CIMB Securities Ltd has advised investors to put a hold on Shin Kong Financial Holding Co (新光金控) shares amid concerns over the company’s looming uncertainty and mediocre expectations on earnings through 2017.
“Uncertainties include potential new business strain, higher hedging costs, tapering credit cycle and stagnating net interest margin,” Taipei-based CIMB Securities analyst Nora Hou (侯乃鳳) said on Thursday.
Despite strong 848 percent year-on-year growth in the first half of the year, Shin Kong Life Insurance Co (新光人壽), the financial holding firm’s most profitable unit, has seen growth momentum in the first year premium begin to fade in the second quarter, Hou said.
The second-quarter first year premium declined 32 percent compared with the January-to-March period as the insurer shifts focus to selling regular-paid policies, Hou said.
Although the change in business focus might prove to be effective in improving the insurer’s value of new business ratings, it might face higher expenses in the short-term, she said.
Overall, Shin Kong Financial’s earnings per share growth through 2017 is expected to be mediocre, with total loan growth to be limited to between 3.5 percent and 4.5 percent, net interest margin change between zero and 1 basis point, and annual growth rate for banking fees and first year premium growth at between 7 percent and 12 percent respectively, Hou said.
However, HSBC Securities Taiwan Corp issued a buy rating on Shin Kong Financial on the back of the company’s sound fundamentals and Shin Kong Life’s improved investment strategy.
The brokerage on Thursday said that focusing on international bonds listed on the local over-the-counter market would continue to enhance Shin Kong Life’s recurring yield.
Prospects for the insurer are also expected to improve as its cost of liability has continued to trend down to 4.58 percent at the end of the first half from 4.61 percent in the first quarter, while its 13-month and 25-month persistency ratio — a gauge of the insurer’s already written policies remaining in force without lapsing or being replaced by policies of competitors — have continued improving during the same period, Hong Kong-based HSBC Global Research analyst Anthony Lam said.
In the first half of the year, Shin Kong Life’s annual premium equivalent slid 16 percent year-on-year due to the lingering effects of selling a popular single-premium product in the first quarter.
Lam said that the setback would dissipate in the second half as the policy has been removed from the product mix.
Shin Kong Financial shares have declined 16.32 percent since the beginning of the year, closing at NT$7.54 on Friday in Taipei trading.
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