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26 November 2008
Korea Banks
Recapitalization risks loom as
deleveraging unfolds
Scott Lee, CPA
Research Analyst
(82) 2 316 8908
scott.lee@db.com
Sin-Young Park
Research Associate
(82) 2 316 8909
sin-young.park@db.com
We see relatively higher recap risks at Woori, KB and IBK...
Further to our compilation of gross potential NPL exposures in our 3 November
report, we conducted a recap sensitivity analysis based on ranges of corporate
failures and NPL losses in order to offer a basis for differentiating solvency as well
as recap risks among Korean banks. As a result, we continue to prefer Samsung
Card and Shinhan as our top Buys and maintain Hold on Woori, KB and IBK. Of the
three, IBK and Woori have already announced their recap plans. On a separate
note, Hana and KEB continue to remain Buys.
Deutsche Bank AG/Hong Kong
All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local
exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche
Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch/ or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Sector Strategy
Top picks
Samsung Card (029780.KS),KRW34,900.00 Buy
Shinhan FG (055550.KS),KRW25,600.00 Buy
Companies featured
Samsung Card (029780.KS),KRW34,900.00 Buy
2007A 2008E 2009E
P/E (x) 13.3 12.9 13.9
Div yield (%) 1.7 4.3 5.4
Price/book (x) 1.7 1.1 1.0
Shinhan FG (055550.KS),KRW25,600.00 Buy
2007A 2008E 2009E
P/E (x) 9.9 6.1 7.2
Div yield (%) 1.6 3.5 3.3
Price/book (x) 1.4 0.7 0.6
Hana FG (086790.KS),KRW12,950.00 Buy
2007A 2008E 2009E
P/E (x) 7.8 5.1 6.4
Div yield (%) 1.9 10.0 3.9
Price/book (x) 1.1 0.3 0.3
KEB (004940.KS),KRW5,400.00 Buy
2007A 2008E 2009E
P/E (x) 9.7 4.4 6.0
Div yield (%) 7.0 13.0 0.0
Price/book (x) 1.4 0.5 0.4
IBK (024110.KS),KRW5,890.00 Hold
2007A 2008E 2009E
P/E (x) 7.3 3.4 8.8
Div yield (%) 3.0 9.8 6.0
Price/book (x) 1.2 0.4 0.3
KB FG (105560.KS),KRW24,000.00 Hold
2007A 2008E 2009E
P/E (x) – 3.8 5.0
Div yield (%) – 10.2 5.8
Price/book (x) – 0.5 0.5
Woori FH (053000.KS),KRW5,160.00 Hold
2007A 2008E 2009E
P/E (x) 9.0 3.5 5.6
Div yield (%) 2.8 4.8 5.8
Price/book (x) 1.2 0.3 0.3
Related recent research Date
Korea Banks - Relative safety dictates during uncertain
times
Scott Lee 03 Nov 2008
Korea Banks - Deeper recession lowers our TPs and
ratings
Scott Lee 22 Oct 2008
Korea Banks - Risks and returns at the worst case
valuations
Scott Lee 20 Oct 2008
Korea Banks - Riding out the darkness
Scott Lee 10 Oct 2008
Global Markets Research Company
…based on our comparison of potential credit losses with recap buffers
Given our inability to foresee ultimate casualties and NPL losses, we assumed a
range of 20% to 60% corporate failures for our compiled potential NPL exposures.
Our loss estimates are also based on NPL loss ratios in the range of 30% to 90%.
We then compare the estimated losses with banks’ recapitalization (recap) buffers
to measure recap probabilities. We calculate recap buffers based on Korea’s 5%
effective minimum tier I CAR and take into account the latest tier I CAR, 2009 preprovisioning
operating profits and outstanding provisioning reserves. We assume
that not all casualties will occur simultaneously in the near future.
Our goal is to highlight the reality of investing in banking stocks
Banks are, in general, highly geared in terms of asset-to-equity multiples, and too
much uncertainty currently prevails on the macro side. If viable companies are also
unable to roll over maturing debts, no bank would survive in the end, let alone the
risk of recapitalization. Accordingly, we compiled banks’ potential NPL exposures
and conducted our recap sensitivity analysis to provide a basis for differentiating
solvency and recap risks among Korean banks. For details of our compilation of
potential NPLs, including those of financially weaker large companies, see our 3
November note – Relative safety dictates during uncertain times.
Samsung Card and Shinhan appear relatively better protected
Despite the inherent leverage risk of investing in bank stocks during severe a
macro downturn, we have been recommending Samsung Card as our top Buy for
being a hassle-free monoline credit card lender – see our 3 November note for
details of our investment thesis. On a separate note, we recommend Shinhan as
another top Buy due to relatively limited potential NPL exposures and seemingly
remote recap risk (Figure 1). The reasons for which we prefer Samsung Card are
applicable to Shinhan as well, following its takeover of LG Card last year.
Stock valuations and key investment risks
Reflecting greater recap risks at Woori, KB and IBK, we increased our target PBR
discounts to as high as 50% to justify our Hold ratings. In contrast, we applied a
25% PBR premium to value Samsung Card stock due to the lack of recap risk. Our
TPs are primarily based on 7-12% sustainable ROE, 10-11% COE and 1% terminal
growth under the ROE-g/COE-g model that we apply to Asian bank stocks under
coverage. Risks are unwanted corporate bailouts, widespread corporate failures
and plunging housing prices in Korea. As fundamental valuations appear attractive,
all Korean banks would therefore be rated Buys if we assume a less severe macro
case (see p. 7 for details.)
Table of Contents
Recaps are looming........................................................................... 3
Samsung Card.................................................................................. 10
Shinhan FG....................................................................................... 14
Hana FG ............................................................................................ 18
KEB.................................................................................................... 22
IBK..................................................................................................... 26
KB FG................................................................................................ 30
Woori FH........................................................................................... 34
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[此贴子已经被作者于2009-1-1 22:25:05编辑过]
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