20131105-大和证券-Dah_Sing_Banking_Group_The_clock_is_ticking_18页_710kb

Dah Sing Banking Group (2356 HK) Summary

Core Content

Dah Sing Banking Group (DSBG) is a family-owned bank in Hong Kong that may become the last of its kind due to ongoing industry consolidation. This could increase its scarcity value, making it an attractive target for potential M&A activity. The report reaffirms a Buy rating with a revised target price of HKD17.40, which includes an M&A premium.

Main Points

• Market Consolidation: The Hong Kong banking sector is expected to undergo significant consolidation in the coming years. DSBG could be the last family-owned bank remaining, increasing its value.
• M&A Premium: The target price of HKD17.40 is a blend of a Gordon Growth Model valuation (HKD15.40) and an M&A derived value (HKD25.50), assuming a 20% probability of an acquisition.
• Valuation: The blended target price implies a 1.25x 2014E PBR, which is in line with DSBG's historical average of 1.2x PBR since its listing in 2004.
• Earnings Forecast: The 2013E EPS is raised by 8% to reflect a HKD55m disposal gain from Bank of Chongqing's IPO and more resilient funding costs. The 2014-15E EPS are also raised by 2-4% due to expectations of stronger margins.
• Competitive Landscape: With Chong Hing Bank (CHB) and Wing Hang Bank (WHB) in M&A discussions, DSBG may face increased pressure to merge or be acquired, especially given the growing market share of Mainland-affiliated banks.

Key Information

• Current Price (4 Nov): HKD14.52
• Upside: 19.8%
• EPS Forecast (2013-2015E):
  • 2013E: HKD1.415
  • 2014E: HKD1.498
  • 2015E: HKD1.588
• Dividend Yield (2013-2015E):
  • 2013E: 3.4%
  • 2014E: 3.6%
  • 2015E: 3.8%
• DPS (2013-2015E):
  • 2013E: HKD0.489
  • 2014E: HKD0.518
  • 2015E: HKD0.549
• PBR (2013-2015E):
  • 2013E: 1.1x
  • 2014E: 1.0x
  • 2015E: 1.0x
• ROE (2013-2015E):
  • 2013E: 11.2%
  • 2014E: 11.0%
  • 2015E: 10.9%

Financial Highlights

• Total Operating Income (2013-2015E):
  • 2013E: HKD3,631m
  • 2014E: HKD3,876m
  • 2015E: HKD4,126m
• Net Profit (2013-2015E):
  • 2013E: HKD1,750m
  • 2014E: HKD1,853m
  • 2015E: HKD1,964m
• BVPS (2013-2015E):
  • 2013E: HKD12.943
  • 2014E: HKD13.906
  • 2015E: HKD14.926

Competitive Analysis

• Mainland Affiliated Banks: Have increased their deposit market share from 7.4% to 8.9% from 2008-2012, with Bank of China (HK) (BOCHK) having the highest share at 17.6%.
• DSBG's Market Share: Stands at 1.4% of customer deposits as of end-2012, which is relatively small compared to larger banks.
• Potential Acquirers: Banks such as Yue Xiu Group are interested in acquiring smaller banks, including CHB and WHB, suggesting that DSBG could be a target in the future.

Risks and Considerations

• Key Risk: If no M&A transactions occur among other small Hong Kong banks, DSBG's appeal for acquisition may diminish.
• Basel III Impact: The adoption of Basel III may suppress long-term ROE, and smaller banks like DSBG may be at a disadvantage due to higher capital costs.

Company Profile

• DSBG is the banking arm of Dah Sing Financial Group (DSF), which holds a 74.6% stake.
• It has four banking subsidiaries and operates through a network of approximately 70 branches.
• Known for its credit-card and consumer-finance businesses.

Earnings Revisions

• EPS Change (2013-2015E):
  • 2013E: 24.1%
  • 2014E: 5.9%
  • 2015E: 6.0%
• Daiwa vs. Bloomberg Consensus:
  • 2013E: 6.5%
  • 2014E: 8.7%
  • 2015E: 7.5%

Valuation Model

• Gordon Growth Model: Fair value per share of HKD15.40 based on 1.1x 2014E PBR.
• M&A Derived Value: HKD25.50 based on 1.84x PBR, similar to CHB's valuation.
• Blended Target Price: HKD17.40, reflecting a 20% probability of M&A and 80% of the GGM valuation.

M&A Scenario

• Assumed Offer Structure: Similar to CHB's takeover by Yue Xiu Group.
• M&A Probability: 20%
• M&A Derived Value per Share: HKD25.50
• Blended Target Price: HKD17.40

Conclusion

The report suggests that DSBG is well-positioned to benefit from potential M&A activity due to its family-owned status and the increasing consolidation in the Hong Kong banking sector. The revised target price of HKD17.40 reflects both its intrinsic value and the potential premium from a takeover, aligning with its historical PBR and growth prospects.