Cathay Financial outlook rosy

The profitability of Cathay Financial Holding Co (國泰金控), the nation's largest financial group by assets, is expected to strengthen considerably, backed by reduced bad debt costs and extra capital gains from stock investment and derivatives, the company said yesterday.

For the first half of this year, Cathay Financial generated earnings of NT$9.1 billion (US$278 million), or NT$1.07 per share, down 15 percent from NT$10.6 billion, or NT$1.27 per share, a year ago.

The decline was a result of the increased provision expenses of banking arm Cathay United Bank (國泰世華銀行), which were made to cover potential bad debts and amounted to NT$11.7 billion amid the consumer bad loans storm during the January-June period.

Cathay Financial outperformed its rivals in profitability over the same period, compared with the net loss of NT$0.44 per share of Chinatrust Financial Holding Co (中信金控), Taiwan's largest credit card issuer, or Fubon Financial Holding Co's (富邦金控) profits of 0.47 per share.

However, the performance of the company looked less impressive in comparison with its immediate, smaller competitor Shin Kong Financial Holding Co (新光金控), which generated earnings of NT$1.32 per share.

"Looking ahead, we expect our second-half profits to greatly improve compared to the first half," Cathay Financial's spokesman Lee Chang-ken (李長庚) told an investor conference.

Provisioning costs would decrease as the impact of the consumer bad loans issue ebbs away, Lee said, adding that the scale is yet to be determined.

Meanwhile, Cathay Financial would reap NT$4.4 billion of cash dividends in the current quarter coming from its NT$121.8 billion of domestic stock investment.

That accounted for 6.6 percent of its NT$1.84 trillion of investment portfolios as of the end of June, according to the executive.

The company also anticipated an additional NT$4 billion of income from its second batch of real estate investment trust (REIT) products.

This could be worth NT$8 billion and will be rolled out by its flagship unit Cathay Life Insurance Corp (國泰人壽), the nation's largest life insurer, in the October-December quarter, he added.

The seemingly rosy outlook appeared well-received by market watchers, with SinoPac Securities Corp's (建華證券) analyst Chu Yu-chun (朱玉君) expecting a recovery for the company.

"Cathay Financial's fundamentals are reviving as consumer bad loans are easing off," Chu said.

The provision expenses could fall to between NT$5 billion and NT$7 billion in the second half, Chu forecasted.

She expected the company to create earnings of NT$16 billion, inclusive of the above-mentioned capital gains, bringing its annual profits to around NT$25 billion this year.

SinoPac Securities had a target price of NT$72 for the financial group.

Cathay Financial closed up 0.59 percent at NT$68.30 on the Taiwan Stock Exchange yesterday.