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Feb.03, 2010
Event: Plans to launch its second residential project (Long-term positive.)
Primasia Comment
Formosan Rubber, which formed a joint venture with Continental Engineering Corporation (2526 TT/NR/NT$12.0), launched its first luxury residential project in Banchiao in 2007. The gross margin of this project was high at 50%, and from 2007-2009 the company booked NT$4.1bn in sales from the project; it expects to book another NT$3.5bn in sales this year. Along with its core business operations, the street expects Formosan Rubber to report pre-tax profit of NT$2bn for 2010, or pre-tax EPS of NT$4.0.
As an asset play that controls a massive land bank was acquired at low costs, Formosan Rubber plans to launch its second residential project this year; according to local media it will work with Continental Engineering again. The company is likely to receive a construction permit in the second or third quarter and begin pre-sales by the end of the year. This should add fuel to Formosan Rubber’s bottom line for 2011, helping the earnings strength continue from 2010.
Formosan Rubber currently trades at 1.2x 10E PB, compared to its historical PB band of 0.6x-1.9x. With land prices continuing to move higher in reflection of anticipated capital coming into Taiwan on the improving relationship with China, we see Formosan Rubber as one of the beneficiaries as an asset play.
Source: Primasia Investment Consultancy Co., Ltd.
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Feb. 02, 2010
A Smaller Bank with Big Ambitions
- Good M&A target backed by improving assets and earnings ability. While Taiwan’s banking industry has suffered from overbanking issues, we see one way out for small- to medium-size banks is through M&A. We believe FEIB is a good M&A target, given its improving asset quality (NPL ratio improved from 2.67% in 2008 to 1.75% last November, compared to peers’ average of 2.0%), its gains in earnings capability (unaudited FY09 results were NT$1.2bn, with EPS of NT$0.64, up from a net loss of NT$2.7bn in FY08), its total assets of NT$342bn and undemanding valuation (PB at 0.9x).
- Expansion into credit cards and distribution is a right move. The company’s acquisition of AIG Card Taiwan and purchase of Chinfon Bank’s B asset cluster is regarded as a LT positive move, in our view. We see FEIB as likely to benefit from entering the credit card market and increasing the value of its loan portfolio by moving into higher-yield consumer lending. Increasing its banking distribution channel from 36 to 55 branches will also likely give FEIB a higher economy of scale.
- Potential cross-strait alliance a share price catalyst. FEIB indicates it is on the lookout for strategic alliances with banks in China. Since FEIB is the only small- to medium-size domestic bank in our screening list that meets the “Healthy Bank” guidelines set forth by the FSC for cross-strait equity investment in China’s banks (Exhibit 10), any positive development regarding cross-strait banking deregulation will serve as a share price catalyst.
- Valuation undemanding. FEIB is currently trading at 0.9x PB, below its historical PB range of 1.1x-1.7x, an undemanding level. We recommend investors accumulate shares after the recent pullback, with an eye toward the bank’s improving asset quality, its multiple business expansion plans and growth opportunities, and potential cross-strait alliances which would act as a share price catalyst.
Source: Primasia Investment Consultancy Co., Ltd.
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| TAIEX |
7429.61 |
| Electronics Index |
307.73 |
| Financials Index |
803.85 |
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