Korean Banks Are Deeply Undervalued; We See Big Gap Between Good Earnings and Declining Share Prices

We maintain our fair value estimates for four Korean banks after their second-quarter results. The shares have declined 15%-26% in the past three months, widening the disconnect between the banks' quite solid ROEs above 10% and price/book ratios of only around 0.4 times. Based on our forecasts and PitchBook consensus estimates, the two top banks KB Financial and Shinhan trade below 4 times earnings while Hana Financial and Woori now trade below 3 times earnings. Dividend yields are 6.7% for KB and Shinhan and 8.9% for Hana and Woori, conservatively assuming payout ratios of 26%, in line with last year.