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Sustainability of earnings growth needs to be confirmed

3Q23 review

For 3Q23, DGB Financial Group (DGBFG) announced net profit of W114.9bn (+6% YoY, -19% QoQ), missing the consensus by 7%. Interest income grew at a decent pace, and gains from loan sales were booked. However, unrealized losses on marketable securities weighed on non-interest income, and one-off expenses (operating loss related to fund sales and preemptive provisions) were recognized. CET1 ratio dipped 16bps to 11.1% due to the robust growth of the banking business and stock buyback effects.

Attractive valuation and dividends, but earnings stability needs to improve further

The stock is clearly undervalued, trading at a 12-month forward P/B of 0.24x. However, DGBFG still needs to prove that its earnings growth is sustainable. We believe the recovery of the brokerage business will be key. The brokerage business needs new sources of income, given its high reliance on real estate project financing (PF).

DGBFG offers the highest dividend yield among bank stocks under our coverage (9.9% for 2023F and 10.5% for 2024F). We expect the stock’s dividend appeal to come into focus heading into the end of the year (as the group distributes dividends once at the end of the year). We lift our target price by 11% to W9,900 (applying a P/B of 0.29x to our 2024F BVPS of W34,222).