Sat, Aug 25, 2007 page12

• Cathay Financial's profits surge 130% in first half

  • By Jessie Ho / STAFF REPORTER
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  Cathay Financial Holding Co (國泰金控), the nation's biggest financial services company by assets, saw profits for the first half of the year more than double from a year ago, driven by flagship Cathay Life Insurance Co's (國泰人壽) robust return on investment.

  The company reported that net income in the first six months of the year jumped 130 percent to NT$20.7 billion (US$627.7 million) from a year ago. Earnings per share were NT$2.26, up from NT$1.07 in the same period last year.

  Its return on assets rose to 17.7 percent in the first half of the year, from 8.5 percent a year earlier, and return on equity climbed to 18.6 percent from 9.5 percent.

  Cathay Life Insurance contributed 75.7 percent of the parent company's first-half earnings, chief strategy officer Lee Chang-ken (李長庚) told investors yesterday.

  The insurance unit saw premium income surge 27.8 percent to NT$204.8 billion and a 5.6 percent return on investment, Lee said.

  Cathay Life Insurance sold about NT$30 billion in domestic stock holdings last month, when the local bourse rose to a seven-year high before pulling back over fears of the impact of the US' subprime mortgage problems, Lee said.

  Overall, the insurer's return on investment in local stock market reached 17.4 percent in the first half of the year, Lee said.

  With market prices slumping this month, Cathay Life Insurance did some bottom fishing and could see further gains in the future, he said.

  Responding to market concerns over the company's exposure to US subprime mortgage-related products, Lee assured investors that the company did not record losses in the credit meltdown.

  Of the NT$29 billion in collateralized debt obligations (CDOs) Cathay Financial holds in the US, only NT$3.3 billion are linked to subprime loans, he said.

  These include NT$1.8 billion owned by Cathay Life Insurance, NT$1.5 billion held by its banking unit Cathay United Bank (國泰世華銀行) and another NT$20 million owned by its non-life insurance unit, Cathay Century Insurance Co (國泰世紀產險), he said.

  Shares of Cathay Financial declined NT$1.5, or 1.95 percent, to close at NT$74.5 on the Taiwan Stock Exchange yesterday. The company's earnings report was released after the local stock market closed.

  If the stock market performs well in the next half, Cathay Financial will see higher returns from its life insurance arm, said Greg Ou (歐正宏), an analyst with Masterlink Securities Corp (元富證券).

  Although the group's insurance company in Shanghai -- a joint venture with China Eastern Airlines (東方航空) -- is still losing money, its long-term prospects are positive, making Cathay Financial a good China-concept stock, he said.

  Cathay Life Insurance is expected to announce its real-estate valuation -- which is estimated to reach NT$400 million -- at the end of the year, and this could act as a catalyst for the parent firm's share price, Ou said.

  Cathay Financial yesterday also reported that Cathay United Bank posted a net income of NT$4.4 billion in the first half of the year, up from NT$3 billion a year earlier, backed by strong growth in corporate lending and home loans, as well as higher interest rates.

  As the housing market is showing signs of cooling down, the bank will enhance risk management when reviewing home loan applications, said Joseph Jao (饒世湛), a senior executive vice president at the bank who was also present at yesterday's conference.

  The bank's non-performing loan ratio from mortgages in the first half was 1.35 percent, down from 1.59 percent at the end of last year, Jao said.
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