King’s Town Bank (KTB, 京城銀行) shares moved higher yesterday as investors remained upbeat on the medium-sized lender after its major shareholders sold a 9.62 percent stake to Mercuries Life Insurance Co (三商美邦人壽).
The Greater Tainan-based bank gained 1.74 percent to close at NT$29.2 on the Taiwan Stock Exchange, compared with the broader market’s 0.65 percent rise.
King’s Town, originally a cooperative savings company established in 1948, has been working to develop into a niche bank in the country’s financial industry in recent years by leveraging relationships with its core client base in the south.
The Chinese-language Commercial Times yesterday reported that the bank’s chairman, Terence Tai (戴誠志), and its second-biggest shareholder, Tsai Tien-tsan (蔡天贊), together sold a total of 115 million shares, or a 9.62 percent stake, to Mercuries Life in a block trade.
A block trade refers to a large amount of securities being traded, typically at least 10,000 shares.
The paper said Tai sold 55 million shares and Tsai offloaded 60 million shares of King’s Town at an average price of NT$28.38.
The share sale has no impact on the daily operations of King’s Town Bank, but the move should be viewed as a strategic investment to benefit investors in the long run, analysts said.
“We are neutral on the news because Tai still holds the chairman position and the sale will not affect KTB’s operations,” Yuanta Securities Co (元大證券) analyst Peggy Shih (施姵帆) said in a client note.
As the bank’s preliminary January-to-May earnings of NT$1.99 per share has reached 62 percent of her full-year forecast, Shih said Yuanta has raised its earnings forecast for this year by 9.7 percent to NT$3.75 per share and lifted its target price on King’s Town to NT$34.
King’s Town fundamentals look attractive to life insurers, as the bank has the highest pre-tax return-on-equity among domestic banks at an annualized 24.3 percent in the first quarter, with a strong capital adequacy ratio of 14.3 percent and a lower-than-average non-performing loan ratio of 0.04 percent.
However, the company lacks strong share price catalysts unless there is any merger and acquisition (M&A) activity in the near term, Shih said.
At the end of last month, the bank reportedly terminated merger discussions with Waterland Financial Holdings Co (國票金控), the nation’s smallest financial services provider by assets.
Tai has said the bank would pursue M&A opportunities to sustain its growth momentum and maintain a strong dividend payout to reward investors.
The company plans to distribute a cash dividend of NT$1.5 to shareholders based on earnings per share of NT$3.53 last year.
With its 9.62 percent stake, Mercuries Life becomes the bank’s biggest shareholder, which remains in compliance with Taiwan’s regulations.
Under the revised Insurance Act (保險法), Taiwanese life insurers are allowed to hold up to 10 percent of a listed firm’s shares. However, they cannot have a seat on the board or participate in board elections.
Tai is the second-largest shareholder of the bank, with a 5.55 percent stake, while Tsai owns only 1.1 percent after the deal, the newspaper reported.
“This deal should be characterized more as a strategic investment in the long run,” Primasia Securities Co said in a client note yesterday.
“We think King’s Town and Mercuries Life can create synergy in that the bank has a niche market in southern Taiwan [currently 49 out of its 64 branches],” Primasia said.
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