Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Woori Financial Group  / Equity Bottom-Up

Given overhang risk, investors have been bailing out of Woori or taking short positions. Woori Bank Employees Stock Ownership Association seems to have absorbed part of the selling from the likes of Blackrock, Samsung Asset, SEB Investment, Northern Trust, State Street, Russell Investment, and JP Morgan Asset. We do note though that Vanguard and TIAA have increased their position during the HoldCo transition.There is still to come the 12% stake in Woori Holdings that Woori Bank receives relating to the transfer of the credit card entity that needs to be sold. KDIC's 18% stake adds to the overhang risk. With <a href="https://www.smartkarma.com/insights/woori-bank-holdco-conversion-current-status-trade-approach" target="_blank">https://www.smartkarma.com/insights/woori-bank-holdco-conversion-current-status-trade-approach</a> Sanghyun Park has detailed the risk.We delve into the latest financials of Woori Financial Group. The picture is mixed. While efficiency advances were the main positive standout, we highlight sharply higher funding costs and a build-up of precautionary loans as main areas of concern. The bottom line was also boosted by much lower loan loss provisions as headline NPLs fell.A constructive view of the Group is thus based on the credibility of what appears to be underlying asset improvement and the benefits of returning to HoldCo status.We conclude that despite the overhang risk, shares are not expensive. Shares inhabit the highest decile of our global VFM (Valuation, Fundamentals, Momentum) rankings. There may though be a better entry point for bargain hunters.

Given overhang risk, investors have been bailing out of Woori or taking short positions. Woori Bank Employees Stock Ownership Association seems to have absorbed part of the selling from the likes of Blackrock, Samsung Asset, SEB Investment, Northern Trust, State Street, Russell Investment, and JP Morgan Asset. We do note though that Vanguard and TIAA have increased their position during the HoldCo transition.There is still to come the 12% stake in Woori Holdings that Woori Bank receives relating to the transfer of the credit card entity that needs to be sold. KDIC's 18% stake adds to the overhang risk. With https://www.smartkarma.com/insights/woori-bank-holdco-conversion-current-status-trade-approach Sanghyun Park has detailed the risk.We delve into the latest financials of Woori Financial Group. The picture is mixed. While efficiency advances were the main positive standout, we highlight sharply higher funding costs and a build-up of precautionary loans as main areas of concern. The bottom line was also boosted by much lower loan loss provisions as headline NPLs fell.A constructive view of the Group is thus based on the credibility of what appears to be underlying asset improvement and the benefits of returning to HoldCo status.We conclude that despite the overhang risk, shares are not expensive. Shares inhabit the highest decile of our global VFM (Valuation, Fundamentals, Momentum) rankings. There may though be a better entry point for bargain hunters.

Thematic (Sector/Industry)

Trawling through  &gt;1500 global banks, based on the last quarter of reported Balance Sheets, we apply the discipline of the PH Score™ , a value-quality fundamental momentum screen, plus a low RSI screen, and a low Franchise Valuation (FV) screen to deliver our latest rankings for global banks.While not all of top decile 1 scores are a buy - some are value traps while others maybe somewhat small and obscure and traded sparsely- the bottom decile names should awaken caution. We would be hard pressed to recommend some of the more popular and fashionable names from the bottom decile. Names such as <a href="https://www.smartkarma.com/entities/547" target="_blank" data-smartkarma-citation="entities:547:1">ICICI Bank Ltd (ICICIBC IN)</a> , Credicorp of Peru, <a href="https://www.smartkarma.com/entities/440" target="_blank" data-smartkarma-citation="entities:440:1">Bank Central Asia (BBCA IJ)</a> and <a href="https://www.smartkarma.com/entities/24411" target="_blank" data-smartkarma-citation="entities:24411:1">Itau Unibanco Holding Sa (ITUB US)</a> are EM favourites. Their share prices have performed well for an extended period and thus carry valuation risk. They represent pricey quality in some cases. They are not priced for disappointment but rather for hope. Are the constituents of the bottom decile not fertile grounds for short sellers?Why pay top dollar for a bank franchise given risks related to domestic (let alone global) politics and the economy? Some investors and analysts have expressed "inspiration" for developments in Brazil and Argentina. But Brazilian bonds are now trading as if the country is Investment Grade again. (This is relevant for banks especially). Guedes and co. may deliver on pension/social security reform. If so, prices will become even more inflated. But what happens if they don't deliver on reform? Why pay top dollar for hope given the ramp up in prices already? Argentina is an even more fragile "hope narrative". More of a "Hope take 2". Similar to Brazil, bank Franchise Valuations are elevated. While the current account adjustment and easing inflation are to be expected, the political and social scene will be a challenge. LATAM seems to be "hot" again with investment bankers talking of resilience. But resilience is different from valuation. Banks from Chile, Peru, and Colombia feature in the bottom decile too. If an investor wants to be in these markets and desires bank exposure, surely it makes sense to look for the best value on offer. <a href="https://www.smartkarma.com/entities/27802" target="_blank" data-smartkarma-citation="entities:27802:1">Grupo Aval Acciones y Valores (AVAL CB)</a> may represent one such opportunity.Our bottom decile rankings feature a great deal of banks from Indonesia. In a promising market such as Indonesia, given bank valuations, one needs to tread extremely carefully to not end up paying over the odds, to not pay for extrapolation. In addition, India is a susceptible jurisdiction for any bank operating there - no bank is "superhuman" and especially not at the prices on offer for the popular private sector "winners". Saudi Arabia is another market that suddenly became popular last year. We are mindful of valuations and FX.Does it not make more sense to look at opportunity in the top decile? While some of the names here will be too small or illiquid (mea culpa), there are genuine portfolio candidates. South Korea stands out in the rankings. <a href="https://www.smartkarma.com/entities/27497" target="_blank" data-smartkarma-citation="entities:27497:1">Woori Bank (WF US)</a> is top of the rankings after a share price plunge related to a stock overhang but this will pass. <a href="https://www.smartkarma.com/entities/12843" target="_blank" data-smartkarma-citation="entities:12843:1">Hana Financial (086790 KS)</a> , <a href="https://www.smartkarma.com/entities/27498" target="_blank" data-smartkarma-citation="entities:27498:1">Industrial Bank of Korea (IBK LX)</a> and <a href="https://www.smartkarma.com/entities/6138" target="_blank" data-smartkarma-citation="entities:6138:1">DGB Financial Group (139130 KS)</a> are portfolio candidates. Elsewhere, Russia and Vietnam rightly feature while Sri Lanka and Pakistan contribute some names despite very real political and macro risks. We would caution on some of the relatively small Chinese names but recommend the big 4 versus EM peers - they are not expensive. In fact some of the big 4 feature in decile 2 of our rankings. There are many Japanese banks here too. And many, like some Chinese lenders, are cheap for a reason. While the technical picture for Japanese banks is bearish, at some stage selective weeding out of opportunity within Japan's banking sector may be rewarding. The megabanks are certainly not dear. Europe is another matter. Despite valuations, we are cautious on French lenders and on German consolidation narratives - did a merger of 2 weak banks ever deliver shareholder value? The inclusion of two Romanian banks in the top decile is somewhat of a headscratcher. These are perfectly investable opportunities but share prices have been poor of late.

Trawling through  &gt;1500 global banks, based on the last quarter of reported Balance Sheets, we apply the discipline of the PH Score™ , a value-quality fundamental momentum screen, plus a low RSI screen, and a low Franchise Valuation (FV) screen to deliver our latest rankings for global banks.While not all of top decile 1 scores are a buy - some are value traps while others maybe somewhat small and obscure and traded sparsely- the bottom decile names should awaken caution. We would be hard pressed to recommend some of the more popular and fashionable names from the bottom decile. Names such as ICICI Bank Ltd (ICICIBC IN) , Credicorp of Peru, Bank Central Asia (BBCA IJ) and Itau Unibanco Holding Sa (ITUB US) are EM favourites. Their share prices have performed well for an extended period and thus carry valuation risk. They represent pricey quality in some cases. They are not priced for disappointment but rather for hope. Are the constituents of the bottom decile not fertile grounds for short sellers?Why pay top dollar for a bank franchise given risks related to domestic (let alone global) politics and the economy? Some investors and analysts have expressed "inspiration" for developments in Brazil and Argentina. But Brazilian bonds are now trading as if the country is Investment Grade again. (This is relevant for banks especially). Guedes and co. may deliver on pension/social security reform. If so, prices will become even more inflated. But what happens if they don't deliver on reform? Why pay top dollar for hope given the ramp up in prices already? Argentina is an even more fragile "hope narrative". More of a "Hope take 2". Similar to Brazil, bank Franchise Valuations are elevated. While the current account adjustment and easing inflation are to be expected, the political and social scene will be a challenge. LATAM seems to be "hot" again with investment bankers talking of resilience. But resilience is different from valuation. Banks from Chile, Peru, and Colombia feature in the bottom decile too. If an investor wants to be in these markets and desires bank exposure, surely it makes sense to look for the best value on offer. Grupo Aval Acciones y Valores (AVAL CB) may represent one such opportunity.Our bottom decile rankings feature a great deal of banks from Indonesia. In a promising market such as Indonesia, given bank valuations, one needs to tread extremely carefully to not end up paying over the odds, to not pay for extrapolation. In addition, India is a susceptible jurisdiction for any bank operating there - no bank is "superhuman" and especially not at the prices on offer for the popular private sector "winners". Saudi Arabia is another market that suddenly became popular last year. We are mindful of valuations and FX.Does it not make more sense to look at opportunity in the top decile? While some of the names here will be too small or illiquid (mea culpa), there are genuine portfolio candidates. South Korea stands out in the rankings. Woori Bank (WF US) is top of the rankings after a share price plunge related to a stock overhang but this will pass. Hana Financial (086790 KS) , Industrial Bank of Korea (IBK LX) and DGB Financial Group (139130 KS) are portfolio candidates. Elsewhere, Russia and Vietnam rightly feature while Sri Lanka and Pakistan contribute some names despite very real political and macro risks. We would caution on some of the relatively small Chinese names but recommend the big 4 versus EM peers - they are not expensive. In fact some of the big 4 feature in decile 2 of our rankings. There are many Japanese banks here too. And many, like some Chinese lenders, are cheap for a reason. While the technical picture for Japanese banks is bearish, at some stage selective weeding out of opportunity within Japan's banking sector may be rewarding. The megabanks are certainly not dear. Europe is another matter. Despite valuations, we are cautious on French lenders and on German consolidation narratives - did a merger of 2 weak banks ever deliver shareholder value? The inclusion of two Romanian banks in the top decile is somewhat of a headscratcher. These are perfectly investable opportunities but share prices have been poor of late.

Global Banks: Why Buy High Into Popular and Fashionable Banks and Markets? Be Contrarian and Buy Low

South Korea

Woori Financial Group Inc. provides commercial banking services. The Company offers deposit services, loan services, bill services, settlement services, credit card, international, online banking, and other related services. Woori Financial Group also operates banking and retail banking businesses.

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Woori Financial Group (WF US)

Woori Bank: Overhang Versus Valuation

Given overhang risk, investors have been bailing out of Woori or taking short positions. Woori Bank Employees Stock Ownership Association seems to...

Paul Hollingworth

Global Banks: Why Buy High Into Popular and Fashionable Banks and Markets? Be Contrarian and Buy Low

Trawling through >1500 global banks, based on the last quarter of reported Balance Sheets, we apply the discipline of the PH Score™ , a...

Paul Hollingworth

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)