Woori Financial Stock: It’s All About Valuations (NYSE: WF)


Summary in seconds

I raise my investment rating for Woori Financial Group (NYSE: WF) [316140:KS] stock from a hold to a purchase.

I have already pointed out in my previous July 15, 2021 article for WF that Woori Financial was below “its peers in areas such as low cost deposits, profitability and capital adequacy. “But I think Woori Financial’s current valuations have priced in all the negatives of the stock. The market currently values ​​Woori Financial at less than a third of its tangible book value and a low P/E metric at a forward figure. In my view, Woori Financial shares are now cheap enough to warrant a buy rating.

Woori Financial’s Undemanding Valuations and Positive Dividend Outlook

Woori Financial’s share price has fallen -28.5% over the past year, implying that WF has significantly underperformed the broader market over the same period. By comparison, the S&P 500 is down -16.3% over the past year. Woori Financial’s valuations have become very attractive following the sharp correction in the share price.

Peer Review Comparison for Woori Financial

Store Consensus predicts next 12-month dividend yield Historical multiple of historical price over tangible book value Futures consensus of the PER multiple for the next twelve months
Financial Woori 10.6% 0.31 2.4
DGB Financial Group [139130:KS] 10.1% 0.23 2.6
JB Financial Group [175330:KS] 10.0% 0.33 2.5
BNK Financial Group [138930:KS] 9.3% 0.22 2.9
Korea Industrial Bank [024110:KS] 9.0% 0.28 2.9
KB Financial Group (KB) [105560:KS] 8.2% 0.41 3.4
Hana Financial Group [086790:KS] 8.1% 0.33 2.9
Shinhan Financial Group (SHG) [055550:KS] 7.2% 0.44 3.6

Source: S&P Capital IQ

Woori Financial has the highest forward dividend yield and the lowest forward P/E metrics among Korean financial services companies, as shown in the comparison chart shown above. Its historical price-to-tangible book value ratio of 0.31x is also very attractive in absolute terms, and lower than four of its peers.

Importantly, Woori Financial’s consensus dividend yield of 10.6% for the next twelve months is likely to be achievable and unaffected by regulatory issues.

During the company’s third quarter 2022 earnings briefing on October 26, 2022, WF assured investors that “we will do our best to maintain a stable dividend payout ratio.” In addition, Woori Financial pointed out in the last quarterly earnings call that “from a regulatory perspective, there is no particular direction as to what we are going to do with our dividends” and underlined that “we respect all regulations, so with regard to capital adequacy.”

As highlighted in its third quarter results presentation slides, Woori Financial’s BIS (Bank for International Settlements), Tier 1 and CET1 (Common Equity Tier 1) ratios as of September 30, 2022 were reasonably healthy at 14.3%, 12 .7% and 10.9. %, respectively. By comparison, the minimum regulatory BIS ratio requirement for Korean banks is well below 10.5%. This is in line with the company’s comments that it should meet regulatory requirements in terms of “capital adequacy”.

Separately, Woori Financial increased its dividend payout ratio from 19.9% ​​in fiscal 2020 to 25.3% in fiscal 2021, and analysts expect the company to increase its ratio. distribution at 25.8% and 26.4% for fiscal years 2022 and 2023, respectively according to S&P Capital IQ consensus data. This is in line with management guidelines to have “a stable dividend payout ratio” going forward.

In summary, Woori Financial’s valuations are undemanding and the outlook for the stock’s future dividends is positive with expectations of an increase in the dividend payout ratio.

News feeds and negative events

Woori Financial’s share price performance was impacted by bad news and specific negative events.

A press article from July 26, 2022 published by Korea time cited comments from the “Financial Supervisory Service” that “Woori Bank (the banking arm of Woori Financial) had a serious flaw in its self-regulatory control system when handling customers’ money securely”. The Korean financial regulator’s remarks regarding Woori Financial were in response to a case of “embezzlement” by one of Woori Bank’s employees first reported on April 28, 2022. Korea JoongAng Daily article.

It is inevitable that such a stream of negative news would suggest that there may have been deficiencies in Woori’s internal controls, which could have affected investor sentiment towards the company’s stock.

Another recent development to note is that the key shareholder of Woori Financial has actively reduced its stake in the company, which has resulted in substantial selling pressure. A Business Korea The article published on July 15, 2022 noted that “sales of stakes by Korea Deposit Insurance Corp” were the key event “in 1H22 that led to a decline in (WF’s share price) performance.”

However, Korea Deposit Insurance’s sale of its shares in Woori Financial has nothing to do with the company’s fundamentals. In June 2019, the Korea Financial Services Commission had already issued a press release highlighting its intention to “sell the remaining 18.3% stake in Woori Financial Group, held by the Korea Deposit Insurance Corporation, from 2020 to 2022”. This is part of Korean regulators’ plans to take Woori Financial private by the end of this year.

In a nutshell, negative publicity sparked by an embezzlement case at Woori Financial’s banking subsidiary and the sale of Korea Deposit Insurance Corporation’s stake in WF weighed on the company’s stock. Going forward, Woori Financial’s share price is likely to see a recovery. By the end of 2022, Korea Deposit Insurance Corporation is expected to complete its sale of Woori Financial shares. Separately, investors and customers are likely to regain confidence in Woori Financial and Woori Bank over time, as new internal control measures are put in place to reduce the risk of future cases of misappropriation of employee funds. .

Final Thoughts

Woori Financial deserves a buy rating. Negatives for the stock have been fully factored into WF’s share price and valuations.

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