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Cathay Financial set for revaluation

The property-rich Cathay Financial Holding Co (國泰金控), which has started to raise rents to increase returns, plans to conduct a real estate revaluation by the end of this year, a move which analysts said could suggest the company's investment value is rising.

"In a bid to increase our return on investment, we have begun raising rental fees upon the renewal of contracts with our more than 1,000 corporate tenants," said Lee Chang-ken (李長庚), chief strategy officer of the nation's biggest financial group, during a quarterly investors' conference yesterday.

Lee, however, declined to comment on the markup scale, saying the rates varied according to the different fees charged clients.

Cathay Financial owns more than 150 office buildings across the country.

The company plans to hire specialists such as DTZ Debenham Tie Leung (戴德梁行) to revaluate its properties, based on market prices, to update its six-year old bank data, Lee said.

The last revaluation, which took place in 2001, indicated that the company's real estate assets had appreciated 75 percent, or NT$60 billion (US$1.8 billion), to nearly NT$150 billion, the executive said.

Cathay Life Insurance Co (國泰人壽), Cathay Financial's flagship company and the country's biggest life insurer, also released its latest appraisal value, which is estimated at between NT$552 billion and NT$664 billion, or NT$61.4 and NT$73.8 per share as of the end of last year.

This compared with NT$499 billion to NT$591 billion a year ago, or NT$58.9 to NT$69.9 per share.

Appraisal value, which takes into account the value of new policies, is often used to gauge the future profits of insurance firms.

"We have greater expectations of an [upside in] the company's value estimation next year," said Sherry Lin (林淑娥), an analyst who tracks the financial sector on both sides of the Taiwan Strait at Credit Suisse First Boston.

Lin viewed Cathay Financial with optimism, giving it an "outperform" rating and a target price of NT$83.

The company generated first-quarter earnings of NT$10 billion, or NT$1.1 per share, up 26.6 percent from a year ago, driven by the robust capital gains from Cathay Life Insurance's investment in the local market and its banking unit's shrinking provision costs for bad loans, which were halved to NT$2.4 billion.

Its life insurance business in China became profitable, with earnings of 5 million yuan (US$648,850) during the January to March period. It expects to add two outlets there by the end of this year, Lee said.

Its banking arm, Cathay United Bank (國泰世華銀行), also returned in the black with earnings of NT$2.2 billion as the consumer credit abuse crisis subsided. Net interest margin also bottomed out sequentially to 1.72 percent, he said.

Lee said the financial group still hoped to expand its banking network from the 140 branches nationwide, but declined to comment on whether it was in investment talks with small local rivals in need of capital injection.
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