Print

Mail

wiki links

Credit Suisse raises Fubon bank rating

Credit Suisse upgraded its rating for Fubon Financial Holding Co (富邦金控), the nation's sixth-largest financial group by assets, backed by expectations of the company's solid financial results last year and stronger growth than that of its competitors.

The Swiss securities house revised upward its rating on Fubon to "outperform" from "Neutral" with a target price raised to NT$35 from NT$29, it said in a report released on Friday.

The new target price indicates an upside of 19 percent from the current level.

"Despite the challenging operating environment for banks in Taiwan, Fubon should show its resiliency and deliver a solid set of results," Credit Suisse Analyst Sherry Lin (林淑娥) said.

A preliminary release showed a NT$8.23 billion (US$260.2 million), or NT$1.07 per share, profit last year, 7 percent higher than the brokerage's NT$1 estimate, the report said.

Fubon Financial is expected to release its audited financial books for last year on Thursday.

Credit Suisse said the company would nearly double its net earnings to NT$14.63 billion, or NT$1.89 per share, this year.

A common weakness among Taiwanese banks is the pressure on core profits, as many lenders grew their consumer finance business aggressively three years ago and consequently suffered from a significant net interest margin contraction, which is expected to continue this year, Lin said.

By comparison, Fubon's growth in the segment was much more moderate and it pulled out earlier than its rivals.

Its asset quality is expected to continue to improve and the lingering impact from consumer finance on its bank operations should be relatively less, she added.

Furthermore, corporate banking momentum is believed to have accelerated in the fourth quarter of last year and is expected to continue this year as a business focus to broaden revenue.

Gradual integration with Fubon Bank (Hong Kong) Ltd should provide more upside this year.

Treasury is another area that has potential for significant growth this year, the analyst said.

Fubon enjoys a better chance to enter the Chinese market than other Taiwanese banks through its Hong Kong banking arm and will be able to move faster than its local rivals after regulatory constraints are lifted, she said.

The company is eager to expand overseas, as Fubon Financial president Victor Kung (龔天行) said last week that its banking and insurance arms will be opening branches in Vietnam this year.

Fubon is ready to invest in Chinese rivals as soon as the regulator gives the green light, the executive said.

Meanwhile, Cathay Financial Holding Co (國泰金控), the nation's biggest financial group which, like Fubon, is controlled by the Tsai family, seemed to have attracted the interest of foreign investors.

Credit Suisse upgraded Cathay Financial to "outperform" from "eutral" and lifted the target price to NT$84 from NT$74 on anticipated reduced earnings risks that could indicate a long-term investment value.

Morgan Stanley reiterated its "overweight" rating on Cathay Financial with a target price of NT$88 for the next 12 months.

Despite a challenging environment, the company's management has continued to successfully guide the transition to sales of lower-margin products.

The company's ability to sustainably increase return on investment was an important driver of the stock price, Morgan Stanley analyst Lily Choi (蔡麗麗) said.

In the near-to-mid term, an increase in investment income could be expected if a change in regulations lifts the overseas investment cap from 35 percent of working capital to 50 percent allowing for a reallocation of assets from cash into higher yielding offshore assets, Choi said.

Fubon Financial closed down 0.51 percent at NT$29.40, while Cathay Financial gained 0.14 percent to NT$69.20 in the Taiwan Stock Exchange on Saturday.
This story has been viewed 2198 times.