Shares of financial firms operating in the insurance sector soared yesterday after Citigroup Global Market recommended that investors buy their stocks and raised the target prices for two firms.
Shin Kong Financial Holding Co (新光金控), owner of the nation's second-largest life insurer, rose 5.5 percent to NT$41.25, while larger rival Cathay Financial Holding Co (
Citigroup Global Markets Inc initiated coverage of Shin Kong Financial with a "buy" rating and target price of NT$54, indicating an approximately 31 percent rise from the closing price yesterday.
Taking Shin Kong Financial as a highly geared play, stocks that had historically traded at a 30 percent discount to Cathay Financial is expected to drop to 15 percent to 20 percent as its corporate governance improves, Citigroup Global Markets analyst Bradford Ti (
The analyst said that he has seen sustained improvement in new business margin supporting valuations going forward and a turnaround in its banking section with loan-loss provisions own 75 percent this year and wealth management fees to drive performance.
Shin Kong Financial has been aggressive in the expansion of its real estate portfolio in pursuit of a steady return.
Its flagship insurance arm acquired its sixth office building in the Neihu science park on Wednesday, only one day after its purchase of two office buildings from BenQ Corp (明基) for a 4 percent annual rental return.
Meanwhile, Citigroup Global Markets raised its target price for Cathay Financial to NT$97 from NT$86 over the company's strong growth momentum.
The US brokerage revised up its earnings per share estimates for the company by 19 percent this year and 7 percent for the following two years, driven by net investment income from equity gains in the short-term and an increase in the overseas investment ceiling and higher interest rates in the long term.
The company's NT$20.6 billion (US$626.3 million) profits for the first half of this year, coming from capital gains on domestic equity investments, could trigger a re-rating for the stock in the near term, Ti said.
Improving margins in new premium income and property revaluation that could result in a NT$50 billion to NT$60 billion increase in adjusted net worth -- equivalent to 7 percent or 8 percent of the market cap -- are also a driving force behind the share price of the nation's biggest life insurance company owner, the analyst said.