estimates, the firm raised its target price from 150,000 won to 160,000 won to reflect an adjustment in the valuation timeline and an increase in the shareholder return rate. It maintained its “Buy” rating and recommended the stock as its top pick in the banking sector.

Eun Kyung-wan, an analyst at Shinhan Investment Securities, stated, “Concerns about a peak-out in quarterly earnings are limited,” adding, “We are focusing on the attractive valuation at a price-to-book ratio (PBR) of 0.80x.”

Shinhan Investment Securities projected HanaFinancialGroupInc.’s third-quarter net income attributable to controlling shareholders at 1.3008 trillion won, a 14.9% increase year-over-year. This figure is 5.3% higher than the market consensus of 1.2359 trillion won. The firm estimated that total operating profit would rise 14.3% to 3.3334 trillion won, while net interest income would increase 20.3% to 2.1301 trillion won.

Analyst [Name] explained, “Despite upward pressure on funding costs—such as the recent increase in corporate deposits—the trend of improving net interest margins remains valid, given the consecutive domestic benchmark interest rate hikes in July and August,” adding, “We expect won-denominated loans to grow by more than 1% driven by balanced growth in both household and corporate sectors.”

He continued, “In contrast to robust net interest income, fee income is expected to decline slightly compared to the first half, reflecting increased volatility in capital markets and macroeconomic indicators,” but added, “As the won-dollar exchange rate is projected to fall by more than 160 won in the third quarter, foreign exchange translation gains of approximately 150 billion won are expected.”

The analyst noted that the effects of the falling exchange rate would have a positive impact not only on earnings but also on capital ratios and increased shareholder returns. HanaFinancialGroupInc.’s Common Equity Tier 1 (CET1) ratio is expected to rise from 13.27% in the second quarter to over 13.5% in the third quarter.

Research Analyst Eun stated, “Driven by strong earnings and the effects of the falling exchange rate, the Common Equity Tier 1 (CET1) ratio is expected to rise to 13.5% or higher,” adding, “If financial authorities approve a reduction in the application period for operational risk in the second half of the year, an additional buffer of 10 basis points (1 bp = 0.01 percentage point) or more could also be secured.”

The analyst also raised the possibility of additional share buybacks and cancellations based on the bank’s strengthened capital position. Shinhan Investment Securities expects HanaFinancialGroupInc. to announce additional share buybacks and cancellations totaling approximately 300 billion won in the fourth quarter, exceeding market expectations.

Researcher Eun said, “Based on the improved capital position, we expect an announcement of an additional share buyback and cancellation of approximately 300 billion won in the fourth quarter, exceeding market expectations,” adding, “Including this, the total annual shareholder return is projected to be 2.23 trillion won, achieving a total shareholder return ratio of 51.0%.”

The total annual shareholder return is estimated to consist of 1.23 trillion won in cash dividends and 1 trillion won in share buybacks. The total shareholder return ratio is projected to reach 51.0%, a 4.2 percentage point increase from last year. According to the shareholder return outlook on page 2 of the report, this ratio is projected to rise steadily from 33.0% in 2023 and 37.8% in 2024 to 46.8% last year, 51.0% this year, and 53.2% next year.

The report also assessed that confidence in second-half earnings is higher than that of competing banks. The analysis notes that the relatively small exposure to the government bond collusion scandal and the limited contribution to profits from securities affiliates are factors that reduce earnings volatility.

An analyst noted, “Compared to rival banks, the bank maintains high profit reliability for the second half of the year, as its exposure to the government bond collusion scandal is relatively low and the profit contribution from its securities affiliates is not significant.”

Shinhan Investment Securities projected HanaFinancialGroupInc.’s net income attributable to controlling shareholders for this year to reach 4.3715 trillion won, a 9.2% increase year-over-year. It estimated the return on equity (ROE) at 9.4%. For next year, it forecast net income attributable to controlling shareholders to rise by 3.0% to 4.5031 trillion won.

Analyst Eun emphasized, “Although the change in annual earnings estimates is not significant, we are raising the target price to 160,000 won to reflect the change in the valuation date and the increase in the shareholder return rate,” adding, “We recommend it as our Top Pick in the banking sector.”