Cathay reports a jump in profits

Cathay Financial Holding Co (國泰金控), Taiwan's biggest financial services provider with NT$2.65 trillion (US$84 billion) in total assets, posted strong profit growth last year, with its subsidiaries showing marked progress, company executives said yesterday.

The company reported NT$29.8 billion in net income last year, up a substantial 45 percent year-on-year from NT$20.6 billion in 2003. Earnings per share (EPS) were NT$3.7, up from NT$2.69 in 2003.

The jump in profit mainly came from the contribution of its banking arm, Cathay United Bank (國泰世華銀行), a new entity formed out of the merger of Cathay United Bank (國泰銀行) and World Chinese Commercial Bank (世華銀行) in October 2003.

"Compared with the previous year, we made conspicuous progress last year," Lee Chang-ken (李長庚), chief strategic officer of Cathay Financial, said at a investors conference yesterday.

The holding company;s flagship Cathay Life Insurance Co (國泰人壽), the nation's largest life insurer, posted after-tax profit of NT$15.6 billion, accounting for 52.4 percent of its parent company's full-year profit.

Although the insurer's fourth-quarter growth momentum was driven by non-traditional policies, such as investment-linked insurance, the company should devote more effort to selling traditional policies as these yield higher profits, said Sherry Lin (林淑娥), head of Taiwan Research with Credit Suisse First Boston.

Nonetheless, Lin said she was impressed by Cathay Financial's performance as the overall environment last year, especially interest rates, was unfavorable for investments.

"Revenues derived from its banking services are better than expected," she said.

Another analyst also gave a thumbs-up on the holding company's financial report.

"I expect EPS to to rise to NT$3.9 by the year-end, with the banking sector remaining stable and Cathay Century Insurance Co (國泰世紀產險) showing small-scale growth," said Renee Yang (楊文靚), an analyst at Yuanta Core Pacific Securities Corp (元大京華證券).

Operating under the umbrella of the holding company, Cathay Century Insurance has a market share of 6.9 percent, making it the nation's fifth largest product insurance company. The firm offers auto, fire and water insurance policies.

But to further drive up overall profitability, Yang said Cathay Financial will have to speed up "asset securitization" and Cathay Life Insurance will have to raise its overseas investment ratio from the current 33 percent as the domestic investment return rate is much lower.

Looking ahead, Lee said the bank expects loan growth to reach over 10 percent and the holding company plans to continue to expand in China, although legal restrictions are currently hindering its progress.

Shares of Cathay Financial rose NT$0.5 to close at NT$63 on the Taiwan Stock Exchange yesterday.