Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

CTBC Financial Holding / Equity Bottom-Up

Originally founded in 1966 as China Securities Investment Securities and then renamed China Trust Co.,<a href="https://www.smartkarma.com/entities/436" target="_blank" data-smartkarma-citation="entities:436:1">Ctbc Financial Holding Co Ltd (2891 TT)</a> has evolved and expanded over the years through corporate activity. CTBC is well positioned to fortify its position in a more consolidated and globalised Banking System. (Investors may be intrigued by recent RSI of <a href="https://www.smartkarma.com/entities/6756" target="_blank" data-smartkarma-citation="entities:6756:1">Entie Commercial Bank (2849 TT)</a> and <a href="https://www.smartkarma.com/entities/16572" target="_blank" data-smartkarma-citation="entities:16572:1">Union Bank Of Taiwan (2838 TT)</a>).The Group has an extensive overseas platform (Japan, China, SE Asia) and is always on the lookout for strategic alliances with local partners to extend product coverage. (For example, signing MOUs with Japanese and Chinese banks).Accounting for 22% of Net Profit, the Life business offers upside via cross-selling across branches in Taiwan and overseas. The Group is focused on streamlining operating process in order to improve efficiency and customer satisfaction.Excluding the life operation, fast-expanding fee income accounts for 36% of revenues. This segment includes the (prioritized) wealth management arm which incorporates bancassurance and the vibrant mutual funds business. There is also a lottery operation.The Group, which is still dominated by the bank, continues to strengthen its digital proposition to support innovation. Management targets digitalisation of end-to-end process and existing product in order to enhance customer experience as well as extending new business by adopting nascent technology and forming cross-industry alliances.Group results at Q118 show positive trends in profitability, efficiency, asset quality, and capitalization while liquidity remains high and provisioning continues to be extremely healthy.We view Taiwanese banks as quite low-risk, defensive, investments. Management is conservative and on the whole prudent. Transparency is a plus too once one gets to the bottom of idiosyncratic complexities. Consolidation and deregulation add a tailwind as intimated by <a href="https://www.smartkarma.com/profiles/263" target="_blank" data-smartkarma-citation="accounts:263">Pranav Rao</a>. <a href="http://www.taipeitimes.com/News/biz/archives/2018/06/12/2003694720" target="_blank">http://www.taipeitimes.com/News/biz/archives/2018/06/12/2003694720</a>  CTBC trades at a relatively low franchise valuation. The earnings and dividend yields are attractive at 10% and 5%, respectively. Sustainable earnings growth when added to the dividend yield is matched by the PER. The combination of its RSI, a lower than average franchise valuation by global standards, and a quintile 1 global fundamental momentum score of 8.2 results in a high (quintile 1) combined ranking from our enhanced PH Score™ (0.54). <div class="content-highlight">The PH Score™ encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning. Scores lie between 0 and 10, with higher rankings representing more positive signs. We then simply equally weight the backtested PH Score™ with a Franchise Valuation and a RSI to attain an enhanced PH Score™. The enhanced PH Score™ lies between 0.24 and 0.71, with higher rankings representing more positive signs. 1.0 (100%) represents a theoretically perfect score – virtually impossible to attain!</div>

Originally founded in 1966 as China Securities Investment Securities and then renamed China Trust Co.,Ctbc Financial Holding Co Ltd (2891 TT) has evolved and expanded over the years through corporate activity. CTBC is well positioned to fortify its position in a more consolidated and globalised Banking System. (Investors may be intrigued by recent RSI of Entie Commercial Bank (2849 TT) and Union Bank Of Taiwan (2838 TT)).The Group has an extensive overseas platform (Japan, China, SE Asia) and is always on the lookout for strategic alliances with local partners to extend product coverage. (For example, signing MOUs with Japanese and Chinese banks).Accounting for 22% of Net Profit, the Life business offers upside via cross-selling across branches in Taiwan and overseas. The Group is focused on streamlining operating process in order to improve efficiency and customer satisfaction.Excluding the life operation, fast-expanding fee income accounts for 36% of revenues. This segment includes the (prioritized) wealth management arm which incorporates bancassurance and the vibrant mutual funds business. There is also a lottery operation.The Group, which is still dominated by the bank, continues to strengthen its digital proposition to support innovation. Management targets digitalisation of end-to-end process and existing product in order to enhance customer experience as well as extending new business by adopting nascent technology and forming cross-industry alliances.Group results at Q118 show positive trends in profitability, efficiency, asset quality, and capitalization while liquidity remains high and provisioning continues to be extremely healthy.We view Taiwanese banks as quite low-risk, defensive, investments. Management is conservative and on the whole prudent. Transparency is a plus too once one gets to the bottom of idiosyncratic complexities. Consolidation and deregulation add a tailwind as intimated by Pranav Rao. http://www.taipeitimes.com/News/biz/archives/2018/06/12/2003694720  CTBC trades at a relatively low franchise valuation. The earnings and dividend yields are attractive at 10% and 5%, respectively. Sustainable earnings growth when added to the dividend yield is matched by the PER. The combination of its RSI, a lower than average franchise valuation by global standards, and a quintile 1 global fundamental momentum score of 8.2 results in a high (quintile 1) combined ranking from our enhanced PH Score™ (0.54). The PH Score™ encompasses signals from Profitability, Operating Efficiency, Liquidity, Capital Adequacy, Asset Quality, and Provisioning. Scores lie between 0 and 10, with higher rankings representing more positive signs. We then simply equally weight the backtested PH Score™ with a Franchise Valuation and a RSI to attain an enhanced PH Score™. The enhanced PH Score™ lies between 0.24 and 0.71, with higher rankings representing more positive signs. 1.0 (100%) represents a theoretically perfect score – virtually impossible to attain!

CTBC: "Softly This Hand-Crafted News Reaches the Fresh Leaves" - Liu Qiyu

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Mega Financial Holding Co., Ltd / Equity Bottom-Up

Across nearly 300 banks in Asia-Pacific the average NPL ratio is 2.47%. In Taiwan banks have essentially no NPLs at just 0.27% of loans.We find it hard to imagine that this will remain the case, especially given their lending to Taiwanese companies doing business in China.The provision and earnings delta for these banks may be some of the most dramatic in Asia, given they are starting from a seemingly pristine loan book.

Across nearly 300 banks in Asia-Pacific the average NPL ratio is 2.47%. In Taiwan banks have essentially no NPLs at just 0.27% of loans.We find it hard to imagine that this will remain the case, especially given their lending to Taiwanese companies doing business in China.The provision and earnings delta for these banks may be some of the most dramatic in Asia, given they are starting from a seemingly pristine loan book.

Taiwan

Union Bank of Taiwan accepts various deposits and provides short and medium term loans.  The Bank issues discount notes, invests in government bonds, short-term bills, corporate bonds and financial debentures, issues domestic letter of credit, and conducts savings and trust business.  Union Bank of Taiwan also provides remittance and guarantee services.

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Union Bank of Taiwan (2838 TT)

CTBC: "Softly This Hand-Crafted News Reaches the Fresh Leaves" - Liu Qiyu

Originally founded in 1966 as China Securities Investment Securities and then renamed China Trust Co.,Ctbc Financial Holding Co Ltd (2891 TT) has...

Paul Hollingworth

Taiwan's Banks Have Zero NPLs; For Now

Across nearly 300 banks in Asia-Pacific the average NPL ratio is 2.47%. In Taiwan banks have essentially no NPLs at just 0.27% of loans.We find it...

Daniel Tabbush

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