Mon, Oct 19, 2015 - Page 13 News List

CIMB says investors should favor banks over insurers

FINANCIAL SECTOR ‘NEUTRAL’:The securities firm said investment in banking is better than insurance, as figures indicate a more diversified business model and minimal losses

By Ted Chen  /  Staff reporter

CIMB Securities Ltd recommended investors buy bank-driven financial stocks, such as those provided by E. Sun Financial Holding Co (玉山金控) and CTBC Financial Holding Co (中信金控) in expectation that local banks will out-perform insurers and brokerages this quarter on record-low credit cuts.

That is despite CIMB keeping a “neutral” rating on the nation’s overall financial sector.

Among the financial holding companies, CIMB Securities analyst Nora Hou (侯乃鳳) is upbeat about CTBC Financial’s resilience corporate loan expansion, sustained wealth management momentum and contained credit costs, and forecast 15 percent growth in the company’s provisional operating profit for this year.

For E Sun Financial, Hou highlighted the company’s above-average credit and fee expansion, and said that overall sales growth should persist on new product launches and expansions in overseas markets.

The company has been gaining market share in various segments, she said in a report.

Hou also said that Fubon Financial Holding Co (富邦金控) remains the Malaysian bank’s top pick in the insurance space, as the company has outperformed most of its domestic peers due to its more diversified business model, solid banking top line, minimal credit costs and positive investment spread and continued progress in expanding value of new businesses.

“Looking to the fourth quarter, we expect overall financial sector earnings to flatten,” Hou said.

“Despite the lack of significant top-line drivers, banks’ record-low credit costs and insurers’ low bases should lend support to their bottom line,” she said.

She retains her “add” rating on Fubon Financial, CTBC and E. Sun.

Insurers witnessed worse-than-expected sequential earnings contractions in the third quarter, due to new business strain caused by mounting first-year premium collections that surged last month.

Insurers did not benefit from seasonal peak last quarter, during which investment dividends are booked, nor from a weaker New Taiwan dollar against the US dollar due to diminishing investment risk appetite, Hou said.

Among major life insurers, Cathay Life Insurance Co’s (國泰人壽) earnings fell 36 percent annually last month, while Fubon Life Insurance Co (富邦人壽) and Shin Kong Life Insurance Co (新光人壽) saw their profits in the same period contracting by 93 percent and 296 percent from a year earlier.

The nation’s 15 major banks saw aggregate net income last month decline by only 12 percent annually, while net income in the third quarter dropped 9 percent year-on-year, CIMB data showed.

Local brokers saw reduced turnover and poor market sentiment, making the segment the poorest performer last quarter, Hou said.

Last month, financial holding companies reported that aggregate net income tumbled 29 percent year-on-year to NT$18.53 billion (US$570 million), while profits in the third quarter declined 28 percent sequentially to NT$66.06 billion, according to CIMB data.

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