Citigroup Global Markets Inc yesterday retained a "buy" rating on Fubon Financial Holding Co (富邦金控) after the nation's fourth biggest financial group by assets offered a positive outlook on Thursday.
The US equity research house maintained its target price of NT$35 for Fubon Financial, which suggested an 18 percent upside from Fubon's closing price of NT$29.65 on the Taiwan Stock Exchange yesterday.
On Thursday, Fubon Financial released its first-quarter financial results in a teleconference and said the company was looking to further upside on any progress in Chinese expansion or better returns.
Earnings in the January to March period rose 7.7 percent from a year earlier to NT$3.45 billion (US$103.7 million), or NT$0.45 per share, driven by capital gains in stock investment by its insurance and securities subsidiaries, Fubon Financial said.
valuations
"[Fubon Financial] stock's valuations remain relatively firm, pricing in a Greater China opportunity. Valuations could rerate further depending on its progress in hurdling regulatory barriers into China or in improving shareholder returns," Bradford Ti (鄭溫煌), an analyst at Citigroup Global Markets Inc, said in a report released yesterday.
In the teleconference, Fubon Financial indicated that it remained optimistic that its greater China strategy was moving forward and anticipated more concrete results in the second half of this year.
Assuming an improvement in the regulatory environment, Citigroup expected an opportunity for Fubon Financial to gain exposure to the China market's buildup via its subsidiary, Fubon Bank (Hong Kong), Ti said in the report.
Fubon Financial's banking arm has started to recover with profits rising by 10 percent quarter-on-quarter and expected annual provisioning cost returning to normal at between NT$8 billion to NT$10 billion this year, the analyst said.
Moreover, net interest margin has begun to stabilize at 1.62 percent in the first quarter from 1.6 percent in the previous quarter and wealth management that made up 73 percent of fee income from 40 percent two years ago has offset its loss of lottery business, he said.
Among Taiwanese banks, Fubon Financial has made the most aggressive inroads into Hong Kong as a first step into China after its acquisition of Fubon Bank Hong Kong.
investment risks
Yet there are some investment risks that could constrain future share prices, including implementation of its cross-selling strategy that could prove difficult, overpaying for possible acquisitions, and share overhang from divestments of strategic investors like Taipei City Government, which owns 14 percent, or sell-downs by foreign investors, Ti said.
Citigroup Global Markets Inc forecast an annual profit of NT$17.94 billion for Fubon Financial, or NT$2.32 per share this year, up from NT$8.43 billion, or NT$1.09 per share last year.
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