Tue, Aug 08, 2006 - Page 12 News List

BNP Paribas slashes its SinoPac earning forecast

NEGATIVE VIEW The French securities house believes valuations of the banking corporation are unjustified and reduced its target price by 3.4 percent to NT$14

By Amber Chung  /  STAFF REPORTER

BNP Paribas Securities (Taiwan) Co suggested that investors sell SinoPac Holdings (永豐金控) and cut its earning forecast for the nation's 10th-biggest financial group by assets significantly, citing the company's overhang of card default problems and slow synergy creation in the face of union boycotts.

BNP Paribas Securities retained its "Reduce" rating on SinoPac with a new target price of NT$14, down 3.4 percent from NT$14.5 previously, after attending the company's investor conference last Friday, according to the brokerage's research note released yesterday.

SinoPac shares closed down 0.96 percent at NT$15.50 on the Taiwan Stock Exchange yesterday.

The French securities house slashed its earning forecast for the financial group this year to NT$6.44 billion (US$196,000), or NT$0.92 per share, down by around 20 percent from the previous forecast of NT$8.03 billion, or NT$1.14 per share, the report said.

"We are one of the few brokers in the market with a negative view on SinoPac, as we believe its valuations are not justified by its fundamentals," Jesse Wang (王嘉樞), head of equity research with BNP Paribas Securities said.

Despite a possible earnings rebound in the current quarter, the strength of the upswing could be weaker than the market expects, due to the overhang of consumer bad loans that could narrow the company's net interest margin and suggests continuous write-offs of bad debts, Wang said.

SinoPac posted a second-quarter net profit of NT$264 million, or NT$0.04 per share, down from NT$2.1 billion, or NT$0.30 per share, in the first quarter. This was mainly due to escalating card provision expenses of NT$2.4 billion, up from NT$1.8 billion, over the same period.

The sluggish stock market in the April-June quarter that overshadowed the financial group's brokerage unit SinoPac Securities Corp (建華證券), also contributed to the shortfall.

Labor unions that have been proactive in attempting to maximize their own interests also pose a risk to synergy creation, as SinoPac is promoting the merger between Bank SinoPac (建華銀行) and International Bank of Taipei (IBT, 台北國際商銀) in November this year, Wang said.

Meanwhile, Macquarie Securities appeared more bullish about the financial holding firm and maintained its "Outperform" recommendation with a target price of NT$18.50.

It is believed that the company could offer longer-term potential following the expansion of its presence in the Greater Taipei area through the merger deal, the Australian brokerage said in its research note released yesterday.

However, the merger plan may face problems, as the IBT union said yesterday that it will adopt a hardline stance and gather outside the Financial Supervisory Commission to petition for the suspension of the merger this afternoon.

"We could go on strike to protest the merger, as we feel we have been sold out after Chairman Ho Show-chuan (何壽川) failed to deliver on his promises of equal arrangement of power and personnel amid the so-called merger of equals' process," the union said in a statement released yesterday.

The Bank SinoPac union also held protests last month and demanded the financial regulator safeguard labor rights in the proposed merger deal.

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