Cathay Financial Holding Co's (國泰金控) stock took a hit yesterday after the company's announcement of writedowns from two subsidiaries' investments in US subprime mortgage-related instruments.
Cathay United Bank (國泰世華銀行), the banking unit of Cathay Financial, said in a filing to the Taiwan Stock Exchange early yesterday that it booked a NT$2.57 billion (US$77 million) loss last month. On Tuesday, the lender reported a pretax loss of NT$1.98 billion last month after factoring in the subprime investment writedown.
Cathay Life Insurance Co (
Cathay Financial said it booked the impairment loss following a quality review of its asset pool, especially after international credit ratings agencies substantially downgraded subprime residential mortgage backed securities (RMBS) and products linked to collateralized debt obligations (CDOs) earlier last month.
Shares of Cathay Financial dropped 1.55 percent to NT$70 on the Taiwan Stock Exchange yesterday, underperforming the benchmark index which rose 0.3 percent.
Despite the write-downs, Cathay Financial's prospects remain positive given the company's overseas development and sustainable profitability, SinoPac Securities Corp (永豐金證券) analyst Jesse Knutson said in a note to investors yesterday.
"Compared to the market consensus of Cathay Financial's net income ranging from NT$33 billion-NT$40 billion for 2007, we believe the potential losses and recognized losses from US subprime mortgages should have limited impact on Cathay's profitability," Knutson wrote.
On Nov. 1, Cathay Financial spokesman and chief strategy officer Lee Chang-ken (
Citigroup's equity research team also retained its positive view on Cathay Financial despite the latest impairment loss disclosure. It maintained a buy recommendation for Cathay Financial, with a low-risk rating and a 12-month target price of NT$97, Citigroup said in a report yesterday.
"Although we continue to expect further writedowns to occur, triggered either by a halt in interest payments or several notches of ratings downgrade, we maintain Cathay's share price decline already reflects a worse-case view of close to a 100 percent write-off," said the report, which was co-written by analysts Bradford Ti (
The Citigroup analysts said market reaction to CDO and collateralized bond obligation (CBO) losses were overdone, although such writedowns would drag down Cathay Financial's investment yield.
Still, "higher domestic interest rates, lower hedging cost and domestic equity market gains on an expected pre-election rally" are expected to stem the company's share price decline, they said.
In related news, Taiwan Ratings Corp (中華信評) yesterday lowered its rating on First Commercial Bank's (第一銀行) NT$6.6 billion in CBO 2006-2 Senior Certificates to twA-3, from twA-2 because of the continued deterioration in the US credit market.
Moody's Taiwan Corp also said yesterday it had taken ratings action on three types of beneficiary certificates issued by E.Sun Bank's (
NOT ALL GOOD: Analysts warned that other data for last month might be less rosy due to the virus and analysts expect the PMI to contract again next month Chinese factory activity saw surprise growth last month as businesses went back to work following a lengthy shutdown, but analysts said that the economy faces a challenging recovery as external demand has been devastated by the COVID-19 pandemic, while the World Bank said that growth could screech to a halt. China is slowly returning to life after months of tough restrictions aimed at containing the virus, which put millions of people into virtual house arrest and brought economic activity to a near standstill. The strict measures saw a closely watched gauge of manufacturing plunge to its lowest level on record in February,
The output of the global smartphone industry this year is to contract by 7.8 percent on an annual basis as the COVID-19 pandemic ushers in a global recession, Taipei-based market researcher TrendForce Corp (集邦科技) said in a report on Monday. The global production of smartphones is expected to fall to 1.29 billion units, as the pandemic dampens demand for consumer electronics, leading to a decline in shipments across Europe and North America, TrendForce said. With consumers delaying smartphone purchases and thereby lengthening the device replacement cycle, overall prices would suffer a setback that is expected to negatively affect the profitability of smartphone
ELECTRONICS Lite-On delays sale of unit Lite-On Technology Corp (光寶科技) yesterday said it would postpone the sale of its solid-state drives (SSD) business to Kioxia Holdings Corp, formerly known as Toshiba Memory Holdings Corp, due to disruptions amid the COVID-19 pandemic. Last year, the Taiwan-based electronics components supplier struck the deal with the Japanese firm, agreeing to sell the unit for US$165 million. Citing unfinished integration work due to the pandemic, Lite-On has deferred today’s closing date until further notice, adding that the delay would not have a negative effect on the unit’s operations. AUTO PARTS Hiroca approves dividend Automotive interior parts supplier Hiroca
ALL ABOUT STRATEGY: The company is optimistic, saying that its gross margin should increase year-on-year, but it is scaling back on its plans to expand capacity Quang Viet Enterprise Co (QVE, 廣越), which makes down jackets and garments for sportswear and outdoor brands including Adidas AG, yesterday said that revenue might drop 5 to 10 percent annually this year as some customers trimmed orders in response to the COVID-19 pandemic. That would mark its first revenue decline since 2016. Quang Viet posted record-high revenue of NT$16.26 billion (US$537.45 million) last year, up 22 percent from 2018. Down jackets made up 40 percent of it revenue last year. North Face Inc and Patagonia Inc are this year likely to reduce orders by 20 to 30 percent from a