Citigroup Global Markets raised its target price for Mega Financial Holdings Co (兆豐金控) to NT$26 (US$0.88) as its banking subsidiary showed the strongest profitability and most steady cash dividends among state-run banks.
Citigroup originally set the target price at NT$24 with a buy rating.
The upgrade came along with an increase in the financial holding company’s earnings forecast to NT$1.62 a share this year, from its prior estimate of NT$1.55 per share, Citigroup said in a report.
Next year, Mega Financial is expected to earn NT$1.77 a share, rather than the NT$1.69 per share Citigroup projected previously.
“Amid growing concern over local financial stocks, we think Mega Financial is a relatively safe haven, given its improving profitability and rising cash yield,” Citigroup Global Markets analyst Bradford Ti (鄭溫煌) said in the report.
Mega International Commercial Bank (兆豐國際商銀), the banking arm of Mega Financial, is the most profitable state-owned bank in Taiwan, because the bank is benefiting from an uptrend in corporate loans, Ti said in the report.
“Although foreign investors are massively underweight on state-run banks, Mega Financial deserves a scarcity premium as it is the most profitable among its peers,” he said.
Besides, Mega Financial could increase its cash yield to 5 percent this year by expanding cash dividends, maintaining its steady payout over the past eight years, Ti said.
The stake owned by Chinatrust Financial Holding Co (中信金控) is still an overhang to Mega Financial because the former continues to sell its Mega Financial shares, but Citigroup predicted the pace of its sell-down would decelerate, according to the report.
“Since Chinatrust lost the bid on Nan Shan Life Insurance Co (南山人壽), its need for fundraising by selling down the Mega Financial stake is less imminent,” Ti said.
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