Shares in Cathay Financial Holding Co (國泰金控), the nation’s largest financial service provider by assets, jumped by the daily limit yesterday after its board earlier approved a plan to buy back 200 million shares, analysts said.
The company’s shares ended up 6.9 percent at NT$37.2, outperforming the TAIEX’s 3.25 percent increase, Taiwan Stock Exchange data indicated, as investors increased holdings following the buyback plan and sentiment improved.
“It is the first buyback [on the part of Cathay Financial] since 2002,” Winson Wang (王榮旭), a stock analyst at Marbo Securities Consultant Co (萬寶證券投顧), said by telephone. “The company probably considers its market value overly underestimated and aims to remedy the situation.”
The buyback plan came after Cathay Financial shares tumbled to an intraday low of NT$33.9 on Tuesday, 26.62 percent lower than its recent high of NT$46.2 on July 22, Wang said.
Under the plan, the conglomerate will buy back 200 million common shares, or 1.93 percent of total outstanding shares, within the range of NT$33.0 and NT$45.0 on the open market in the next two months, according to the company’s stock filing.
Wang, however, said that he had adopted a neutral view because of Cathay Financial’s thin profitability this year.
The life insurance-centric group earned NT$3.35 billion (US$115.48 million) in net profits last month, driven chiefly by dividend income and diminishing foreign currency hedging costs, the company said in a statement.
Cumulative net income equaled NT$9.99 billion for the first seven months, translating into earnings of NT$0.96 per share, company data showed.
The performance pales in comparison with Fubon Financial Holding Co (富邦金控), which earned NT$12.86 billion in net profits as of last month, or NT$3.54 earnings per share (EPS).
Wang predicted Fubon Financial EPS would approach NT$4 this year, the most profitable among peers and way ahead of NT$1.5 for Cathay Financial.
Andy Chang (張書評), a financial ratings analyst at Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, said that volatilities in the equity and foreign exchange markets would continue to challenge the profitability of local financial groups, especially life insurers, for the rest of the year.
“The heavy reliance by Fubon Financial on traditional hedging strategy paid off given its financial results,” Chang said by telephone.
Negative interest spread poses another drag on the earning ability of domestic life insurers since old policies carry significantly higher interest rates than in recent years, Chang said.
Cathay Life Insurance Co (國泰人壽), the life insurance arm of Cathay Financial, incurs more burdens in this regard than Fubon Life Insurance Co (富邦人壽), the life insurance unit of Fubon Financial, Chang said.
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