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Title:Financials: Banks face slowing growth; life insurers more resilient
Download File:Financial industry note_191218 -- sinopac.pdf 
Summary:Highlights: The 15 FHCs¡¯ aggregate unaudited net profit in NOV stood at NT$17.98bn (-18.6% MoM, +56% YoY). Banks¡¯ earnings declined MoM due to reduced investment gain and increased bad debt provision. Life insurers¡¯ hedging costs stabilized on the back of USD appreciation vs. TWD in NOV; however, their decreased capital gains and increased FX reserves caused their earnings to drop MoM. With Taiwan awash in liquidity, the TWD interest spread consolidation is likely to continue, meaning domestic banks will have to leverage their FX positions for net interest income growth. We think CTBC Bank can grow its net income thanks to its higher USD exposure vs. peers and its agile asset allocation. For insurance companies, the yield on long duration bonds has gained traction, which shall lift return on new funds invested in 2020, and a low base from DEC 2018 will set the stage for sustained YoY earnings momentum.

Our Buy picks:

- Maintain Buy on CTBC FHC (2891 TT), TP at NT$25 (1.35x 2020 P/B)
- Maintain Buy on Cathay FHC (2882 TT), TP at NT$47 (0.9x 2020 P/B)
- Maintain Buy on Fubon FHC (2881 TT), TP at NT$52 (1x 2020 P/B)
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