1 / 37

Financial Industry and opportunities facing Investors

Financial Industry and opportunities facing Investors. 陳欽奇 國泰金控 專員 國泰證券 經理 北科大 兼任講師. 2005/10/27. Agenda. Global financials – cycle gets tougher Financials in Asia – year of the thoroughbreds Taiwan banking sector. Source: TEJ, CSFB. Global Financials. Cycle gets tougher.

beck
Download Presentation

Financial Industry and opportunities facing Investors

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Financial Industryand opportunities facingInvestors 陳欽奇 國泰金控 專員 國泰證券 經理 北科大 兼任講師 2005/10/27

  2. Agenda • Global financials – cycle gets tougher • Financials in Asia – year of the thoroughbreds • Taiwan banking sector Source: TEJ, CSFB

  3. Global Financials Cycle gets tougher

  4. Global Financials – Continuing Challenges • Industry rating has declined • Key Industry Challenges • Weaker revenue growth • Specialisation vs. diversification • Efficiency • Consolidation • Capital efficiency • Markets and risk • Risk Management, Basle 2

  5. Global (G7) Banks de-rating and focused on cash G7 Banks Dividend Yield G7 Banks Forward Price-earnings G7 Banks PE Relative to market PE G7 Banks dividend yield vs. market dividend yield Source: Thomson Financial Datastream, MSCI, CSFB Analysis

  6. Asia Banks are little different Asia Banks Dividend Yield Asia Banks Forward Price-earnings Asia Banks PE Relative to market PE Asia Banks dividend yield vs. market dividend yield Source: Thomson Financial Datastream, MSCI, CSFB Analysis

  7. Asia banks – no expectations of out-performance MSCI Asia Banks PE Relative to G7 Banks Source: Thomson Financial, MSCI, Company Data, CSFB Analysis

  8. Despite sharply improved returns • Asia banks are benefiting from: • Credit recoveries • Revived loan growth • Stable market structure • Balance competitive pressures • Diversifying revenues • Consumer oriented growth ROE Projections 2004-2006 Asia Banks Source: Company Data, CSFB Analysis

  9. Trends Driving Asia’s Growth

  10. Taiwan’s FHC and Banking Stick with consolidators

  11. Number of Financial Institutions in Taiwan

  12. Taiwan FHC – from 2001/07/09 • 14 FHCs • Reorganization • M&A happened continuously… • Divestitures ? • What next… • Will Government Policy success?

  13. Taiwan banking – consolidation inevitable Hirschman Herfindahl Index – Asia Banks HHI = s1^2 + s2^2 + s3^2 + ... + sn^2 (where sn is the market share of the ith firm).  Source: Central Bank Data, CSFB Analysis

  14. Why stick with acquirers? Top 20 banks in Taiwan Ranking Reuter's code Bank/FHC name Market share • Economics favor buyer (supply exceeds demand) • Current valuation • BV(P/B) • Adjusted BV(P/ABV) • Branch Value • P/E 1 Not listed Bank of Taiwan 9.2% 2 5854.TW Taiwan Cooperative Bank 7.5% 3 2886.TW Mega FHC (ICBC + Chiao Tung Bank) 7.0% 4 Not listed Land Bank of Taiwan 6.4% 5 2892.TW First FHC 5.6% 6 2880.TW Hua Nan FHC 5.5% 7 2801.TW Chang Hwa Bank 4.9% 8 2891.TW Chinatrust FHC 4.5% 9 2881.TW Fubon FHC 4.3% 10 2834.TW Taiwan Medium Business Bank 3.9% 11 2882.TW Cathay FHC 3.5% 12 2887.TW Taishin FHC 2.4% 13 2822.TW Farmers Bank 2.0% 14 2890.TW Sinopac Holdings 1.7% 15 2808.TW International Bank of Taipei 1.5% 16 Not listed Shanghai Commercial Bank 1.5% 17 2807.TW International Bank of Taipei 1.4% 18 2884.TW E Sun FHC 1.3% 19 2847.TW Ta Chong Bank 1.2% 20 Not listed Central Trust of China 1.0%

  15. Overview of Taiwan banking sector Source: Banking Bureau of FSC, CSFB

  16. Earnings cycle recovered Loan growth • Loan growth rebounded post tech bubble and credit crunch • Consumer loan growth remains healthy • Credit Card and Cash Card? Source: FSC, CSFB

  17. Consumer loans remain growth driver Loan breakdown (as of March 05) Non-mortgage loans: 13% • Non-mortgage consumer loans grew quickly to 13% of total loans (6% at end of 1999) • Consumer loans to GDP is rising quickly • Recovery in property prices support robust mortgage growth • Banks are under-taking more risks • Fast growth in cash card loans Loan breakdown (as of Dec 1999) Non-mortgage loans: 6% Source: FSC, DGBAS, CSFB

  18. Property prices have peaked and stabilized Taiwan property price index Residential property price index • Property prices peaked in 4Q05 and were broadly flat in 1Q05 • Transaction growth tapered off to 2% YoY in 1Q05 following +23% in 2002; 9% in 2003 (SARS) and 20% in 2004 • CSFB expects property prices to stabilize in 2005 Transaction volume of residential housing Source: Sinyi Realty; Department of Interior, Taiwan

  19. Cash card market Cash card loan balance and YoY growth • Cash card loans continued to grow +40% • Taishin Bank has been the most aggressive • Loss ratio for the market is closer to 8-9% • Market will further consolidate – large players have advantage Market share of top five cash card loans providers Cash card charge off ratio* Source: FSC *180-days past due plus charge offs

  20. Credit card market Credit card revolving balance and YoY growth • Growth has moderated but maintains at 15-20% • Net charge off ratio for top players are around 3-4% • Market structure is relatively stable Market share of top five credit card players – by revolving debts Credit card delinquency ratio Source: FSC

  21. Significant Growth Opportunity

  22. Credit crunch threat becoming real…?

  23. Margin: muted rate hikes cap expansion Net interest spread at domestic banks • Interest rate hikes have been muted (37.5 bps in 4Q04) • Strong NTD delays rate hikes • Competition remains fierce • Interest spread remains low Source: FSC, CSFB

  24. Margin: muted rate hikes cap expansion Taiwan banking system loan to deposit ratio • System loan to deposit ratio has stabilize • Deposit growth has been managed down due to aggressive sale of deposit substitute products (mutual funds, investment link life policies, etc) • Loan mix changes have so far been the key margin driver Loan growth vs. deposit growth Source: FSC, CSFB

  25. Loan growth and NIM changes 1Q05 loan growth of major banks • 1Q05 loan growth • Private sector banks tend to do better • Consumer loans grew stronger than corporate loans for most banks • 1Q05 margin • Changes in NIM is mostly a function of changes in loan mix • General pressure persist to lift margin • Interest rate movement remains the key driver NIM change from 1Q05 to 2004 Source: FSC, CSFB

  26. Non interest income: fee income Net fee income as % of total income • Wealth management initiatives led to strong fee income growth (+52% in 2004) • Low interest rates helped • Growth could moderate (consumer fatigue) • Fee income growth could vary greatly among banks Source: TEJ, CSFB

  27. Earnings drivers – credit loss NPL ratios • Asset quality has normalized • Provision charge fell to 100bps of loans in 2004 • Coverage ratio for the sector remains low • Credit loss will vary greatly among banks Provision charge to gross loans NPL ratio vs. coverage ratio Source: TEJ, CSFB

  28. Consumer loans: rising credit risk Consumer loans to GDP • Consumer loans to GDP likely to reach 57% by end of 2005 • Non-mortgage consumer loans grew to 17% of GDP • CSFB estimates debts servicing could rise to 15% of disposable income in 2005 • Regulators have stepped in to preempt systemic risk • Credit loss should rise Source: DGBAS, CSFB

  29. Operating efficiency Industry expense growth and efficiency ratio • Bank has managed expense growth reasonably well • Reduction of business tax in late 90’s helped • Bank reorganization affects cost structure (rising variable cost to link to top line growth) • Cost to income ratio post a gradual downward trend Cost to income ratio comparison Source: TEJ, CSFB

  30. Goals of Taiwan’s FIs Restructure • First Stage:In 2 years,NPL Ratio<5%,BIS Ratio>8% • Second Stage: • Developing at least three financial institutions with over 10% of market shares by the end of 2005. • Halving the number of banks with government ownership from 12 to 6 by the end of 2005. • Encouraging M&As to reduce the number of FHCs from 14 to 7. • Having at least one financial institution either managed by foreign institutions or listed in overseas markets by the end of 2006.

  31. Investment options:three pillars Quality,Scope and Scale

  32. Quality • NPL Ratio : <2.5% • Coverage Ratio : >40% • Profit +

  33. Scope • Business • Bank • Insurance • Security • Others… • Revenues • Interest • Fee • Investment

  34. Scale • Market Share • Asset • Product • Branch • Acquirer or Target ?

  35. Branch Value 調整後淨值/分行家數 每分行提存前稅前淨利 每分行淨利息及淨手續費 平均值=96.44 平均值=141.28

  36. Fundamental strategic thinking • A bank is a ‘leveraged’ play on the underlying economy, therefore the key challenge is to: • Select the better performing economies • Attract the most valuable clients in our chosen economies • Aims to produce a blend of earnings from: • Developed mature-growth economies • Developing higher-growth economies (considered on a risk-adjusted basis) • Leveraging internationality provides revenue generating and cost saving opportunities • Leveraging through our local presence the increasing trade and other links between developed and developing economies

  37. Conclusion • Global financials are facing tougher cycle • Strong will get stronger regionally • Bought growth and organic growth • Taiwan banking offer growth opportunities through M&A • Investment options:three pillars

More Related