Table of Contents
Executive summary ........................................................................... 3
Outlook ....................................................................................................................................3
Valuation and risks ....................................................................................................................3
Strong earnings to be catalyst for earnings upgrades................... 5
We expect upside risk to market’s 2010 earnings projection ...................................................5
Pro-cyclical nature of banks should lead to stronger loan growth.............................................6
Market yet to incorporate rate hike impact on NIM ..................................................................7
More potential earnings upside from lower loan loss provisioning...........................................8
Banks set to outperform in coming rate-hike cycle...................... 10
Why Korean banks benefit from rising interest rates ..............................................................10
Korean banks among biggest beneficiaries of coming rate cycle within Asian financials .......11
Korean banks beat KOSPI early on after past two rate-hikes ..................................................12
Concerns about heavy interest burden on household from rate hikes overdone....................13
Rising M&A potential ...................................................................... 16
M&A – an inevitable step towards overcoming lower profitability..........................................16
M&A scenarios – Most deals are EPS accretive to the acquirer: ............................................18
Valuation and risks.......................................................................... 20
Top picks: KB FG, Shinhan FG and Daegu Bank......................................................................20
1 year forward P/B charts for Korean banks............................................................................26
1 year forward P/E charts for Korean banks............................................................................28
1 year forward P/PPOP charts for Korean banks.....................................................................30
Risks ......................................................................................................................................37
KB FG................................................................................................ 38
Shinhan FG....................................................................................... 44
Daegu Bank ...................................................................................... 50
Hana FG ............................................................................................ 54
Busan Bank....................................................................................... 58
Woori FH........................................................................................... 62
KEB.................................................................................................... 66
IBK..................................................................................................... 70