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