Investors interested in financial stocks should take a long position in Hua Nan Financial Holding Co (華南金控) on its earnings recovery prospects and should avoid Mega Financial Holding Co (兆豐金控) for its likely impaired profitability caused by Rebar Asia Pacific Group (力霸亞太集團) debts, a market watcher said.
"We prefer Hua Nan Financial... to Mega Financial," Chu Yu-chun (
SinoPac Securities gave a "buy" rating on Hua Nan with a target share price of NT$30 by the end of the current quarter, while issuing a "hold" rating on Mega Financial for the next six months.
The state-controlled Hua Nan Financial is expected to see a rebound in earnings estimated at NT$10.4 billion (US$315 million), or NT$1.74 per share, after credit and cash card bad loans provisions subside this year, Chu said.
Last year, net profits of the nation's fifth-largest financial group by assets dropped 18 percent year-on-year to NT$7.8 billion, or NT$1.31 per share, after its banking arm booked NT$9.3 billion of provisions to cover its deteriorating cash card lending assets.
The optimism is bolstered by the debt recovery coupled with the company's strength in the corporate banking sector, especially the small and medium enterprise segment where it enjoys over 9 percent of the market, making it the third largest among the 42 local banks, Chu said.
The banking-centric Hua Nan Financial also has a strong footing with overseas Taiwanese corporate clients, with a well established network created by its Hong Kong branch and its representative office in Shenzhen, China, she said.
The Hong Kong branch currently services 12,000 overseas Taiwanese customers and made an annual profit of NT$1 billion, 12.8 percent of the financial holding firm's total earnings last year, Chu added.
Also, Hua Nan chairman Lin Ming-cheng (林明成) has teamed up with other private shareholders -- Shin Kong Financial Holding Co's (新光金控) Wu family -- to safeguard their management power by acquiring a larger shareholding before the annual general meeting this year, which should also help boost the company's share price, the analyst said.
Compared with Hua Nan, Mega Financial, also state-controlled, appears a less favorable investment target with a much gloomier outlook.
Mega Financial's banking arm is the lender that is thought to have incurred the largest loss, estimated at up to NT$5 billion, due to the Rebar Asia Pacific scandal, which in turn would dent the company's profitability this year along with a shrinking investment yield, the report said.
Accordingly, SinoPac Securities revised its forecast for the company's earnings this year down to NT$14.24 billion, or NT$1.29 per share, from the previous forecast of NT$16 billion, or NT$1.45 per share.
Mega Financial's profits last year dropped to NT$17.16 billion, or NT$1.50 per share, after booking part of losses incurred owing to the defaulted Rebar Asia Pacific loans.
Hua Nan closed up 0.81 percent at NT$24.90 while Mega Financial closed down 0.22 percent at NT$22.30 on the Taiwan Stock Exchange on Wednesday.
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