台新金 / 新光金 / 永豐金 / 玉山金 / 兆豐金

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Taishin Financial Holdings (2887.TW 台新金)

IDRP broken rate increase manageable; reiterate Conviction Buy

Due to implementation of the CDSA (Consumer Debt Settlement Act) on Apr 11, 2008, both Taishin and Chinatrust Bank have seen the monthly broken rate for their IDRP loans rise slightly since April. Some investors are concerned that this could be an early sign of a broader negative impact from the CDSA and whether this may hinder new unsecured consumer loan formation growth, which has been on a rising trend in recent months.

Shin Kong Financial Holdings (2888.TW 新光金)

Undemanding valuation, but near-term earning uncertainty remains

Shin Kong FHC reported an un-audited net loss of NT$1.1bn in May 2008, the 7th consecutive loss-making month since Nov 07. In comparison, its major rival, Cathay FHC, turned into profit in April 2008. Shin Kong FHC indicates most losses were driven by domestic stock market investment losses, and marked-to-market losses for its offshore NDF (non-delivery forward) contracts. Year-to-date, ShinKong FHC has cumulatively made a NT$8.4bn net loss vs. NT$4.9bn net profit during the same period in 2007.

SinoPac Holdings (2890.TW 永豐金 )  NT$13.50

Senior management replacement - a good start to turnaround

SinoPac FHC announced senior management changes on Jun 16. (1) Mr. Sean Chen, the former Chairman of Taiwan Cooperative Bank (a.k.a. TCB, 5854.TW, NC) & KGI Securities (6008.TWO, NC), has been appointed Chairman; (2) Mr. McKinney Tsai, the former President of Mega FHC (2886.TW, Neutral) will resume Paul Lo’s position as the new President; (3) Mr. Show-Chung Ho, the key shareholder & current Chairman, will step down and become Honorary Chairman of SinoPac FHC.

 

E Sun FHC 2884 TT(玉山金)

From January to May 2008 new mortgage amount was down 27% y-y and foreclosure cases increased 12.5% in 2Q08.
Rising mortgage rate and tighter credit to home buyers are negative for housing market. We reaffirm out cautious view
on high mortgage loan exposure names. Retain REDUCE and target price of TWD15.80.

 

2Q: Foreclosure auction cases up 12.5%
Residential housing cooling fast: Mortgage is down and foreclosures are rising

As expected, the unavoidable interest rate increase to fight with inflation has resulted in tighter mortgage policy by banks. According to the data published by the Central Bank of Taiwan, total new mortgage amount for the first five months of 2008 was TWD 180b, down 27% y-y. (Exhibit 3-6) Foreclosure auction cases started picking up in 1Q08 and rose to 12.5% in 2Q08, while the average transaction price was decreasing. (Exhibit 1-2) This reaffirmed our concern; we believe the lenders are lowering foreclosure auction price with the expectation of further decrease in property value.

Our channel checks also suggest that banks have turned more cautious on valuating collaterals. Housing price pressure may come from foreclosure auction. Convertible bond investment by Morgan Stanley private equity arm According to E Sun, Morgan Stanley private equity will invest total USD200m in ECB, replacing Temasek as strategic alliance partner. We are slightly positive on Morgan Stanley investment but still concerned about E Sun’s competitive position in Taiwan banking environment. ECB term is 10 years with 2.3% coupon for the first five years and 0% coupon for the rest of the term. Conversion price set at TWD19, around 18-19% premium from current share price.

 

Reiterate REDUCE and TP TWD15.80
Reiterate REDUCE rating with TP of TWD15.80, based on 2008E P/BV 1.1x and 2008E P/E of 16x. E.Sun 1H08 preliminary net income TWD1.41b (or EPS 0.41) reaching 41% of BNPP 2008 forecast. 2Q08 Net Income also shows 28% q-q decline. We remain cautious on E Sun’s fundamentals as it has the highest exposure to mortgage (around 50%) in the Taiwan banking sector. We will watch NPL trend closely as we observed an increase in NPL in 1Q08, especially as E Sun’s 1Q08 provision expenses increased 45% q-q and 135% y-y.

zakk

Taishin Financial Holdings (2887.TW 台新金) 

Buy
May-08 data re-affirms potential consumer finance revival in 2H2008

What's changed
We recently took Taishin management to HK to meet 11 institutionalinvestors after its May-08 operating result release. The key highlights fromthe investor meetings include:

 

(1) Leapfrogged growth in new unsecuredconsumer loan formation

(2) NIM stabilized in May 2008 at 1.77% v.s. 1.78% in Apr.

(3) New initiatives to improve its deposit franchise

We slightly lower 2008E/09E/10E fully-diluted EPS by NT$0.07/NT$0.04/NT$0.04 to reflect the weaker-than-expected earning contribution fromCHB (2801.TW, Sell). We keep our 12-mo, SOTP-based TP at NT$19.5.

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Taishin FHC (2887.TW)

Sell: More Uncertainties on the Horizon

austin

Mega Financial Holdings 兆豐金

 

Not so defensive
Event
We downgrade Mega Financial Holdings to Underperform from Neutral.
Rising credit risk, a weak 2H08 operating environment, US subprime exposure and the Chinatrust overhang underlie our negative view. Given the poor outlook for profitability and downside risks, Mega’s stock should trade at trough-level valuations.

Impact
Macquarie vs consensus. Our revised forecast is the lowest on the street and 17% below the consensus mean for 2008E. We believe that consensus is set to fall given the group’s tepid 1H08 earnings. We also think that the risk is to the downside, as the new senior management may decide to provision more aggressively on items such as NPLs and US subprime in audited 2Q results. We would see this as positive given the increased future earnings certainty.

Credit risks on the rise. A weakening macro environment for Taiwan, Inc. has increased the risks of higher credit costs over the next 6–12 months, in our view. We believe that Mega is far from defensive given what we perceive to be a higher risk loan portfolio than peers. A negative outlook for earnings puts the dividend yield at risk. For background on our credit risk concerns, please see our financials sector notes of 8 July titled SMEs: Clouds on the horizon and of 23 July titled Construction lending: Hard hats required. 

 

US subprime hasn’t disappeared. Mega still holds CDOs and other structured credit assets that it values at about NT$17bn or NT$12bn net of provisions as of end-June. We do not have much faith in the model-based valuations put on these assets. Underlying US subprime securities account for NT$6.6bn net of provisions. Total losses to date equal 45% of peak-level subprime assets of NT$10.1bn.

Earnings revision 

We cut our earnings by 13% for 2008E, 18% for 2009E and 11% for 2010E.

Price catalyst
12-month price target: NT$19.00 based on a Price to Book methodology.

Catalyst: Credit costs, US subprime losses, Chinatrust overhang.

Action and recommendation
Downgrade to Underperform. We set our target price at Mega’s trough level valuation. The group does not appear to be well positioned for an economic slowdown and we anticipate higher credit costs from SME and other corporate borrowers in the next 6–12 months. We have little faith in Mega’s modelbased valuations for its US subprime assets, and the Chinatrust (2891 TT, NT$25, Underperform, TP: NT$20.07) stake remains an overhang. We think dividend is at risk and that Mega is far from a defensive stock.

We are Underweight the Taiwan financials. We prefer First FHC (2892 TT, NT$29.45, Outperform, TP: NT$40) but admit that the valuation gap has widened.

austin

Shin Kong Financial Holdings (2888.TW)
Buy

 

N/T dilutive re-cap unlikely; still traded at 33% discount to EV; Buy

 

What's changed
ShinKong Life has successfully auctioned off two pieces of land located in prime areas of Taipei City, for which it will recognize a NT$3.2bn pre-tax profit in 3Q2008. In addition, it will receive c.NT$3bn cash dividend in 3Q08 from its domestic stock investments. Therefore, we expect net earnings will likely turn positive in 3Q2008, after 8-months of consecutive losses.

Implications
One prevailing concern investors have on ShinKong FHC is potential recapitalization risk in 2H2008, should it continue to suffer large losses from proxy hedge, CDO/CBO investment, and equity market losses. However, we believe the risk of dilutive re-cap is overdone, because: (1) Further book value erosion in 3Q2008 unlikely: We estimate the land disposal gain and cash dividend income in 3Q2008 can help boost ShinKong Life’s capital base by c. NT$5.0bn, or 9.4% of its 1Q2008 equity base, which provides some buffer for ShinKong Life, should it continue to suffer investment losses from equity/Forex markets; (2) NT$10bn non-dilutive preferred shares: Life insurers are allowed to conditionally include non-convertible preferred shares in their qualified capital when calculating capital adequacy (e.g., Risk-based capital ratio).

 

Even if ShinKong Life suffers unexpected investment losses in 2H2008, it could issue NT$10bn non-convertible preferred shares (as discussed on the December analyst call) to boost its capital base without doing a dilutive re-capitalization.

Valuation
We reiterate our Buy rating on ShinKong with 12-m, SOTP-based TP of NT$23. It now trades at 0.8X 2009E P/B and 0.7X 2009E P/EV, implying 35% upside.

 

Key risks
Severe investment loss resulting from weak stock market performance and sharp NT$ appreciation.

austin

Mega Holdings 兆豐金
Downgrading to Equal-weight

 

Investment conclusion: Our prior thesis to Overweight Mega for an expected revival in the domestic corporate lending business amid credit tightening in China is complicated by the macro slowdown and recent market concerns over potential corporate asset quality
deterioration. While management has indicated little deterioration in the underlying credit quality, three corporates that have recently become distressed are enough warning for us that a pickup in corporate NPLs is inevitable. Being the largest corporate bank in Taiwan, we believe Mega is clearly in a more vulnerable position than many of its peers. We suggest investors trim positions into the recent relative strength (outperforming Taiex by 3% since end-June and 30% YTD) and downgrade our rating on Mega to Equal-weight.

With the Prodisc incident yesterday, which follows on the Everskill and Kolin corporate defaults in late June, we think it is necessary to factor in higher credit cost for 2H08/2009. We now model a doubling in loan provision for corporate loans – including large corporates and SME loans – to 60 bps and 100 bps, respectively in 2009e. This will bring total provision expense estimate to ~80 bps of total loans in 2009, compared with our estimate of 48 bps in 2008e. On the back of these higher credit cost assumptions, our 2008 and 2009 EPS estimates fall by 6% and 15%, respectively, to NT$1.13 and NT$1.43. Our PT falls to NT$21.80 from NT$23.50.

What's new: Concerns about corporate loan asset quality have been reignited following another corporate stress, Prodisc, on August 4. Mega has an NT$800 mn loan exposure to the company with full collateral against its exposure. This is the third corporate default, since Everskill in late June (Mega has limited exposure of NT$50 mn) and Kolin (Mega has NT$500 mn exposure, of which 50% is secured by property and machinery).

 

Sinopac Financial Holdings

 

2Q results: A partial bath
Event
Sinopac held its 2Q08 investor conference this afternoon. We maintain our Outperform given valuations and our view that the bank should return to profitability in 2H08 as most of the SIVs have been written off. But we cut our earnings forecast on a much-reduced outlook for brokerage earnings, and believe that investors should not rush to chase today’s limit-up performance.

Impact
Macq vs consensus. Our new 2008 net income forecasts are the lowest on the Street. We are below the consensus by 17% for 2009 and 11% for 2010. We see Sinopac as a simple trade on a reversion from losses in 1H08 to profitability in 2H08. We do not see the stock as a fundamental value play given our negative macro view on the Taiwan banks, but rather as a punt on valuations that appear cheap relative to the historical P/BV trading band.

 

2Q preliminary results rundown. Sinopac reported a 1H08 preliminary net loss of NT$1.2bn, implying a 2Q08 gain of NT$740m. Bank Sinopac’s 1H loss of NT$1.8bn, driven by net SIV writedowns of NT$3.1bn, was the key drag on 1H08 earnings. Sinopac Securities, which has bolstered group level earnings since the IBT merger in 2005, posted dismal 1H08 results with preliminary net income of just NT$101m.

Structured fixed income losses should be in the past… Sinopac has provisioned US$290m or 83% of its peak level SIV exposure and another US$18m or 57% of its peak level CDO exposure. While there could be some residual pain from these assets, we believe further losses should be minimal.

 

…But no big bath for loan asset quality. The new CEO did not provision as aggressively as some expected in 2Q08 results. NPLs of 1.66% are above the 1.5% target and coverage of 58% is below the 60% target. We don’t think either number is sufficient to cause panic, but we are concerned about rising credit costs across the sector in 2H08 and beyond given a poor macro outlook. We conservatively forecast 2008E full-year income of NT$569m for Bank Sinopac.

 

Earnings revision
Cut 2008 earnings by 53% after slashing our expectations for the brokerage subsidiary. We also cut 2009E by 20% and 2010E by 11%. Additionally, we cut our price target from NT$16.97 to NT$14.05.

 

Price catalyst
12-month price target: NT$14.05 based on a Price to Book methodology.

Catalyst: Return to profitability in 2H08, valuations.

Action and recommendation
Maintain Outperform as a trade on valuations and a return to profitability in 2H08. However, we heard nothing in the conference that would justify today’s limit-up stock price performance. Thus, we suggest that investors wait for a better entry opportunity after earnings downgrades or more negative news flow.

zakk

永豐金 - Citi、HSBC

 

Citi：Sinopac FHC (2890.TW)

Buy: New Management, Old Problems; Lowering EPS
 Another transition year — Maintaining our Buy/Low risk (1L) rating on attractive valuations trading at 0.9x 2009E P/B. New management targetting to grow ROE by focusing on the corporate side and cutting cost, but investors will likely maintain a skeptical view. Future upside depends on ROE performance and possibility of it becoming an acquisition target if returns do not improve.
 Better 2Q08, but still tough — Sinopac reported 2Q08 profits of NT$740m, reversing a NT$2bn net loss in 1Q08. Operating income at the bank down 7% QoQ, as NIMs continue to slide 4bps to 1.33% in 2Q08. Credit cost stable at 42bps, but note improvements in NPL ratio to 1.66% and LLR coverage to 58%. We are lowering our 2008E EPS due to SIV losses to date and make a 5- 15% downward adjustment to 2009-10E, consequently trimming our target price to NT$15.75, still based on 1.2x P/B but roll forward to 2009E.
 Reversing some SIV losses — The company announced a NT$143m reversal of impairment losses related to SIVs in 2Q08, with pre-tax losses on SIV and subprime declining to NT$3.98bn in 1H08 from NT$4.13bn in 1Q08. At 2Q08, it has already provided for 83% of its US$350m SIV and 56% of its US$32m CDO exposure. We estimate another NT$2.3bn pre-tax hit assuming 100% write-off.
 Changing strategy on FENB? — Management is still targetting to sell FENB at 2.5x P/B, but indicated it may decide to shelve plans depending on synergies with its regional strategy. Given global market weakness, we expect it will not be easy to attract a buyer for this asset. However, its planned NT$10bn preferred share sale should give it flexibility in timing a sale.

 

HSBC：SinoPac FHC (2890)

Upgrade to N: Clearer future roadmap was outlined
  1H08 results dipped into red on the back of TWD4bn impairments in CDO/SIV and 38% lower PPOP in BSP
  Credit quality has continued to improve and the new management presented a clearer picture for the future
  Cut 2008 earnings forecast by 55% on weak investment returns; maintain TP at TWD12.80 and upgrade to Neutral

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Mega Financial Holdings (2886.TW 兆豐金 ) NT$19.75

Mega reported an unaudited net loss of NT$1.2bn in July, pushing down 7M08 net profit to NT$3.5bn (v.s NT$11.0bn in 7M07), after recognizing an additional NT$3.05bn impairment loss following the recent downgrade of its CBOs by credit rating agencies. The company said no defaults had occurred on these products so far.

zakk

Citi：Taiwan Financials
Prefer Insurers over Banks in the Short Term
 Looking for ST trade opportunities? — Within the financials space, we expect
short-term market trends to favor insurers over banks. While we expect
insurance companies to see an immediate benefit from markets bouncing and
US$ strength, we fear banks will likely face a tough operating environment.
 Time to revisit insurers — We expect insurers are leveraged proxies to a
recovery in markets and we see incremental improvements in earnings into
3Q08. With the recent rebound in the US$, we expect FX and hedging
expenses to slow down even more significantly, and we could even see FX
gains. In addition to reversing MTM losses on investments as markets bounce,
we also reiterate that cash dividend income provides a seasonal push to
earnings into 3Q08.
 Banks are cheap, but 2H08 outlook more challenging — We expect banks to be
better beneficiaries of improved cross-strait and reform, but initial indications
from 2Q08 analyst briefings suggest the sector is already starting to feel
headwinds on NIM as monetary tightening pressures funding cost up and on
wealth management amid tighter regulatory oversight and weak investment
climate. Although we could see some relief as inflationary pressure eases into
2H08, positive impact may not reflect until 4Q08 or 1Q09 at the earliest.
 Sector strategy: go for best franchises — With sector P/B valuations back to
pre-election levels, we continue to see companies with the best franchises
entering bargain-hunt territory. Among the insurers, we like Cathay with the
stock trading at the low end of its historic range at 1.1x 1-year forward P/EV,
but Shin Kong provides a higher beta play trading at 0.6x 1-year forward P/EV.
We also look at Fubon, given sizeable exposure to insurance and broking.
Among the banks, we still like Chinatrust, given its strong franchise and
attractive valuations; however, tough operating results will be an overhang in
the short term.

 

Citi：Taishin FHC (2887.TW)
Sell: Recovery Still Disappointing in 2Q08; Lowering Target
 Maintain Sell/Medium Risk (3M) — We still expect uncertainties on CHB and
challenging fundamentals will cap upside, despite cheap valuations. Although
PPOP continued to rebound in 2Q08 on Visa/MC IPO gains, rising pressures on
revenues pose risks to a recovery into 2H08. We are lowering our target price
to NT$11.50, lowering our fair value P/B to 0.9x, but roll forward to 2009E.
 Too early to call a consumer recovery — Wealth management initiatives slowed
in 2Q08 with fees down 19% qoq, on weak investment climate. NIM still soft,
down 2bps qoq to 1.75%, but pressure could ease into 2H08 as high cost
deposit program expires. Credit cost rise to 50bps, but resulting to NPL down
to 1.65% and LLR coverage up to 69% in 2Q08. Given disappointing scope of
recovery thus far and risks to the consumer, we lower EPS for 2008-10E.
 Chang Hwa + fund raising plans = more overhang — Outside of weak
fundamentals, we see more challenges ahead for the company given: [1]
valuation gap vs. CHB has widened reducing its ability to pay for a deal, with
current prices implying a share swap ratio of 1.7:1.0 vs. its initial offer of
1.3:1.0 and [2] Taishin’s plans to raise 1.2bn new shares confirm its inability
to improve ROE above COE without a dilutive capital raising exercise.
 Risks to our view — Stock valuations at 1x 1-year forward P/B and QFII
ownership at 20% (ex-foreign strategic investors) seem to have reached a floor.
However, we expect the stock could also lag its peers on the upside on a lack
of specific catalysts. We look to revisit our view on more clarity with CHB
and/or a more sustainable recovery in operating fundamentals.

 

 

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Taishin Financial Holdings (2887.TW 台新金)

Taishin unveiled more details of its 2Q08 operating result. Key highlights include (1) Relatively stabilized NIM with 2bps qoq decline vs. 20+ bps qoq drop in the past quarters; (2) Asset quality improvement; NPL ratio declined from 1.81% in 1Q08 to 1.65% in 2Q08; coverage ratio rose to 69% from 60%. The IDRP monthly broken rate dropped back to normalized level in June after spike-up in Apr/May due to the personal bankruptcy law implementation. (3) Steady growth in good-book unsecured consumer loans; newly acquired loans in this area amounted to NT$2.9bn in 2Q08 vs NT$1.8bn in 1Q08 & NT$1.1bn in 2Q07; However, (4) WM fee income dropped 20% qoq but remains flat yoy on back of customers’ risk-averse mindset under the increasing market volatility and also the government’s stricter restriction on structured notes sales.

zakk

Citi：Shin Kong Financial Holding (2888.TW) 新光金
Buy: P/EV at Floor & Bad News Appears to Be Bottoming in 2Q08
 Deep discount on P/EV — Stock trading at 0.7x P/EV, as it remains a leveraged
play on markets. Results thus far into 2Q08 have been dismal taking into
account lower investment yield on FX losses and hits on its investment
portfolio. Maintain Buy (1M), but reduce target price to NT$29 on lower 2008E
EPS forecast, still based on mid-cycle P/EV valuations.
 Investment MTM losses drag 2Q08 — Although forex and hedging costs and
CDO/CBO losses tapered qoq, MTM losses on investment portfolio dragged
performance in 2Q08. Assuming corporate CDO and rated CBOs continue to
hold their value, we think write-offs should decelerate with exposure to ABS
CDO and sub-prime down to NT$5.6bn. We are cutting 2008E EPS on losses
thus far and lower investment yield forecast, but still keep 2009-10E steady.
 Better results into 3Q08 — With NT$3bn cash dividend income expected and
another NT$3.2bn in one-off gains from asset sales, Shin Kong should see an
incremental improvement in earnings into 3Q08. This will also be supported by
improvements in FX and hedging expenses following recent US$ rebound and
potential reversal of MTM losses on its investment portfolio if markets bounce.
 Slowdown in FYP is a risk — Beyond better earnings trends over the next three
months, softening FYP trends could be a risk over a longer period. Sales of
investment-linked products have already started to slow down 37% qoq and
flat yoy in 2Q08, amid weak investment climate and increased regulation. Sales
of VUL products could recover if markets stabilize, but difficult to see that
happening in 2H08 under the current environment.

 

austin

E.Sun Financial Holdings 2884 玉山金

Sundown

Event
We maintain a Neutral rating, having rather obviously missed the stock’s downturn in the past several months. E.Sun could be prone to many of the negative macro trends confronting Taiwanese banks. We like the management but fail to see how this small institution can deliver shareholder value over the long term.

 

Action and recommendation
We see no reason to own this small bank in an industry down-cycle. We maintain our Underweight stance on the Taiwan banks and suggest that investors who have to be in the sector stick to big-cap names like Cathay (2882 TT, NT$58, OP, TP: NT$98) and First Financial (2892 TT, NT$22, OP, TP: NT$26). We believe it will remain difficult for E.Sun to compete profitably with the larger banks given a higher cost base in this fragmented and commoditized sector.

We believe that delivering a high sustainable ROE would make us change our minds, but this could be tough. We believe E.Sun might make an attractive target for a foreign commercial bank looking to tap Taiwan’s wealth management revenues, but we do not believe the bank will be put up for sale within the next several years, if ever.

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Mega Financial Holdings (2886.TW 兆豐金 )
More negatives likely from rising credit cost and CBO/RMBS loss

We lower our 08E/09E/10E net earnings by 49%/43%/20% to reflect
CDO/CBO/RMBS investment loss and to factor in loss from Mega
Securities. We cut our 12-m SOTP-based TP to NT$19 (1.13X 09E P/B) from
NT$22. We believe a better entry level would be below NT$16 (0.9X ’09E
P/B, which is its trough valuation in 2001 before the FHC was formed).

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Shin Kong Financial Holdings (2888.TW 新光金)
Re-cap announced; higher beta implies more risk, D/G to Neutral

In response to its below-legal-floor FHC capital adequacy ratio (CAR),
ShinKong announced on Sep 9 an NT$8bn capital raising plan via a private
placement to an undisclosed foreign strategic investor. In our view, this signals it
lacks sufficient buffer to weather through rainy days, although the risk of timeconsuming
right issue is removed. But we think book value erosion risk remains
given the poor stock mkt performance. Downgrade to Neutral from Buy & cut
12m SOTP-based TP to NT$16.5 from NT$21.9. The stock price declined 11.7%
(vs. –12.1% for TWSE) since we upgraded it to Buy on July 23, due to the weak
equity mkt sentiment (last 12m: ShinKong –46% vs. TWSE –29%).

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Shin Kong Financial Holdings (2888.TW 新光金)
Strategic Investor Is Positive News

Investment conclusion: Shin Kong’s announcement of
moves to improve its capital position is another positive
after the US government’s move to put Fannie Mae and
Freddie Mac into conservatorship.

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Mega Financial Holdings (2886.TW 兆豐金 )
Outlook murky, lower TP to TWD15.60

• Mega absorbs TWD1.9b Lehman asset-backed commercial paper from its trust subsidiary. Credit outlook downgraded.
• Run for quality: Mega-managed Diamond bond fund AUM dropped to TWD5b from TWD36.6b within days (87% drop).
• Cautious on Mega on risk management and corporate governance concerns. TP cut to TWD15.60. HOLD.

zakk

Morgan Stanley：Taishin Financial Holdings (2887 TT)

Technical Rebound Likely but Concerns Remain

Quick Comment: Being the worst performer YTD
(underperformed Taiex by 35%); it is possible that
Taishin could see a rebound on the back of the
government’s move to temporarily guarantee all
deposits. We need to wait and see if this change will be
effective to prevent further deposit loss at Taishin.

austin

E. Sun Financial Holdings Co. Ltd.

Undemanding valuation,upgrade to Neutral

 

Need to strengthen long-term competitiveness
ESUN is relatively stronger in wealth management and mortgage businesses but is still lagging in corporate banking. Smaller FHCs or banks like EUSN face more difficulty in becoming customers’ primary banks; thus, their ROE improvement is correspondingly slower. We believe if ESUN were to consider a tie-up with a major FHC or regional bank for balance sheet backup, it would go a long way to enhance its long-term competitiveness.

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Shin Kong Financial Holding (2888.TW) 新光金
Downgrade to Sell: Deep Value Matters Less than Leverage

Limited upside — We downgrade to Sell/High risk (3H) from Buy/Medium risk
(1M) and lowering our target to NT$8, based on SOTP pricing life at a 40%
discount to EV and pricing in even probabilities of a 0%, 25%, 50%, 75%, and
100% write-off on all CDO and CBOs amounting to NT$58bn. Despite deep
value, we see limited upside for the stock as long as markets stay choppy.

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Mega FHC (2886.TW) 兆豐金
Downgrade to Sell: Dividends are Not Enough Support

Downgrade to Sell/Medium risk (3M) — We are lowering our target price to
NT$10, based 0.6x 2009E P/B. After a tough performance so far this year, we
expect earnings and consequently returns will remain under pressure on
investment losses and higher credit costs through 2009E. As such, despite an
historic cash dividend payout, we see limited upside for the stock.