HSBC Global Research has maintained a positive outlook for Yuanta Financial Holding Co (元大金控) shares, as the company continues to cut costs during its transformation into a wealth management-focused institution.
Over the course of last year, the company reduced its equity allocation to its securities business by 11 percent, while raising its return on equity from 9.4 percent to 10 percent, HSBC Global Research analyst Anthony Lam (林天恩) wrote in a report published on Tuesday last week.
“Overall, we raise our earnings estimates for this year by 5 percent,” Lam said.
The reallocation would free up capital for Yuanta to grow its more profitable banking business, Lam said.
Company data showed that Yuanta Securities Co (元大證券), the company’s brokerage unit, one of the nation’s largest, had a equity weighting of 40 percent compared with 46 percent for the group’s banking unit.
Yuanta Securities last year posted net income of NT$7.84 billion (US$255.8 million), 26 percent lower than the previous year, the report said.
The brokerage’s net income during the last quarter last year was down 82 percent year-on-year, while proprietary trading income tumbled 94 percent year-on-year due to market volatility, the report said.
The trend coincides with the retreat of the nation’s retail investors, which fell from 97 percent of all investors in 1997 to 58 percent at the end of last year, company data showed.
The company is expected to see further synergistic gains from the merger of Yuanta Commercial Bank (元大銀行) and Ta Chong Bank Ltd (大眾銀行), which had improved cost-income ratio of 3 and 8 percentage points respectively last year, the report said.
The two banks, which closed 14 branches last year, could scale down further this year to yield more cost savings, the report said.
Last year, Yuanta Financial posted net income of NT$13.46 billion, of which the contribution by Yuanta Commercial Bank and Ta Chong Bank rose 68 percent year-on-year to NT$8.31 billion compared with a low basis set the previous year.
Lam raised this year’s net interest margin forecast for the banking units by 5 basis points to reflect anticipated enhanced loan yields, as well as margin improvement from a bond portfolio adjustment.
Yuanta Life Insurance Co (元大人壽保險), the company’s life insurance arm that reported a loss of NT$628 million last year, has cut its first-year premiums by 93 percent compared with the final quarter last year to limit new business strain and the negative impact on its earnings and dividend payouts, Lam said.
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