Shinhan Financial Group: Treasury Stock Buyback/cancellation Is More Meaningful than Size

The author is an analyst of NH Investment & Securities. He can be reached at junsup@nhqv.com. — Ed. 

SFG has announced plans for a treasury stock buyback & cancellation program, stoking expectations for a strengthening in shareholder’s return policies within the banking industry.

Announces W150bn stock buyback & cancellation program

SFG has announced that it plans to buy back and cancel 3.78mn common shares (worth around W150bn). The total target for the program is 0.7% of the firm’s total shares, and the buyback and cancellation actions are scheduled to run for three months from today.

The total size of the program is the same as that for the treasury stock cancellation plans unveiled by KBFG during its 4Q21 earnings conference call. Although this size is not hefty, we still favorably view the initiative, noting that unlike KBFG (which has decided to cancel treasury stocks it already holds), SFG has opted for its cancellations to be held in accordance with the buyback campaign. With the top-two leading sector names both having unveiled treasury stock cancellation programs, we see conditions forming for a strengthening in shareholder’s return policies within the sector, believing that other banks will be incentivized to devise their own buyback & cancellation programs.

SFG is planning for additional stock buybacks and cancellations down the road. Combined with the strengthening of its shareholder’s return policy, the firm’s sound 2022E earnings are boosting its investment appeal. Thus, currently trading at a 2022E P/B of 0.45x, SFG’s shares remain undervalued in our view.

1Q22 preview: Estimate NP of W1,237.2bn, +3.8% y-y

SFG should show 1Q22 consolidated NP (excluding minority interests) of W1,237.2bn, satisfying consensus. Responding to a base rate uptick, a NIM (1Q22E: +3bp q-q) improvement trend likely sustains. While household credit loan growth is to arrive sluggish (-2.8% q-q), both mortgage loan (+1.7% q-q) and corporate loan (+2.4% q-q) figures should prove robust. Considering extended Covid-19 financial aid measures, loan loss provisioning is unlikely to be at a burdensome level. Credit cost should come in stable at 0.22% (-6bp q-q).

With SFG having said it will pay out equal quarterly dividends, we foresee a DPS of W400 (DY 1%) for the quarter, based upon 1Q22E DPS and the intention for matching payouts over 1Q22~3Q22.


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