On Wednesday, HSBC analysts began coverage on CTBC Financial Holding Co., Ltd (2891.TT) (OTC: CTFHF), issuing a Buy rating.
The recommendation is based on a sum-of-the-parts (SOTP) valuation method. HSBC has applied a 1.8x price-to-book (PB) ratio to CTBC Financial’s banking operations, above the sector average of 1.6x.
The analysts believe this premium is warranted due to the company’s high-margin overseas businesses, which make up a larger portion of the loan book compared to its peers.
CTBC Financial is also recognized as a leader in the wealth management sector, with a significant portion of its earnings derived from fee income. For the company’s life insurance and other remaining businesses, HSBC has assigned a 0.8x and 1.0x PB ratio, respectively.
HSBC’s analysis indicates that CTBC Financial’s valuation has not kept pace with other bank-centric peers, primarily due to its exposure to the life insurance sector. However, the analysts argue that the current discounted valuation does not reflect the company’s true potential.
The new price target of NT$46.00 suggests approximately a 19% potential upside from the company’s current stock price level. The coverage initiation by HSBC highlights the bank’s perspective that CTBC Financial’s banking operations present strong growth opportunities and attractive dividend yields, supporting the Buy rating.
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