Amid the financial turbulence, two foreign securities houses picked First Financial Holding Co (第一金控) among their top “buys” thanks to its strong deposit franchise and sound capital ratio.
BNP Paribas Securities (Taiwan) Co said in a report released on Wednesday that First Financial and Fubon Financial Holding Co (富邦金控) were two of its choices as “banking survivors” that offer “financial strength and capital cushion ... with minimum leverage,” which would help them through the protracted downturn.
James Wu (吳永新), author of the BNP Paribas report, said that Fubon and First Financial had higher Bank of International Settlement (BIS) ratios of 11.1 percent and 10.8 percent and reasonable loan-to-deposit ratios of 74 percent and 83 percent respectively.
BNP Paribas estimated that First Financial, given its attractive valuations, could offer a minimum 20 percent upside in the coming year from its closing price of NT$15.85 yesterday.
As for other financial stocks, BNP Paribas has “hold” ratings on Mega Financial Holding Co (兆豐金) and Chinatrust Financial Holding Co (中信金控) and “reduce” for Taishin Financial Holding Co (台新金控) and E.Sun Financial Holding Co (玉山金控).
Citigroup Global Markets research analyst Bradford Ti (鄭溫煌) also has a “buy” rating on First Financial, saying the share price had hit historical lows.
Given its government ownership and Taipei-focused branches, First Financial will benefit from additional funds as depositors turn cautious, which will be “a good source of wealth management fees,” the Citi report said.
Citi believed that risks to First Financial’s loans to small and medium enterprises, which took up 30 percent of its total, were exaggerated and forecast a 12-month target price of NT$25 per share.
Citi also has a “buy” rating on Chinatrust Financial although it revised downward its target price to NT$21 from NT$28.5.
The securities house believed that Chinatrust “is better positioned to weather a downturn vis-a-vis peers with a capital adequacy ratio (CAR) at 11.8 percent.”
With its credit and cash card crisis largely behind it, Chinatrust Financial’s asset quality continues to improve with a nonperforming loan ratio of 1.5 percent and loan-loss reserve coverage at 78 percent, the report said.
However, an analyst who requested anonymity, disagreed, saying that Chinatrust Financial’s family-owned stakes would make it harder to raise funds in the near term as the current financial turmoil and challenging macroeconomic environment is expected to extend into the first quarter of next year.
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