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1、,FIGDiversified Financial ServicesEquity-TaiwanTaiwan Financials2012 prelims and a view onto 201315 January 2013Bruce B.Warden*Analyst Taiwan Financial ServicesHSBC Securities(Taiwan)Corp.Ltd.,abcGlobal Research 2012 was the best year since 2004,though 4Q was down sequentially andrevenues are weak g
2、oing into 2013 2013 forecasts are generally down from2012 on slow growth and higheranticipated provisions China policy and economic recoveryoffer potential for upside surprisesA slow start after a good yearYear-end prelims and revenues were good and bad.Though provisions will weigh more heavily on 2
3、013e forsome,financial sector earnings reported last week weregenerally in line or better than expected.However,revenueswere somewhat lacklustre in 4Q12 with net fees againwavering and net interest declining for the first time sinceearly 2009.,+8862 6631 2868,.tw,Todd Dunivant*Head of Banks Research
4、,Asia-PacificThe Hongkong and Shanghai Banking Corporate Limited,Starting on a low note.Taiwan financials are starting theyear with slowing loan growth,limited near-term prospectsfor improved margins and profitability,and a growing line-,+852 2996 6599,.hk,up of new share issues.Surprise?We believe
5、the widely anticipated launch of RMBbusinesses in Taiwan is clearly a long-term positive butlikely to be somewhat anticlimactic when it finally happens;partly because the wait has been so long,and partly becausethe banks are unlikely to see any improved profitabilityduring the first year.Inbound Chi
6、nese investment wouldlikely be a bigger surprise,and thus a stronger near-termdriver.If the economy strengthens or if regulatory changescreate a new route for banks to lend RMB deposits intoChina,the sector could get a boost later in the year.Banks over insurers.Our regional and Taiwan strategyview
7、is neutral on financials within the Taiwan market,and,View HSBC Global Research at:http:/*Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulationsIssuer of report:HSBC Securities(Taiwan)Corporation LimitedDisclaimer&DisclosuresThis repor
8、t must be read with thedisclosures and the analyst certificationsin the Disclosure appendix,and with theDisclaimer,which forms part of it,within financials we continue to prefer banks over insurers.Our preferred sector picks remain focused on private banks,with Chinatrust(2891 TT),E.Sun(2884 TT)and
9、SinoPac(2890 TT);and we believe the ongoing market rally shouldalso benefit Yuanta(2885 TT,OW).,FIGDiversified Financial Services15 January 20132012 preliminary results Sector earnings in 2012 were stronger than in any year since2004,though earnings were lower in 4Q12 Bank provisions and a seasonal
10、decline in life earnings Best results versus forecast were Cathay,Chinatrust and Fubon,abc,Lower 4Q resultsWhile full-year earnings for Taiwan financialsreached their highest level since 2004,the sectoraverage ROE was still only about 9%,andmomentum slowed at year-end.Aggregate netprofit of the comp
11、anies in our survey fell 40%Q/Q in 4Q on seasonal factors,but also as some(not all)banks took additional provisions toaddress the 1%general reserve requirement.The big stand-outs that pushed the provision issueinto the future were Chinatrust,Fubon and Mega;all of which will need to face those expens
12、es overthe coming two to three years.,Life seasonally lowerLife earnings were also sequentially lowerfollowing the seasonal surge in 3Q dividendincome.Nonetheless,Cathay Life and Fubon Lifewere both a bit stronger than expected at year-end.Fubon noted a boost from dividend payments inits overseas in
13、vestments.Shin Kong Life wasloss-making in 4Q12,highlighting the fact thatlife earnings can sour quickly in the absence ofdisposal gains.Above and below forecastNotwithstanding a fair amount of year-endearnings volatility,most companies in our,coverage reported results within 5%of ourforecasts.The l
14、argest disappointment was Yuanta,which was 8%short of forecast and 14%short ofMajor Taiwan financials:Quarterly net profit,(TWDbn)CathayChang HwaChinatrustE.SunFirstFubonHua NanMegaShin KongSinoPacTaishinYuantaAggregate,Code2882 TT2801 TT2891 TT2884 TT2892 TT2881 TT2880 TT2886 TT2888 TT2890 TT2887 T
15、T2885 TT,3Q114.932.063.371.292.4016.332.114.814.220.791.731.3947.51,1Q121.972.275.192.073.006.862.696.662.942.702.962.4743.96,2Q123.232.655.651.803.664.102.426.064.722.162.630.5341.86,3Q127.612.614.691.792.3711.852.295.052.662.583.071.6950.33,4Q124.211.045.661.421.155.791.463.74(0.55)2.041.541.5430.
16、10,QoQ(%)(44.7)(60.1)20.7(20.6)(51.4)(51.1)(36.4)(25.9)NA(21.2)(49.8)(9.2)(40.2),YoY(%)NA(21.7)50.2NA60.8NA(29.2)10.6NANA(20.5)186.9170.1,YTD-1217.038.5721.187.0910.1828.608.8721.519.779.4810.206.23166.24,YoY(%)53.0(5.2)15.8103.333.9(6.4)3.821.777.9208.98.1(53.5)14.4,Source:Companies,HSBC2,FIGDivers
17、ified Financial Services15 January 2013Taiwan financials:2012 preliminary earnings versus HSBC forecast and consensus,abc,(TWDm),Ticker,Dec prelim,YTD prelim HSBC 12e forecast,%of forecast,12e consensus,%of consensus,FubonCathayE.SunYuantaMegaShin KongSinoPacChinatrustFirstTotal,2881 TT2882 TT2884 T
18、T2885 TT2886 TT2888 TT2890 TT2891 TT2892 TT,2,0701,460333123860(354)6211,6431476,903,28,60017,0307,0856,22721,5129,7749,47920,13210,181130,020,24,15414,1817,0886,74520,42310,3399,17917,08710,629119,824,118.4120.1100.092.3105.394.5103.3117.895.8108.5,25,89914,7207,3047,20921,17811,0288,94118,27310,65
19、0125,201,110.4115.797.086.4101.688.6106.0110.295.6103.8,Source:Bloomberg,Companies,HSBC estimates,consensus owing to weak stock-market-relatedearnings in December(and 2H12 in general),including small losses for its securities financeand asset management subsidiaries.With the year-end 2012 earnings d
20、isappointment,investors may begin to question whether 2013eearnings expectations are too high for Yuanta.Our bullish 2013 brokerage earnings forecasts aresomewhat out of step with the current marketenvironment,so improvement will be needed tokeep on track.The biggest winnersThree companies Cathay,Ch
21、inatrust and Fubon beat consensus and HSBC forecasts by asignificantly wider margin than most,though noneis much the better for it.Chinatrust and Fubon,Larger revisionsThose notes can be found at the following links:At Chinatrust,we cut 2013e by 15%toaccommodate an all-at-once TWD5bn provision;thoug
22、h our 2014e forecast is up 9%(seeChinatrust FHC).At Fubon,management will spread out TWD3.5-4.0bn in provisions over two to three years.Wecut 2013/14e forecasts by 4%(see Fubon FHC).For Cathay,lower-than-expected taxes were themain reason that the preliminary beat our forecasts.We have raised 2013/1
23、4e by 5%(see Cathay FHC).Adjustments last week to our 2013/14e forecastsfor other companies in our coverage weregenerally less than 1%in either direction.,both deferred any action on meeting the generalreserve requirement,resulting in lower-than-expected provisions.In both cases this means higher pr
24、ovisions andlower earnings in 2013e and/or 2014e.We havealready revised earnings forecasts to reflect 2012preliminary results and the changing provisionoutlook.3,80,FIGDiversified Financial Services15 January 20132012 revenues Year-end revenues highlight slowing momentum for most banks in4Q12;which
25、does not bode well for 2013 4Q net interest down 0.6%Q/Q the first downtick since 2009 Industry net fee income was also down 2.3%Q/Q,abc,Revenues slow in 4Q12While sequential revenue gains have been slowingsince late 2011,4Q12 hit a significant milestonein the post-global financial crisis era with i
26、ndustrynet interest declining for the first time since 2Q09.Net fee income also slowed,which means thesector will go into 2013 on a fairly weak growthfooting.For many banks,year-end revenue levelswere also at or below 1Q12 levels,all of whichsuggests that we will be looking at very flatrevenues unle
27、ss and until something jumpstartssequential gains in net interest or fees.,Net interest down Q/Q,up Y/YIndustry aggregate net interest income for 4Q12was down 0.6%Q/Q.Though the 4Q number wasstill up 4.5%Y/Y and the full-year net interestnumber was up 8.5%,we believe the mostimportant point is that
28、net interest is no longerrising for the first time since the collapse ofmargins and net interest in early 2009.The first factor slowing net interest income waswhen the CBC stopped raising interest rates inmid-2011,which squeezed the banks ability towiden TWD spreads.Since that time,strong,margins ha
29、ve generally come on the USD side,but we have seen a steady decline in lendingSelected Taiwan banks aggregate net interest and net fee income,70605040302010-,(TWDbn),N et interest(TWDbn),Net fees(T WDbn),1Q06,3Q06,1Q07,3Q07,1Q08,3Q08,1Q09,3Q09,1Q10,3Q10,1Q11,3Q11,1Q12,3Q12,Source:Companies,HSBC4,25,
30、FIGDiversified Financial Services15 January 2013Banking net interest income,major Taiwan banks,abc,(TWDm)Cathay United BankChang Hwa BankChinatrustE.Sun BankFirst BankTaipei Fubon BankHua Nan BankMega BankShin Kong BankBank SinoPacTaishin BankTaiwan Bus.BankTaiwan Coop BankYuanta BankTotal,Code2882
31、TT2801 TT2891 TT2884 TT2892 TT2881 TT2880 TT2886 TT2888 TT2890 TT2887 TT2834 TT5880 TT2885 TT,1Q124,9723,8436,1933,3775,5973,7215,1226,8401,8273,2693,4033,2306,3311,45759,182,2Q125,0323,8836,0493,4195,7773,7455,2196,9671,8873,3293,3893,2756,2471,47459,692,3Q125,2184,0196,0633,5675,8253,8755,4536,898
32、1,9143,3623,5273,2476,3711,54860,886,4Q125,0293,9546,0413,7515,8033,7765,3716,8312,0043,3563,5353,1716,3501,54060,512,QoQ(%)(3.6)(1.6)(0.4)5.1(0.4)(2.6)(1.5)(1.0)4.7(0.2)0.2(2.3)(0.3)(0.5)(0.6),YoY(%)8.80.7(0.8)13.17.65.73.72.911.70.89.4(0.9)1.512.44.5,YTD-1220,25115,69924,34614,11323,00315,11721,16
33、527,5367,63113,31513,85412,92325,2996,019240,272,YoY(%)14.85.45.511.810.89.08.113.76.73.510.81.13.919.88.5,Source:Companies,HSBC.Note:Data is parent bank data and not consolidated bank data.This is materially different to the data regularly published by Chinatrust.,growth as global demand and Taiwan
34、s exporttrade slowed,to the point that some banks loanbooks were contracting during 2H12.Volume is the driver nowAnaemic loan growth is now squeezing bothvolumes and margins,and loan growth will likelyneed to turn again before things begin to improve.Unless the central bank decides to ramp up domest
35、icmortgage lending which would be unusual to saythe least this will depend on corporate lending;and that comes back to the broader global economyand how that drives export demand.The only banks with notable growth at year-endTaiwan bank lending growth,all banks(%Y/Y)2015105-5-10,were E.Sun and Shin
36、Kong,both of which havebeen growing faster than the peer group over thepast one to two years.Cathay and Fubon weredown a bit more sharply than most peers,webelieve reflecting either flat or declining Q/Q loanvolumes in 4Q12.Fee income also slippingThough the 4Q12 aggregate fee number wasactually up
37、nearly 11%over 4Q11,the quarterlydecline in fee income was a bit more severe withthe 4Q12 number down 2.3%Q/Q(versus 0.6%for net interest).Here again,E.Sun and Shin Konglead the sector in growth.C orporateTotalC onsumer,Jul-93,Jan-96,Jul-98,Jan-01,Jul-03,Jan-06,Jul-08,Jan-11,Source:Central Bank of t
38、he Republic of China(Taiwan),HSBC5,FIGDiversified Financial Services15 January 2013Quarterly banking net fee income,major Taiwan banks,abc,(TWDm)Cathay United BankChang Hwa BankChinatrustE.Sun BankFirst FHCTaipei Fubon BankHua Nan BankMega BankShin Kong BankBank SinoPacTaishin BankTaiwan Bus.BankTai
39、wan Co-op BankYuanta BankTotal,Code2882 TT2801 TT2891 TT2884 TT2892 TT2881 TT2880 TT2886 TT2888 TT2890 TT2887 TT2834 TT5880 TT2885 TT,1Q121,8037726,2091,4601,1751,9071,0361,5924887901,54048978931020,360,2Q121,7178505,3831,4511,2922,3301,0891,6535118531,59254999233320,595,3Q121,8891,1676,0471,6091,11
40、51,8831,1711,7305298691,66850396636021,505,4Q121,8779265,6911,6401,3491,8731,1411,6456298771,60346697631821,011,Q/Q(%)(0.6)(20.6)(5.9)1.921.0(0.5)(2.6)(4.9)18.90.9(3.9)(7.4)1.1(11.7)(2.3),Y/Y(%)19.212.410.442.621.8(8.6)(2.1)2.154.427.37.41.8(3.9)17.310.8,YTD-127,2863,71523,3306,1604,9317,9934,4376,6
41、192,1593,3906,4032,0063,7231,32183,472,YoY(%)8.63.56.023.22.2(1.8)(7.3)8.531.04.53.8(0.7)(14.5)8.74.6,Source:Companies,HSBC.Note:Data is parent bank data and not consolidated bank data.This is materially different to the data regularly published by Chinatrust.,Fees too are tied to the broader econom
42、y,and theyappear to have stalled,at least in the near term.With major items such as loan origination andcredit card spending fairly directly tied tomacroeconomic growth,we may need to wait fora cyclical boost.,However,most volatility likely comes from theeffect of market sentiment and direction on w
43、ealthmanagement fees.We are hopeful that theintroduction of RMB-denominated wealthmanagement products during 1H13 may sparkanother wave of experimentation and churn in,wealth management products,and it is really thechurn more than market direction that drivesfee income.Aggregate quarterly banking ne
44、t fee income,major Taiwan banks,(NT$bn)252015105,N et fees(TWDbn)N et fees(YoY%),(Y/Y%),5040302010-(10)(20),(30),-,(40),1Q07,3Q07,1Q08,3Q08,1Q09,3Q09,1Q10,3Q10,1Q11,3Q11,1Q12,3Q12,Source:Companies,HSBC6,FIGDiversified Financial Services15 January 20132013 outlook Forecasts for 2013e are down,nearly
45、across the board We anticipate slow growth and higher provisions for banks Surprises could come from RMB opportunities or a strongerrebound in the economy,abc,Forecasts generally downLooking ahead,our net profit forecasts for theTaiwan financials are generally down for 2013,insome cases down sharply
46、.While our sectoraggregate net profit is down 15%(TWD20bn)toTWD110bn in 2013e,that big decline is largelythe result of lower expectations for Shin Kong,Chinatrust,Fubon and Cathay.Many of these larger declines are related tospecial situations.For Shin Kong,it is thecomedown from over TWD9bn in one-o
47、ff realestate disposal gains booked in 2012,and forChinatrust it is the anticipated TWD5.0bn one-time provision.Others that may also face moredownward momentum in the wake of exceptionalgains in 2012 include Cathay,E.Sun and Fubon.,Too pessimistic?As we consider the growth expectations impliedby our
48、 2013 forecasts below,we are leftquestioning whether we might be too pessimistic.If so,we believe the most likely error should beoverly pessimistic credit cost assumptions.Weshould be able to see by mid-year or 3Q13whether defaults are rising or poised to do so.Ifnot,then we may need to review those
49、assumptions in 3Q.Too optimistic?One area where we may be too optimistic is therecovery in brokerage earnings.Strongerbrokerage forecasts are a product of marketturnover and optimistic assumptions about tradingprofits.If things turn up in 2H13,this may well,turn out to be the case,but it is hard to
50、have strongHSBC Taiwan financials:2012 preliminary versus 2013e net profit,CompanyFubonCathayE.SunYuantaMegaShin KongSinoPacChinatrustFirstTotal,Ticker2881 TT2882 TT2884 TT2885 TT2886 TT2888 TT2890 TT2891 TT2892 TT,2012 prelim(NT$bn)28,60017,0307,0856,22721,5129,7749,47920,13210,181130,020,2013e for
