Cathay foresees better second half

Cathay Financial Holding Co (國泰金控), Taiwan's largest financial group, said yesterday that it expects profitability to improve in the second half of this year, on returns from a reinvigorated local bourse and the property market.

"Our profitability will surely improve in the last half of this year, driven by an expected ... increase in earnings from our life insurance arm ? from capital gains on stock investments and returns from property securitization products," Cathay Financial's chief strategic officer Lee Chang-ken (李長庚) told investors yesterday.

Stocks and property

Cathay Financial would reap NT$5 billion worth of cash dividends in the current quarter from local stock investments worth over NT$138 billion, Lee said.

The financial holding company expects to garner billions of NT dollars in profits from its real estate investment trust (REIT) products, backed by the Sheraton Taipei Hotel, the Chung Hwa Building and the Ximen Building, the executive added.

Cathay Life Insurance Corp (國泰人壽), the financial holding firm's flagship subsidiary, is slated to issue one batch of REITs next month, which will be the nation's largest real estate securitization product by value with a value of between NT$11.2 billion and NT$13.9 billion.

Apart from the insurer, Cathay Financial comprises Cathay Century Insurance Co (國泰世紀產險), Cathay United Bank (國泰世華銀行), Cathay Securities Co (國泰證券) and Cathay Securities Investment Trust Co (國泰投信).

Cathay Financial recorded second-quarter earnings of NT$5.8 billion, up from NT$4.8 billion sequentially, but down marginally from NT$5.9 billion a year ago, the company said.

For the first half of this year, the financial holding firm's net income slumped to NT$10.6 billion, or NT$1.27 per share, from NT$18 billion, or NT$2.24 per share, a year ago, it said.

Weaker

However, Cathay Financial's performance appeared weaker relative to its smaller rivals. Chinatrust Financial Holding Co (中信金控) last week reported earnings per share of NT$1.63 in the first six months of this year, the highest among peers, followed by Shinkong Financial Holding Co's (新光金控) NT$1.62 and Taishin Financial Holding Co's (台新金控) NT$1.35 for the same period.

"A dull stock market in the first quarter can be blamed for the company's poor performance," SinoPac Securities Corp's (建華證券) finance sector analyst Chu Yu-chun (朱玉君) said, adding that the prospects look bright in the months to come, with capital gains and profits of around NT$5 billion to NT$8 billion expected to be booked.

Chu forecasts that Cathay Financial will create net income of NT$27.7 billion, or NT$3.4 per share, and retained a target price of NT$65 per share.

Regarding its expansion plans, the financial company plans to formally merge Lucky Bank Taiwan Inc (第七商銀) -- in which Cathay Financial holds a 81.35 stake -- into its Cathay United Bank by the middle of next year, Lee said.

Before that, Lucky Bank is slated to become the financial group's subsidiary following a provisional shareholders meeting on Sept. 2.

This will boost the market share of Cathay Financial's banking business to 4.4 percent, with 140 outlets nationwide.

The financial holding firm remained evasive about possible further expansion through takeovers of state-owned banks. The company said it would not sacrifice margins for market share, and may not be interested unless it found a target at a reasonable price and with attainable synergies.