05.25.2001
Chiao Tung Bank to sell 30m UMC ADRs

• Chiao Tung Bank (2824 'Jiao Tung') yesterday announced that it has decided to sell 30m UMC (2303 'Lian Dian') ADR holdings. Adjusting for UMC's stock dividend (NT$1.5 in stock), the cost per share of Chiao Tung's holdings is now NT$2.78. UMC ADRs are trading at a premium of 20% to Taiwan's listed share price. Chiao Tung expects to earn at least NT$1.5b from the divestment.

• Chiao Tung has been aggressively selling long term investments in order to book provisions and write-off bad debts. The company reported an overdue loans ratio of 1.67% in 1Q01, much lower than the sector average of 5.9%. We do not see asset quality as a prime concern for the bank.

• VB Primasia Investment Opinion: Chiao Tung is carrying unrealized gains in its long-term investment portfolio of more than NT$20b. The stock is still trading at a discount to book after accounting for the portfolio. The Legislative Yuan began reviewing the Financial Holding Company Act yesterday, giving approval to most of the clauses. We believe Chiao Tung will continue to take steps to restructure itself as an integrated financial institution after the law is enacted. We rate Chiao Tung UNDERVALUED.

WilliamFong@Primasia.com +886-[0]2-2547-8864