BNP Paribas upgrades Yuanta on merger prospect

BNP Paribas Securities (Taiwan) Co yesterday announced its intention to upgrade Yuanta Core Pacific Securities (元大京華證券), the nation's largest brokerage, on expectation of the company's strengthened market position and synergies through the likely merger with Fuhwa Financial Holding Co (復華金控).

The French securities house revised upwards its ratings on Yuanta Core Pacific to "buy" from "hold" and lifted its targeted share price to NT$27.40 from NT$19.60, according to a report released yesterday.

The raised target price could represent an upside as high as 22 percent compared with the current price. Yuanta Core Pacific shares closed down 1.54 percent at NT$22.45 on the Taiwan Stock Exchange yesterday.

"Its merger with Fuhwa should create a formidable leader in Taiwan's securities business and spark a series of restructuring moves that will boost ROE [return on equity] by almost 400 base points [4 percent]," said Jesse Wang (王嘉樞), head of equity research with BNP Paribas Securities.

Yuanta Core Pacific is likely to win a majority on Fuhwa's board at the financial group's shareholders meeting tomorrow, Wang said.

Yuanta group holds a 40 percent stake in Fuhwa Financial, reportedly controls 60 percent of proxy votes and is expected to win at least six out of nine board seats without much difficulty, BNP Paribas predicted.

Wang's aggressive target price is backed by expectations for substantial synergies to materialize after the merger deal is done.

The merger of Yuanta Core Pacific and Fuhwa Financial will create Taiwan's leading securities-focused financial holding firm, he explained.

The combined entity will enjoy solid leadership in many different segments of the securities business, including a 12 percent market share in brokerage and a 20 percent share of the lucrative margin lending business, Wang said.

In addition, equity market activities are estimated to account for nearly 80 percent of earnings of the combined entity, which meant, more than any other firm, the performance of the company was a near proxy for the TAIEX, he added.

BNP Paribas raised its earnings forecast for Yuanta Core Pacific to NT$3.49 billion this year, or NT$1.08 per share, up from NT$3.17 billion, or NT$0.98 per share previously.