Shin Kong Financial bullish on earnings

Shin Kong Financial Holding Co (新光金控), the nation's eighth biggest financial group by assets, expects its earnings to double this year, as its banking unit returns to profitability after shedding bad consumer debts, the company said yesterday.

"The company's annual profits could hopefully double [to NT$10 billion (US$303 million)] this year because of significantly decreasing reserves required to cover bad consumer loans," Shin Kong Financial chief financial officer Winston Yung (容覺生) said on the sidelines of an investors conference yesterday.

Shin Kong Financial expected the annual provisioning cost to fall to about NT$2 billion this year, down from NT$10.75 billion last year, after factoring in a loss rate of between 30 percent and 40 percent on its restructured loans, worth NT$4.5 billion under the credit and cash debts negotiation scheme.

As a result, its banking arm is expected to return to the black with estimated profits of NT$1 billion this year, Yung said.

Shin Kong Financial generated earnings of NT$5.33 billion, or NT$1.19 per share, last year, down 24 percent from NT$7.06 billion, or NT$1.74 per share, in 2005.

The group's performance fell short of market expectation, because of its banking subsidiary's expanding loss of NT$7.27 billion last year compared with a deficit of NT$259 million in 2005.

By contrast, its flagship life insurance arm, Shin Kong Life Insurance Co (新光人壽), delivered a bright performance with earnings jumping 53 percent year-on-year to NT$11.3 billion, the company said.

First-year premiums grew 27 percent from a year earlier to NT$65.87 billion, boosting its market share to 12.6 percent and making Shin Kong Life the nation's second-largest life insurer after Cathay Life Insurance Co (國泰人壽).

"We are quite optimistic about Shin Kong Financial's profitability this year on the back of the recovery in its banking business," said Chu Yu-chun (朱玉君), an analyst who tracks the nation's financial sector at SinoPac Securities Corp (永豐金證券).

Chu predicted annual profits of NT$10 billion and gave a buy rating on the company with a target price of NT$35.

Looking ahead, Shin Kong Financial said it would keep looking for acquisition targets, mainly in the banking and securities sectors.

Shin Kong Financial announced last July it would buy a 16 percent stake in MasterLink Securities Corp (元富證券) within one year, in the hope of strengthening its securities business, following its acquisition of Macoto Bank (誠泰銀行) in 2005.

The company plans a 25 percent stake in MasterLink, which includes a 9 percent holding held by its life insurance arm, Shin Kong Financial spokesman Victor Hsu (許澎) said.

If the tie-up goes well, they could invest further and acquire more than 50 percent in order to take control of the securities house, Hsu said.

Meanwhile, the Financial Supervisory Commission yesterday agreed to allow Shin Kong Bank's (新光銀行) application to the Hong Kong regulator to establish a branch in the territory.

Shin Kong bank currently has no overseas presence, the commission said.

Shin Kong Financial shares closed up 0.15 percent at NT$32.65 on the Taiwan Stock Exchange yesterday.