J.P. 摩根-亚太地区-金融业-台湾金融业行业策略-2019.4-60页.pdf

See the end pages of this presentation for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.Asia Pacific Equity ResearchApril 2019Taiwan FinancialsJemmy HuangACJ.P.Morgan Securities(Taiwan)LimitedTelephone:(886)2-2725-9870Email:Leo WengJ.P.Morgan Securities(Asia Pacific)LimitedTelephone:(852)2800-8511Email:Katherine LeiJ.P.Morgan Securities(Asia Pacific)LimitedTelephone:(852)2800-8552Email:2Source:Company data,Bloomberg and J.P.Morgan estimates.Valuation9-Apr-19Mkt CapPTRatingP/EP/BROEDVD yieldBanksTickerPrice(NT$)US$mnNT$19E20E19E20E19E20E19EE.Sun2884 TT24.00 8,427 22.5 N12.9 11.7 1.5 1.4 12.1%12.4%3.5%CTBC2891 TT20.75 13,120 23.9 OW9.9 9.0 1.3 1.2 12.9%13.2%5.8%Mega2886 TT28.20 12,436 27.3 N12.7 11.9 1.2 1.2 9.5%9.9%5.9%Yuanta2885 TT17.80 6,746 18.6 OW10.0 9.3 0.9 0.9 9.3%9.5%5.0%First2892 TT21.25 8,502 17.6 N12.8 11.5 1.2 1.1 9.6%10.2%4.7%Taishin2887 TT14.25 5,193 14.1 N10.1 8.9 1.0 0.9 10.3%10.9%3.9%Sinopac2890 TT11.55 4,221 10.0 N11.6 10.5 0.9 0.8 7.5%8.1%5.2%Hua Nan2880 TT19.25 7,207 14.2 UW14.6 14.0 1.2 1.2 8.6%8.5%3.1%InsurersCathay2882 TT44.30 18,046 50.0 N10.6 8.8 1.0 1.0 9.2%10.7%4.4%Fubon2881 TT45.75 15,184 54.0 OW8.8 7.6 1.1 1.0 12.3%12.8%4.9%China Life2823 TT25.55 3,325 32.0 N10.0 8.9 1.3 1.2 13.4%13.6%3.0%Shinkong2888 TT8.72 3,467 10.0 N11.5 7.4 0.6 0.5 4.9%7.2%2.2%LeasingChailease5871 TT133.00 5,561 120.0OW11.7 10.3 2.4 2.1 22.1%22.0%4.1%3Banks over insurance for 1H19Limited upside to consensus earnings given moderating macro outlook Flattish NIM outlook given nil likelihood of domestic rate hikes Modest earnings growth in FY19 still achievable due to lower base in 4Q18 and without imminent asset quality risks Sequential increase in DPS and/or cash payout ratios Challenging operating performance in 1H19 due to lower trading gains&dividends Pressure on hedging and capital is better than feared Shift from regulatory tailwinds toward headwinds Muted earnings upside but attractive dividend yields Remaining decent portfolio growth with stable asset quality but in the priceCTBC/Yuanta/FubonExecutive summaryBanks Insurance Top Picks BrokerageLeasing4Executive summaryTaiwan Banks:dividend plays to outperform on moderate earningsCTBC(2891 TT,PT:NT$23.9)Sequential NIM improvement and fee income growth at CTBC Bank Improving recurring yields and less currency mismatches at Taiwan Life Superior dividend yields of 5%Current valuation of 1.1x P/B is undemanding given 13-14%ROE outlookYuanta(2885 TT,PT:NT$18.6)Successful merger of Ta Chong Bank,earnings contribution over 50%from banking operations Stable securities operations with diversification on revenue&geography Current valuation of 0.9x P/B is undemanding given 9-10%ROE outlookTop Picks 5PPOP Improving loan growth in line with expectationSystem loan growth in TaiwanSource:TEJ,National Statistics of Taiwan,Bloomberg and J.P.Morgan.Corporate loan growth vs Nominal GDPCorporate loan growth in Jan 19 by industrySource:National Statistics,Bloomberg,and J.P.Morgan.Source:National Statistics of Taiwan and J.P.Morgan.Sector loan growth trended up to 5.5%as of 4Q18 from 4.6%in 3Q18,slightly head of our expectation of 5%for FY18.Corporate loan growth has been driven by financial,utility,and real estate sectors,which should be driven by the recovering of macro-economic condition Mortgage growth has slightly picked up to 5%by 4Q18 along with modest recovery of property market transactions and is unlikely to be a meaningful driver for loan growth in the near futureWith moderating GDP growth outlook(JPMe:1.5%for FY19E vs.2.6%for FY18),we expect slower loan growth in FY19E,with upside hinged on the progress of infrastructure construction and production relocation by corporates6PPOP FCY/offshore lending remains the focusLoan growth YoY by region Source:As of Dec 18-Central Bank in Taiwan,FSC,and J.P.Morgan.FX,SME and total corporate loans,YoYLDR FX vs NTDSource:Central Bank in Taiwan,TEJ and J.P.Morgan.Source:Central Bank in Taiwan,TEJ and J.P.Morgan.Growth momentum at FCY loans remains steady at 7%as of 4Q18 after decent growth in the previous two quarters(10%/12%YoY in 3Q/2Q18);the key driver is overseas branches,while momentum at OBU has recovered from the low base dragged by tightening AML rules previously Growth at SME lending has been stable but lower risk appetites at banks suggest limited upside potential in the near termsTWD LDR stays at 79-80%and digesting excess liquidity remains an issue.LDR at FCY lending remains low,although banks can drive up NIM via deploying deposits into fixed-income investments and currency swaps.However,rising funding cost in USD in 4Q18 did result in some pressure on NIM at individual banks7Quarterly NIM migrationTAIFX and USD interbank rates in ChinaSource:Company data and J.P.Morgan estimates.Source:CEIC and J.P.Morgan.PPOP Limited upside surprises on NIM given nil chance of domestic rate hikesNIM on average was down 2-3bps QoQ in 4Q18 on both reported basis and if adjusted for swaps activities,based on our estimatesFED rate hikes in the past few quarters have translated into rising USD interbank rates in the greater China region,which have benefitted margins at FCY portfolioeither reflected in NIM or treasury income in FY18USD denominated assets only account for 20-25%of total AIEA so the key driver for NIM remains domestic rate hikes.However,we see almost no chance for domestic rate hike in FY19 given declining GDP growth outlook,manageable inflation pressure,while no further US rate hike suggests receding risks of capital outflow and thus less uncertainty for the CBC to manage FX ratesNIMSource:Central Bank in Taiwan,FSC,and J.P.Morgan.2Q173Q174Q171Q182Q183Q184Q18Cathay1.18%1.20%1.22%1.24%1.26%1.27%1.22%Fubon0.98%0.99%1.00%1.06%0.97%1.05%1.00%Shinkong1.57%1.55%1.58%1.55%1.57%1.53%1.52%ESun1.35%1.35%1.34%1.35%1.36%1.36%1.36%Mega1.16%1.12%1.12%1.16%1.21%1.22%1.15%First1.27%1.24%1.24%1.22%1.21%1.17%1.15%Chinatrust1.42%1.47%1.49%1.48%1.49%1.50%1.54%Taishin1.39%1.38%1.35%1.35%1.33%1.34%1.30%Sinopac1.10%1.08%1.09%1.11%1.10%1.12%1.07%Hua Nan0.99%1.00%1.01%1.03%1.01%0.95%0.93%8PPOP NIM sensitivity to TWD and USD ratesSensitivity for every 12.5bps TWD rate hikesSource:Company data and J.P.Morgan estimatesSensitivity for every 25bps USD rate hikesSource:Company data and J.P.Morgan estimates9Increasing contribution from bancassurance feesFee income growthSource:Company data and J.P.Morgan estimatesNote:Fee income growth of Yuanta FHC was on pro forma basisSource:Bloomberg and J.P.Morgan.PPOP WM fee likely to grow in FY19 given weaker than expected FY18Fee income growth ended up with only 2%YoY in FY18 vs.-3%in FY17 backed by recovering WM fees,up 4%YoY in FY18 from-4%in FY17Recovering WM fees has been underpinned by normalization of bancassurance fee charges and decent flows at both mutual funds and bancassurance but momentum has peaked in 1Q18Credit card consumption registered steady growth and could be supported by increasing mobile payment vehicles but fee income growth may still be lower than consumption growth due to heavy promotion/marketingBanks in general are guiding for YoY growth at total/WM fees given more stable equity market condition,but momentum in 1H19 could be sluggish due to the high base in 1Q18WM fee in FY16,FY17 and FY18Source:Company data and J.P.Morgan estimates.10Asset quality normalizing credit costs at corporate loan bookEffective credit costs by individual banks(in bps)Source:Company data and J.P.Morgan estimates.Sector NPL ratio&coverage ratioSector new NPL formation remains low Source:Company data,TEJ and J.P.Morgan.Source:CBC,FSC,and J.P.Morgan estimates.*Note:new NPL influx includes recoverySector NPL ratio and coverage ratio are 0.24%and 575%respectively as of 4Q18,improved from the level of 0.28%/493%as of 4Q17.Impaired loan ratios under IFRS9 have also been declining YoY due to more aggressive write-offs by banksContinued focus on FCY/offshore lending could result in higher credit costs at corporate loan book in the medium term.NPL ratios at mortgages have been higher compared to the past due to declining property prices but effective credit costs remain nil Mega and Cathay have the lowest NPL ratios while Sinopac has the lowest impaired loan ratios.Banks are guiding for stable asset quality outlook but individual corporate defaults would be the swing factors2Q173Q174Q171Q182Q183Q184Q18Cathay-0.26%0.16%0.44%0.12%0.28%0.21%0.69%Fubon0.20%0.09%0.35%0.00%0.10%-0.01%0.12%Shinkong0.44%0.46%0.48%0.27%0.27%0.26%0.29%E.Sun0.42%0.34%0.36%0.21%0.24%0.26%0.30%Mega0.12%0.18%0.59%0.05%0.08%0.21%0.11%First0.02%0.19%1.41%0.32%0.33%0.37%0.31%Chinatrust0.19%0.24%0.15%0.07%0.30%0.20%0.25%Taishin0.12%0.34%0.28%0.26%0.24%0.33%0.45%Sinopac0.13%0.06%0.31%-0.02%0.05%0.08%0.22%Hua Nan0.17%0.25%0.55%0.25%0.15%0.19%0.24%Sector0.12%0.21%0.49%0.15%0.20%0.21%0.30%11Asset quality credit costs at corporate loans to gradually normalize NPL ratios by geography Reported NPL ratiosSource:Company data and J.P.Morgan.Source:FSC and J.P.Morgan.NPL coverage ratiosImpaired loan ratios under IFRS9Source:Company data and J.P.Morgan.Source:Company data,TEJ and J.P.Morgan.-0.10 0.20 0.30 0.40 0.50 0.60DBUOBUOverseasChina branch201520162017201812Asset quality NPL ratios are stable at major lending segmentsCorporate NPL ratio and balanceSME NPL ratio and balanceSource:Company data,TEJ and J.P.Morgan.Source:FSC and J.P.Morgan.Mortgage NPL ratio and balanceUnsecured personal lending NPL ratio and balanceSource:Company data,TEJ and J.P.Morgan.Source:Company data,TEJ and J.P.Morgan.13Bank CET1&Tier 1 ratios 4Q18FHC CAR 4Q18Source:Company data and J.P.Morgan Source:Company data and J.P.Morgan.FHC double-leverageratio Jan 19Debt/equity ratio 4Q18Source:Company data,TEJ and J.P.Morgan.Source:Company data,TEJ and J.P.Morgan.Capital Basel III requirements are not strict in Taiwan;FHC DLR is more critical for dividends14Capital FHCs have been leveraging on preferred equities for capital enhancementDateCompany#of shares(m)Issuing price(NT$)Total size(NT$m)Coupon ratesKey termsMar-16Fubon600.06036,0004.1%(7-year IRS of 0.885%+3.215%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsNov-16Cathay833.36049,9983.8%(7-year IRS of 1.06%+2.74%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsNov-16Taishin500.05025,0004.75%(7-year IRS of 1.2175%+3.5325%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsOct-17CTBC333.36020,0003.75%(7-year IRS of 1.0825%+2.6675%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsNov-17Fubon666.76040,0003.6%(7-year IRS of 1.17%+2.43%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsJun-18Cathay700.06042,0003.55%(7-year IRS of 1.1675%+2.3825%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsSep-18Taishin300.05015,0003.8%(7-year IRS of 1.1%+2.7%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsDec-18CTBC166.76010,0003.2%(7-year IRS of 0.99%+2.21%)Non-cumulative,non-convertible,no voting rights,perpetual but callable after 7 yearsSource:Company data,J.P.Morgan.15Overseas M&As encouraged by regulators Source:Company data,Bloomberg and J.P.Morgan.Announce DateTarget NameCountryDeal size(USD mn)CathayMay-17Bank of Nova Scotia BerhadMalaysia255.0Feb-15Horizon Securities Hong Kong LtdHK5.2Jan-15Bank Mayapada International Tbk PTIndonesia278.8Dec-14Rizal Commercial Banking Corp Philippines401Nov-14Conning Holdings Corp HK240CTBCMar-16LH Financial GroupThailand488.4Dec-13Tokyo Star Bank LtdJapan538.2E.SunJan-17Union Commercial Bank PlcCambodia42.5Mar-13Union Commercial Bank PlcCambodia69.3FubonApr-18Hyundai Life Insurance Co South Korea221.4Dec-17Hyundai Life Insurance Co South Korea133.4May-16Fubon Bank ChinaChina322.1Jan-16China Insurance Co LtdChina67.8Jun-15CITIC Capital Holdings LtdChina228.8Jun-15Hyundai Life Insurance Co LtdSouth Korea200.2YuantaDec-17The First Securities Joint Stock CompanyVietnam15.0Apr-16KKTRADE Securities Co LtdThailand19.56Aug-15Hanshin Mutual Savings BankSouth Korea113.1Jul-15Tongyang Savings Bank IncPhilippines10.9Sep-14AmCapital Indonesia PTIndonesia6.6Feb-14Yuanta Securities Korea Co LtdSouth Korea257.1SinopacOct-15Tung Shing Holdings Company LimitedHK75.0CDFHCDec-15PT Hasta Dana Sekuritas IndonesiaIndonesia6Dec-14Alpha Global Asset Management LtdHK1Aug-14KGI Fraser Securities Pte LtdSingapore33.9May-14TG Holborn HK LtdHK1.1Nov-13Ong First Tradition Pte LtdSingapore3916Financial Development Action Plan unlikely to be a game changerSource:FSC,J.P.Morgan.17Domestic RMB businesses deposit pool is small and limited chance for material growthRMB deposits in Taiwan(RMB billion)Source:TEJ,National Statistics of Taiwan,Bloomberg and J.P.Morgan.RMB LDRDeposits in Taiwan YoYSource:Central Bank in Taiwan and J.P.Morgan.Source:TEJ,Central Bank in Taiwan,J.P.MorganTotal Rmb deposit balance amounted to RMB$298bn by Dec 18,representing only 3.5%of sector-wide depositsDeposit pool has been declining since Dec 2017 upon Rmb depreciation due to increasing macroeconomic risk from US-China trade warLDR for Rmb remains low at only 4.2%while available investment targets are still very limited and thus banks no longer offer attractive yields for deposits;we do not expect any meaningful improvement on profitability/flows in the foreseeable futureMore channels/vehicles are required for the Rmb pool to further grow in Taiwan but current political environment suggests chances for any material progress could be limited18Executive summaryTaiwan Life Insurance:getting worse before getting betterFubon(2881 TT,PT:NT$54.0)Relatively lower earnings from life insurance operations should allow for more stable group earnings performance Higher one-time losses/expenses at Fubon Life in FY18 suggest more resilient earnings in FY19 FYP&VNB to return to positive growth Sufficient capital position to sustain+4%yields Current valuation of 1.0 x P/B and 0.6x P/EV is below L-T average of 1.3x&0.8xTop Pick 19Investment weaker 4Q18 performance dragged by high hedging costs&dwindled trading gainsInvestment return&Hedging cost FY18 vs.FY17Source:Company data and J.P.Morgan Investment portfolio breakdown 4Q18Investment income breakdown FY18Source:Company data and J.P.MorganSource:Bloomberg and J.P.Morgan.Investment returns in 4Q18 was much weaker than expected due to remaining high hedging costs and dwindled trading gains Trading gains peaked in 1Q18 due to favorable equity market condition and window opportunities upon IFRS9 reclassification at the beginning of the year but have d