Hana Financial Group’s Mixed Q1 Results: Profit Gains Amid Operational Headwinds

The first quarter of 2025 presented a paradox for Hana Financial Group. While net profit rose 9.3% to ₩1.13 trillion—beating analyst expectations—the decline in operating profit to ₩1.48 trillion (a 4.8% drop year-on-year) underscored deeper challenges. Sales revenue plummeted 24.6%, signaling broader operational struggles. This article dissects the drivers behind these divergent trends and what they mean for investors.

The Profit Paradox: Net Gains vs. Operational Strains

Despite the operating profit decline, net profit outperformed forecasts due to one-time benefits and cost controls. However, the 24.6% sales revenue collapse—driven by weaker fee-based income and reduced trading gains—highlights vulnerabilities.

Key Drivers of the Operating Profit Decline

1. Volatility in Financial Instruments
   The net gain on financial assets at FVTPL (Fair Value Through Profit or Loss) fell sharply from ₩484.5 billion in Q1 2024 to ₩84.1 billion in Q1 2025. This reflects market instability, likely exacerbated by global interest rate fluctuations or equity market corrections. Meanwhile, derivative instruments swung from a ₩24.6 billion gain to a ₩51.1 billion loss, suggesting ineffective hedging strategies.

2. Rising Operating Expenses
   General and administrative costs increased 1.2% to ₩3.18 trillion, despite a 5.1% drop in other operating income. This imbalance points to inefficiencies, such as higher compliance costs or underperforming divisions.

3. Pressure on Non-Interest Revenue
   Non-operating expenses surged to ₩321.2 billion, up from ₩140.2 billion in 2023. Foreign exchange losses and underperforming investments likely contributed, as the group grapples with currency risks in its global operations.

Sales Revenue Collapse: A Confluence of Factors

The 24.6% sales decline was driven by:
- Slumping Asset Management Fees: Client withdrawals amid market volatility cut fees by 15%.
- Soft Loan Demand: Interest income dropped 9% as borrowers tightened spending in a slowing economy.
- Regulatory Headwinds: Compliance costs rose 12%, eating into margins. One-time restructuring charges of ₳200 billion further dented revenue.

Balance Sheet and Equity Trends

Despite operational headwinds, Hana’s balance sheet remains resilient. Total assets grew 6.4% to ₩532.4 trillion by end-2024, with deposits rising 4.7% to ₩387.2 trillion. Equity increased to ₩34.2 trillion, reflecting strong capital management. However, the trailing P/E ratio of 4.72—a historic low—hints at undervaluation, though retained earnings’ reported ₳0 (likely a data error) requires clarification.

Investor Outlook: Buying the Dip or Waiting for Turnaround?

The stock price of ₩60,800 pre-earnings release (April 24) suggests investor skepticism about the group’s ability to sustain growth. Yet, there are mitigating factors:
- Loan Growth: Total loans rose 5.7% year-on-year, indicating steady demand for credit.
- Cost Control: Provisions for credit losses fell 56%, suggesting improved credit quality.

However, the consistent miss on earnings estimates—Q1 2025 was the first beat in four quarters—raises questions about management’s execution.

Conclusion: A Stock to Watch, but with Caution

Hana Financial Group’s Q1 results reveal a company navigating a tough landscape. While net profit growth and strong asset management are positives, the operating profit decline and sales slump demand attention. Investors should monitor:
- Whether FVTPL gains stabilize in Q2 amid market recovery.
- Progress on cost optimization and fee-based income diversification.
- Loan growth trends as the economy stabilizes.

With a P/E of 4.72 and a dividend yield of ~4.5% (based on historical payouts), the stock could appeal to income-focused investors. However, the path to sustained profitability hinges on resolving operational inefficiencies and capitalizing on improving macro conditions. Until then, Hana remains a speculative bet on recovery rather than a surefire value play.