HSBC Securities Corp Ltd has raised its earnings forecasts for Fubon Financial Holding Co (富邦金控) for this year and next year after the nation’s most profitable financial services provider last week offered a promising outlook for this year.
JPMorgan Securities Ltd and Daiwa Capital Markets also offer their “overweight” and “buy” ratings on the company’s shares, on expectations that its newly acquired First Sino Bank (華一銀行) would start seeing visible effect this year and make more meaningful earnings contribution after three years.
In a client note issued on Friday, HSBC said it had adjusted upward its net income forecast by 15.2 percent to NT$33.11 billion (US$1.08 billion) this year and by 15.7 percent to NT$35.35 billion for next year on expectations that Fubon would have a higher earnings contribution from its banking units.
“We raise net profit forecasts by 15 to 16 percent, driven by a 30 percent increase in the contribution from banking. This comes in part from higher forecasts [of banking contribution] in Taiwan and Hong Kong, but also from the first-time addition of the recently acquired First Sino Bank in China,” HSBC analysts Bruce Warden and Todd Dunivant said in the note.
“The addition of the China business adds about 6 percent [NT$1.80 billion to NT$1.83 billion] to earnings in the two forecast years, and the increased contribution from the Taiwan bank adds 8 percent to 8.5 percent to the previous forecast,” they added.
Fubon Financial owns a 29 percent stake in First Sino and its banking arm, Taipei Fubon Commercial Bank Co (台北富邦銀行), holds another 51 percent. The conglomerate also operates Fubon Bank (Hong Kong) Ltd (富邦香港) and holds a 20 percent stake in Xiamen City Commercial Bank (廈門商銀).
Fubon Financial shares added 0.12 percent to reach NT$40.55 on Friday against a continued decline in the broader market, where the TAIEX was down 0.23 percent at 8,577.17 points due to the lingering concerns over the fate of the cross-strait service trade agreement, the Taiwan Stock Exchange’s data showed. Since the beginning of the year, they have declined 7 percent, more than the TAIEX’s 0.4 percent fall over the same period.
HSBC said the earnings contribution from Fubon Financial’s banking units is now nearly 60 percent of the company’s total.
“If one views Fubon shares as a basket of Taiwan financials — with banking, securities and insurance — then a greater contribution from banking makes it a better basket,” HSBC said in the note.
Credit Suisse AG said following the completion of the First Sino acquisition and the subsequent capital injection, much of Fubon Financial’s focus will be on integrating its greater China platform to capture more overseas business from Taiwanese enterprises.
“Ultimately, the goal is to let First Sino Bank account for 10 percent of Fubon Group’s earnings, which implies more than 50 percent of Fubon’s bank’s pre-provision profit would come from overseas,” Credit Suisse’s Taipei-based equity analysts Chung Hsu (許忠維) and Michelle Chou (周盈秀) said.
On Thursday, Fubon Financial said it expects Taipei Fubon to see mid to high single-digit percentage growth in lending — focusing on foreign currency — as well as fee income growth in credit cards and wealth management businesses, while it is looking for single-digit percentage profit growth in First Sino in the initial two to three years and double-digit percentage profit increases in four to five years.
The company said it was also upbeat about increased contribution from its brokerage unit, Fubon Securities Co (富邦證券), citing higher market turnover in Taiwan and growing margin lending, but expressed caution about Fubon Life Insurance Co’s (富邦人壽) outlook, given a likely lower contribution from first-year premiums.
During the first two months of the year, the company posted a cumulative net income of NT$10.4 billion, equivalent to 32 percent of last year’s total earnings of NT$32.69 billion, with Taipei Fubon Bank and First Sino Bank together contributing NT$4.1 billion and Fubon Life Insurance Co adding NT$4.9 billion, company data showed.