Wed, Jun 08, 2005 - Page 11 News List

Morgan Stanley likes Fubon better than Chinatrust


Morgan Stanley recommended that investors buy shares of Fubon Financial Holding Co (富邦金控) over Chinatrust Financial Holding Co (中信金控), the US investment bank said in a note to investors yesterday.

In the report, Morgan Stanley yesterday downgraded Chinatrust Financial Holding Co (中信金控) to "equal weight" from "overweight" while upgrading Fubon Financial Holding Co (富邦金控) to "overweight" from "equal weight," saying that Fubon Financial is better positioned than Chinatrust Financial in the current environment, as rates increase and consumer credit risk rises.

Consequently, Morgan Stanley cut its price target for Chinatrust Financial to NT$38.10 from NT$42 while raising that of Fubon to NT$33.90 from NT$32.

Chinatrust shares dropped 1 percent to NT$34.65 while Fubon shares were unchanged at NT$30 on the Taiwan Stock Exchange yesterday.

"Chinatrust faces more pressure from rising funding costs," Morgan Stanley's financial analyst Lily Choi said in the report, noting that Chinatrust Commercial Bank's (中國信託) overall loan-to-deposit ratio is 82 percent compared with 66 percent at Taipei Fubon Bank (台北富邦銀行) at the end of the first quarter.

Chinatrust Commercial is the lending unit of Chinatrust Financial, while Taipei Fubon is Fubon Financial's banking arm.

Additionally, Chinatrust's ratio of retail loans to retail deposits is 119 percent compared to Taipei Fubon's ratio of only 43 percent, Morgan Stanley said.

Fubon's wealth-management and corporate-fee business are relatively under-developed, which indicates that in the current cyclical slowdown, Fubon's underutilized customer base still provides a good source of structural upside. In contrast, Chinatrust's successful market penetration in recent years could suggest that it has optimized its franchise in the near term, Choi said.

Fubon is also less exposed to consumer credit risk, as Taipei Fubon Bank has not increased its higher-yielding unsecured lending in recent years, in contrast to Chinatrust's focus on the consumer-credit segment in the last few quarters.

Accordingly, Morgan Stanley lowered its estimated earnings per share for Chinatrust next year by 8 percent on account of higher credit costs associated with the rapid expansion into credit-card loans and cash-card loans, while raising Fubon's earnings per share for next year by 5 percent to reflect better wealth management and income, the report read.

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