[Edaily Reporter Kim Hyung-il ] SKSecurities has issued a “Buy” rating and a target price of 134,000 won for ShinhanFinancialGroup Co.,Ltd.(055550). The firm cited expectations that this year’s consolidated net income attributable to controlling shareholders will reach 5.9404 trillion won—a 19.5% increase year-over-year—and that the return on equity (ROE) will improve by 1.3 percentage points to 10%.

On the 7th, Jang Young-im, an analyst at SKSecurities, gave a positive assessment of ShinhanFinancialGroup Co.,Ltd.’s announcement of its total shareholder return formula, noting that it not only established a virtuous cycle between improving ROE and total shareholder return but also enhanced the predictability of shareholder returns.

Analyst Jang projected that if ShinhanFinancialGroup Co.,Ltd.’s risk-weighted assets (RWA) grow by 5% this year, the total shareholder return rate for this year would remain at 50.2%, the same as last year. Accordingly, she estimated that the additional share buyback and cancellation for the fourth quarter—to be announced during the third-quarter earnings release—would amount to 200 billion won.

The total shareholder return ratio for next year is expected to be 51.8%. Analyst Jang noted that assuming the RWA growth rate remains between 4% and 5% in the calculation formula, the total shareholder return ratio would fall within the 50–60% range, leading him to conclude that a total shareholder return ratio of at least 50% can be expected.

Third-quarter earnings are projected to be in line with the consensus. Net income attributable to controlling shareholders for the third quarter is expected to be 1.6157 trillion won, a 13.5% increase year-over-year but an 11.2% decrease quarter-over-quarter.

Despite rising interest rates, net interest income is expected to decrease by 0.1% compared to the previous quarter. This is because, although won-denominated loans are estimated to have grown by 1.4%, the group’s and the bank’s net interest margins (NIM) are expected to decline by 0.04 percentage points and 0.03 percentage points, respectively, compared to the previous quarter. It is estimated that there was significant upward pressure on funding costs in the third quarter due to the outflow of low-cost deposits and an expansion in the funding of time deposits.

The group’s non-interest income is projected to total 1.1 trillion won, a 22.4% decrease from the previous quarter. This is expected to be driven by a decline in commission income due to a slowdown in the securities market and weak gains from the valuation and disposal of securities resulting from rising interest rates.

As for one-time factors, the firm expects a gain of approximately 200 billion won from the sale of a corporate headquarters by a credit card subsidiary to be recognized in non-operating income. It further anticipates no unusual issues regarding selling, general, and administrative expenses or loan loss provisions. The group’s Common Equity Tier 1 (CET1) ratio is projected to improve by 0.19 percentage points from the previous quarter to 13.62%.

Analyst Jang assessed that strengthening non-bank subsidiaries is crucial in the medium term. He noted that this year’s ROE of 10% demonstrates robust earnings resilience, and the company boasts a total shareholder return rate in the 50% range along with a solid portfolio of non-bank subsidiaries. He also highlighted the company as a second-choice pick, given that the securities subsidiary’s base figures for the second half of the year are lower than those of competitors.

However, he pointed out that since the credit card business contributes a relatively high proportion of profits among the non-bank subsidiaries compared to competitors, there is a risk of rising funding costs due to interest rate hikes and an increase in delinquency rates among vulnerable borrowers. Analyst Jang stated, “In the medium term, strengthening the non-bank subsidiaries is necessary,” but added, “There is no reason for the stock to trade at a 10% discount compared to competitors.” He further noted, “Additional upside can be expected.”