Contents
Investment Case........................................................................................ 3
Recent Outperformance But Still Relatively Inexpensive ...........................................3
Valuation at Historical Mid-cycle Level...........................................................4
Near-term Obstacles ......................................................................................................4
Recovery to Boost Valuations Beyond Mid-cycle Levels ...............................................6
Structural Changes Needed to Return to Peak Valuation ......................6
Stock Recommendations ....................................................................... 8
Scenario Analysis ........................................................................................ 11
Theme 1: Worst Seems Over with Expedited Credit Cycle................................... 15
Theme 2: NIMs Rising; Further Improvement Requires Effective ALM.................. 22
Theme 3: Pockets of Strength in Transaction Flow Business .......................... 27
Theme 4: Outlook for ROE – 10% for 2010, 12% Normalized ........................ 33
Theme 5: Structural Changes Needed to Return to Peak Valuations........ 39
Company Analysis .................................................................................................. 45
Shinhan Financial Group: Most Leveraged to a Recovery Scenario.....................47
Risk-Reward Snapshot: SFG (055550.KS, W44,150, OW, PT W53,000) ..............51
Industrial Bank of Korea: Benefiting from Specialized Strengths .......................53
Risk-Reward Snapshot: IBK (024110.KS, W14,400, OW, PT W18,000)................57
Korea Exchange Bank: Option with a Yield .....................................................59
Risk-Reward Snapshot: KEB (004940.KS, W11,450, OW, PT W14,000)..............63
Busan Bank: New Structure as Catalyst..................................................65
Risk-Reward Snapshot: BSB (005280.KS, W11,550, OW, PT W14,500)..............69
Woori Financial Group: Addressing Operational Issues; Others Remain ..........71
Risk-Reward Snapshot: WFG (053000.KS, W15,700, EW, PT W14,500)........75
Hana Financial Group: Improving with the Key Being New Initiatives...............77
Risk-Reward Snapshot: HFG (086790.KS, W35,950, EW, PT W37,000)............81
Daegu Bank: Quality Bank but Lacks Opportunities...................................83
Risk-Reward Snapshot: DGB (005270.KS, W15,900, EW, PT W16,000) .......87
Appendix ..................................................................................................... 88
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