Hana Financial Group : Still attractive
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¡Ü Sound strategies to meet challenges
From a mid/long-term perspective, we think financial market players need strategies to meet market changes, such as the low-interest-rate environment, slow growth, and an increasing share of non-face-to-face channels. HFG implemented a large-scale early retirement program at end-4Q16, which we see as part of cost-cutting efforts to better position itself for 2017 and beyond. We estimate the early retirement program (742 bank employees) led to a one-off increase of W220bn in SG&A expenses in 4Q16, but will likely generate annual costsaving effects worth W100bn from 2017 onwards. Of note, an early retirement program implemented at-end 2015, which reduced the payroll by 650 in the banking business and 800 group-wide, resulted in quarterly labor cost reductions of W25bn in 2016.
With the completion of banking IT integration, HFG is poised to improve the costefficiency of its operation by closing down overlapping or less-profitable branches and reassigning employees. It also plans to secure liquidity by selling idle properties. We think HFG's successful business integration has contributed to nonoperating profit, including W29bn gains on the sale of property in 1Q16 and W45bn in after-tax gains on the disposal of the former Hana Bank's Hong Kong branch office in 4Q16. We also find HFG's growth strategy appealing, given that it resumed loan growth only after having reduced its exposure to large corporations in cyclical sectors by more than 40% versus 2013, and increased its CET-1 ratio to over 11%.
¡Ü Additional upside despite recent share price increases
For 2017, we expect HFG to post net profit of W1.50tr (+10.5% YoY), with ROE at 6.4% (+0.33%p). HFG shares are trading at a 2017F P/B of 0.4x and P/E of 6.5x, offering valuation merits, in our view. For 2017, we estimate dividend payout ratio at 24.6% (+1.8%p YoY) and DPS (interim dividend + final dividend per share) at W1,250, equaling a dividend yield of as high as 3.8%.
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