20151208-法国巴黎银行-大新银行集团-02356.HK-Removing_M_A_upside,_focus_on_risk_13页_453kb

Dah Sing Bank (2356 HK) Summary

Core Content

Dah Sing Bank (DSBG) is a Hong Kong-based financial institution with a significant exposure to personal credit. The report outlines a REDUCE recommendation, with the target price cut by 44.34% to HKD12.30 from the previous HKD22.10. The primary reasons for this adjustment include weakening employment markets, declining retail sales, and reduced M&A prospects.

Main Points

• Credit Risk: DSBG has higher exposure to personal credit compared to its peers and the system, with 11.9% of its loan mix. This leads to an expected rise in credit costs, projected to reach 76bps in FY16 from 48bps in FY14.
• M&A Prospects: The attractiveness of DSBG for M&A has diminished due to a contraction in cross-border trade flows (-38% ytd), a narrowing rate differential, and declining RMB asset yields. Additionally, tightening capital rules make M&A less likely.
• Earnings Forecast: Earnings are expected to slow, with a 21% cut in FY16E and a 32% cut in FY17E. This is attributed to a slower NIM expansion, higher provision costs, and a reduced contribution from its associate Bank of Chongqing (BOCQ).
• Valuation Adjustments: The report adjusts the fair value based on a lower normalised ROE (from 10.8% to 7.7%) and a reduced fair P/B (from 1.1x to 0.8x), reflecting increased risk and reduced growth expectations.

Key Information

Market Performance

• Share Price Performance: DSBG outperformed the Hang Seng Index (HSI) by 6% over the last six months.
• Market Capitalization: Approximately USD2,757 million.
• Average Daily Turnover: USD2.1 million.
• Free Float: 26%.
• Major Shareholder: Dah Sing Financial Holding (75%).
• 12M High/Low: HKD19.14 / HKD11.94.
• Historic Volatility (3M): 22.6%.

Financial Projections (FY15E to FY17E)

Earnings Sensitivity

Risk Factors

• Upside Risks:

  • Stronger than expected asset quality evolution among personal loans and credit cards.
  • Faster than expected US rate hike that could affect domestic loan pricing.

• Downside Risks:

  • Weaker employment market leading to increased credit defaults.
  • Liquidity outflow increasing funding costs.
  • Reduced contribution from BOCQ due to the China slowdown.

Investment Thesis

• The report suggests that DSBG is more vulnerable to a downturn in the employment market and retail sales, which are critical to its personal credit portfolio.
• With the contraction of cross-border trade and the weakening of the China economy, the M&A upside is being removed from the valuation.
• The bank is expected to experience a gradual increase in credit costs, which will likely impact its profitability and asset quality.

Company Background

• DSBG was incorporated in 2004 and listed in Hong Kong.
• Operates under two brands: Dah Sing Bank and Banco Comercial de Macau.
• Has a 20% stake in BOCQ, which contributes significantly to its earnings.

Executive Summary

• Chairman: Shou-Yeh Wong (Age 73, Joined 1947)
• CEO: Tsu Hing Wong (Age 45, Joined 2000)
• Executive Director: Pak-Ling Wang (Age 54, Joined 1995)

Valuation Table

Catalysts

• A sharp increase in credit cost due to a weakening employment market.
• Sharp liquidity outflow driving up funding costs, with DSBG being particularly vulnerable due to its weaker deposit franchise.

Conclusion

The report highlights that DSBG faces increased risks due to its exposure to personal credit, a weak employment market, and reduced M&A prospects. The revised target price reflects a more conservative outlook, with a focus on the potential for higher credit costs and slower earnings growth. Investors are advised to consider the bank's vulnerability in the current economic climate and the associated risks to its performance.