Investor Presentation_ Taiwan – Financials

Summary of Key Points from the Conference Call Industry Overview - The focus for the first half of 2025 is on cash dividend yield, with the financial industry viewed as attractive due to competitive yields from insurers and securities compared to banks [1][2] - Higher long-term interest rates and localized measures from the Financial Supervisory Commission (FSC) are expected to aid insurers in implementing IFRS 17 and ICS smoothly, leading to higher ICS ratios by 2026 [1] Company-Specific Insights Stock Recommendations - Cathay (2882.TW): Overweight rating with a higher dividend yield forecast for 2024 and improving recurring yield [2] - Yuanta (2885.TW): Overweight rating with potential upside on dividend per share (DPS) [2] - CTBC (2891.TW): Overweight rating, noted for the highest return on equity (ROE) and dividend yield [2] - Fubon (2881.TW): Equal-weight rating due to limited upside potential [2] - SinoPac (2890.TW): Equal-weight rating, valuation considered full with less dividend yield support [2] - Chailease (5871.TW): Underweight rating, facing pressure from provision expenses impacting profit growth [2] Financial Performance - Taiwan financials' pre-tax profit reached a record high in 2024, with a 50% year-over-year growth [11][14] - Banks experienced a 12% YoY growth in pre-tax profit, driven by strong growth in wealth management and credit card fees [14] - Insurers saw a significant 250% YoY increase in pre-tax profit, largely due to trading gains [14] - Securities sector profits increased by 51% YoY, benefiting from a 50% rise in average daily trading (ADT) [14] Dividend Yield Insights - Insurers are expected to have competitive cash dividend yields compared to banks, with forecasts indicating yields of 4.4% for Fubon and Cathay [27][28] - The cash dividend yield for the financial sector is projected to be more attractive in 2024 due to strong profit growth [27] Key Debates and Considerations Impact of IFRS 17/ICS 2.0 - The adoption of IFRS 17 and ICS 2.0 is expected to have a positive impact, with manageable hedging costs anticipated around 1.3-1.5% in 2025 [15][30] - Most insurers are not under pressure to conduct rights issues due to supportive measures from the FSC [34] Profit Drivers for Banks - Banks' profits are expected to remain stable, with lower foreign exchange swap gains offset by net interest income (NII) and fee growth [38] - Historical data shows that earnings of banks only declined 6-12% during previous rate cuts, indicating resilience [38] Market Trends - The stock market is projected to have a greater impact on insurers than the bond market, with expectations of stable net worth in 2025 if the bull market trend continues [21] - The increase in NTD deposits has supported stock market investments and wealth management sales, with a notable rise in deposits post-2020 [41] M&A Activity - SinoPac is acquiring KTB, with the deal priced at 1.1x P/B and expected to have limited upside for dividend distribution due to increased leverage [58] Conclusion - The Taiwan financial sector is positioned for growth in 2024, with strong profit forecasts and competitive dividend yields. The adoption of new accounting standards and supportive regulatory measures are expected to enhance stability and profitability across the industry.