Buy Dah Sing Financial

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Deutsche Bank
Markets Research
Rating
Company
Buy
Dah Sing Financial
Date
24 March 2016
Forecast Change
Asia
Hong Kong
Banking / Finance
Banks
Reuters
0440.HK
Bloomberg
440 HK
ADR Ticker
DSFGY
ISIN
US23376M1099
Price at 23 Mar 2016 (HKD)
Exchange Ticker
HSI
0440
47.95
Price target - 12mth (HKD)
51.50
52-week range (HKD)
59.40 - 34.50
HANG SENG INDEX
Unlocking value
20,667
Franco Lam
Right time to conduct strategic review
We believe DSF's strategic review of its life insurance business comes at the
perfect time. News sources suggest there is substantial interest in its life
insurance business and we believe the review could help unlock the true value
of the franchise, which has been under-appreciated by the market in recent
years. Despite the shares rising 21% YTD (outperforming HSI by 27%), we see
this as a potential catalyst that could provide significant upside for DSF. Buy.
Sum-of-the parts valuation implies negligible value for insurance business
We also believe this strategic review could further narrow the trading gap with
75%-owned subsidiary DSBG (2356.HK). Based on a SOTP valuation, assuming
no holding company discount, the current market valuation implies negligible
value for its insurance franchise. Our SOTP analysis shows that if its life
insurance business were to be disposed of at up to USD1bn (1.8x 2015 net
worth), DSF’s share price could rise to HKD68 (implying 40% upside).
Interest in insurance franchises has grown in recent years
Amid low interest rates, a lack of investment alternatives and higher Mainland
Chinese demand for USD/HKD-denominated products, HK has been a key
market for the pick-up in insurance penetration in Asia. But with a ~0.5%
market share in HK, this may be a good opportunity for DSF to either dispose
of its business at a good multiple or partner with a stronger player, as interest
is still strong in HK, supported by notable bancassurance agreements signed
by regional banks as well as recent insurance stake sales to Chinese investors.
Research Analyst
(+852 ) 2203 6226
[email protected]
Key changes
45.00 to 51.50 ↑
Price target
14.4%
Source: Deutsche Bank
Price/price relative
60
50
40
30
20
3/14
9/14
3/15
9/15
Dah Sing Financial
HANG SENG INDEX (Rebased)
Performance (%)
Absolute
HANG SENG INDEX
1m
3m
14.9
26.4
12m
10.0
6.4
-6.2
-15.6
Source: Deutsche Bank
2H15 insurance results: improved earnings helped by product mix shift
Insurance business earnings rose 23% HoH to HKD179m in 2H15 (2015:
HDK325m, +29% YoY), with net premium income up 3% HoH and a positive
change in VIF of HKD176m, offset by investment losses of HKD54m. The
earnings improvement was also helped by a change in product mix, with more
traditional policies rather than unit-linked products.
Maintaining Buy; we expect forthcoming catalyst to be key share price driver
On the back of the strategic review, we believe it is more appropriate to adopt
a SOTP valuation for DSF (previously GGM). We revise our TP to HKD51.5
(from HKD45). Downside risk: no transaction following strategic review (p.5).
Forecasts And Ratios
Year End Dec 31
Net profit (HKDm)
EPS (HKD)
EPS growth (%)
PER (x)
Price/book (x)
Yield (net) (%)
ROE (%)
2014A
1,730
5.28
4.5
8.0
0.80
2.9
9.7
2015A
1,950
5.81
10.0
8.0
0.64
2.7
9.9
2016E
1,852
5.53
-4.9
8.7
0.74
3.0
8.8
2017E
2,069
6.18
11.8
7.8
0.69
3.2
9.2
Source: Deutsche Bank estimates, company data
1
DB EPS is fully diluted and excludes non-recurring items
2
Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses
the year end close
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 124/04/2015.
24 March 2016
Banks
Dah Sing Financial
Unlocking value
Strategic review makes sense; maintaining Buy
We maintain our Buy rating on Dah Sing Financial as the stock remains
substantially discounted (at 0.7x P/B) compared to its domestic peers but has a
key potential upside catalyst in sight. Not only does DSF look attractive from a
valuation standpoint, but we expect the strategic review of its insurance
business to unlock further value for the franchise. Even with the share price
rallying 21% YTD (outperforming the HSI by 27% YTD), we believe there could
be significant upside from current levels if DSF can successfully dispose of the
franchise at a premium valuation.
Strategic review of its life insurance business: We believe this is a perfect time
for Dah Sing to review its insurance franchise. Speculation about its insurance
business has increased, with press reports (Wenweipo.com) suggesting that
many companies could be interested in the franchise. Aside from the recent
speculation, we have actually seen disposals of insurance businesses in the
past year (see Appendix A). Interest in insurance entities should remain high as
HK is still an attractive insurance market, amid a low interest rate environment
and lack of asset deployment for customers. While there is no assurance that
this review will lead to any transaction, we believe the intention to close the
trading gap between DSF and DSB is a positive management initiative.
Sum-of-the-parts valuation (SOTP): The value of Dah Sing Financial (0440.HK)
largely stems from its core investment in Dah Sing Banking Group (2356.HK,
HKD14.10), in which it has a ~75% stake, and its insurance business.
Assuming no holding company discount, the market is not pricing in
significant value from its insurance franchise. But given management’s clear
intention to conduct a strategic review of its insurance business, we believe it
is appropriate for us to switch our valuation methodology to SOTP from our
previous GGM method, in order to better differentiate the value of the
insurance franchise.
Our SOTP valuation is derived from (1) the 75% stake in DSB (2356.HK), based
on our DSB target price and a holding company discount of 15%; and (2) 1x
net worth of Dah Sing Life at book value. The SOTP valuation comes out at
HKD51.5/share.
DSF using sum-of-the-parts
Dah Sing Banking Group (2356.HK) remains the crown jewel of the Dah Sing
Group and generated 86% of DSF’s profits in 2015. We previously valued Dah
Sing Financial using a combination of a GGM and M&A approach.
But with Dah Sing management now specifically placing its life operation
under strategic review, we believe it is appropriate to switch our valuation
methodology to SOTP, in order to clearly show the franchise value in case of a
successful disposal of its insurance business. We show the current DSF
operating/shareholder structure in Figure 1.
Page 2
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
Figure 1: DSF operating/shareholder structure
Source: Deutsche Bank, Company Report
The market currently does not attribute any value to the insurance business
After DSB’s listing in 2004, DSF traded at a ~25% share price premium to the
value of its 75% holding in Dah Sing Banking Group (2356.HK), as shown in
Figure 3. This premium should be the implied value of its insurance operation
(assuming no holding company discount).
However, this premium has narrowed in recent years and DSF even traded at a
discount in 2H15, implying negative value for its insurance business. With the
strategic review, the value of its insurance business is reemerging again, but
only a value of USD140m or 25% of the current net worth of its insurance
business (Figure 2).
Figure 2: Current implied value of
DSF’s insurance business
USD'm
DSB - Market cap (2356.HK) (A)
(B) = (A) *74.6%
1,932
DSF - Market cap (0440.HK) (C)
2,073
Valuation of insurance/others
(C) – (B)
Price to net worth/EV
The trading volume of DSF used to be much higher but interest in the stock,
compared to DSB, has dropped off in recent years. In 2013-2015 the average
trading volume in DSF fell 14%, while that in DSB increased 33% during the
same period.
Figure 3: DSF MCap as % of DSBG stake value
DSF % DSBG stake
2,590
DSF - 74.6% stake in DSB
141
25%
Source: Deutsche Bank, Company Report
Figure 4: DSF traded volume as % of DSBG traded
volume
6.0
Historical from 2004
170%
5.0
160%
150%
4.0
140%
130%
3.0
120%
110%
2.0
100%
90%
1.0
Deutsche Bank AG/Hong Kong
Jun-15
Dec-15
Jun-14
Dec-14
Jun-13
Dec-13
Jun-12
Dec-12
Jun-11
Dec-11
Jun-10
Dec-10
Jun-09
Source: Deutsche Bank, Bloomberg Finance LP
Dec-09
Jun-08
Dec-08
Jun-07
Dec-07
Jun-06
Dec-06
Jun-05
Dec-05
Jun-04
Dec-04
80%
0.0
Source: Deutsche Bank, Bloomberg Finance LP
Page 3
24 March 2016
Banks
Dah Sing Financial
There could be several reasons why the banking operation commands a higher
multiple than DSF:

DSB has a higher RoE profile than DSF and its earnings have been
more stable and less volatile when compared with the insurance
operation. The insurance contribution to DSF earnings dropped to 13%
in 2015 (from 31% in 2009)
Figure 5: DSBG and DSF RoAE profile
DSB
Figure 6: Insurance earnings as % of DSF earnings
35%
DSF
31%
12%
11%
11%
10%
10%
9%
8%
8%
6%
6%
6%
9%
10%
11%
10%
8%
8%
7%
30%
24%
25%
25%
19%
20%
15%
4%
11%
11%
2013
2014
13%
10%
2%
1%
2%
5%
0%
0%
2008
2009
2010
2011
2012
2013
2014
2015
Source: Deutsche Bank, Company Report

2009
2010
2011
2012
2015
Source: Deutsche Bank, Company Report
The banking operation remains the crown jewel of Dah Sing Group
and is still the key M&A interest amongst investors. And most major
M&A transactions in HK have been focused in banking (e.g. Chong
Hing Bank, Wing Hang Bank, Nanyang Commercial Bank) rather than
insurance.
With no holding company discount, DSF could have 41% upside potential
According to recent news reports (wenweipo.com 02/05/2016), there are a
total of 20 bidders potentially interested in the life insurance franchise, with an
estimated disposal price of USD1bn, equivalent to 1.85x P/EV or net worth in
1H15. If a bid were to be successful at that price and assuming no holding
company discount, this could imply a DSF share price of HKD68 (implied
upside of 41%). In other words, a disposal at 1.8x would represent about ~50%
of DSF’s current market capitalization. We provide a sensitivity analysis in
Figure 7.
Figure 7: Sensitivity of target price to disposal of insurance business
Price to Net Worth (EV)
0.5x
0.75x
Holding Company
Discount
1x
1.25x
1.5x
1.85x
DSF Share price
0%
51
54
54
57
64
68
5%
48
52
57
60
64
68
10%
46
49
53
56
59
63
15%
44
47
51
54
57
61
20%
42
45
48
52
55
59
Share price upside/(downside)
0%
5
12
19
26
33
41
5%
1
8
15
21
28
37
10%
(4)
3
10
17
24
32
15%
(8)
(1)
5
12
19
27
20%
(13)
(6)
1
8
15
23
Source: Deutsche Bank, Company Report
Page 4
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
Our new SOTP valuation of DSF generates a target price of HKD51.5/share
We have now adopted a SOTP valuation for DSF and revised up our TP to
HKD51.50. With 75% ownership in DSB (2356.HK), we have used (1) our TP of
DSB at HKD14.5, with a holding company discount of 15%; and (2) 1x its 2015
insurance business net worth of HKD4.4bn. This leads to a valuation of
HKD51.5/share.
Interest in HK insurance licenses has increased
We believe this is a good time for Dah Sing to undertake a strategic review of
its life insurance business. While the review may reveal a variety of options,
including bancassurance partnership or partial disposal of stakes, we believe a
full disposal at this juncture would unlock the most value for shareholders.
Figure 8: DSF: SOTP-based target
price
Particulars
HKD m
Bank (2356.HK) TP
15,159
Holding Company share (post
15% discount)
12,885
Insurance - net worth (1x)
Total value
4,405
17,290
Number of shares
335
DSF TP (HKD)
51.5
Source: Deutsche Bank, Company reports
The value of an insurance license in Hong Kong has risen in the past year, with
an increasing number of companies interested in the business. Some notable
transactions include the following:


Recent insurance stake disposals: Aside from DSF’s strategic review,
there have been a few insurance-related deals in the past year in both
HK and China, mostly related to China entities:
o
Within HK, Ageas Insurance has agreed to sell its HK life
insurance operations to JD Capital (Beijing Tongchuangjiuding
Investment Management Co. Ltd) for cash of about EUR1.2bn
(HKD10.7bn), with expected closing in 1H16. Checking the
Office Commissioner Insurance (OCI) – the system insurance
data in HK – the majority of new insurance sales are primarily
from the agency channel. Within agency, it commanded a
2.4% market share in new premiums (total premium: 1.3%),
though its new premium from agency has dropped 21% YoY.
For details of the acquisition, please refer to Appendix A.
o
In Mainland China, many entities have been branching out
from their core business in recent years. Two years ago,
Chong Hing Bank in HK was acquired by Yue Xiu, a
conglomerate in Mainland China. In mid-2015, China Cinda,
an asset management company in China, purchased BoCHK’s
Nanyang Commercial Bank for HKD68bn. And in late 2015,
Evergrande Real Estate Group acquired a 50% stake in Great
Eastern Life Assurance (China) from Chongqing city
government for Rmb3.9bn (HKD4.8bn).
Bancassurance partnerships in Asia: There are currently three notable
partnerships operating in the region: Standard Chartered-Prudential,
Citibank-AIA and DBS-Manulife. Insurance sales from bancassurance
are increasingly the preferred choice amongst customers in HK. Given
the lump-sum payments made by the insurance companies to the
discussed banks, bancassurance will very likely be a key focus area for
banks this year.
Tapping into HK’s wealth as interest rates remain low
According to Swiss Re, not only does Hong Kong have the second highest
insurance penetration in Asia, at 14%, but it has also seen the fastest pick-up
in growth since 2010. While Mainland Chinese buyers could be a major driver
Deutsche Bank AG/Hong Kong
Page 5
24 March 2016
Banks
Dah Sing Financial
of the premium growth in recent years, the HK market should still look
attractive from insurers’ perspective:
(1) Customers would be more receptive to purchasing insurance
products with low guaranteed rates as interest rates are likely to
stay at low levels for a while (US Fed has cut its interest rate hike
forecast from four to two).
Figure 9: System CASA ratio
70%
62%
60%
50%
40%
(3) Rmb time deposits are no longer an attractive investment product
for investors. From 2009 to 2014, offshore Rmb deposits offered
much better returns to customers, supported by higher deposit
rates and currency appreciation, but with the Rmb weakening,
customers may opt for USD/HKD-denominated insurance
products.
difference: 29%
33%
30%
20%
10%
Jul-15
Jan-16
Jul-14
Jan-15
Jul-13
Jan-14
Jul-12
Jan-13
Jul-11
Jan-12
Jul-10
Jan-11
Jul-09
Jan-10
Jul-08
Jan-09
Jul-07
Jan-08
Jul-06
Jan-07
Jul-05
Jan-06
0%
Jan-05
(2) Stock market sentiment remains volatile and with continued
implementation of macro prudential property measures,
customers in HK may still opt for insurance products as a
defensive investment choice. As seen from customer deposits in
HK, there is still a lot of untapped wealth in the banking system as
the proportion of CASA deposits is still extremely high.
Source: Deutsche Bank, HKMA
Figure 10: System Rmb deposits vs.
Rmb/USD currency
Deposits (RMB bn)
RMB/USD (RHS)
1,200
8.50
1,000
8.00
7.50
800
7.00
600
6.50
400
Figure 11: Direct new individual business: Sales channel
share (2015)
Others
0.0%
(2014: 0.0%)
Brokers
22.5%
(2014: 24.1%)
Oct-09
Feb-10
Jun-09
Oct-08
Feb-09
Jun-08
Feb-08
Oct-07
Jun-07
Oct-06
Feb-07
Jun-06
Oct-05
Feb-06
Jun-05
Feb-05
5.00
Oct-04
5.50
0
Jun-04
Dah Sing Life remains a small insurance player in HK and Macau. We
understand it cannot sell insurance policies in Mainland China and has about
~300 agents. As Hong Kong remains largely a bancassurance market (Figure
11), most of Dah Sing’s insurance products are sold through its branch
network (47 branches in HK), with OCI data showing that about 74% of Dah
Sing Life new premiums in 2015 were sold through DSB bank branches.
6.00
200
Feb-04
Marginal player: a sale seems the most attractive option
Source: Deutsche Bank, HKMA
Figure 12: Dah Sing Life’s new business: sales channels
(2015)
Direct
0.5%
(2014: 0.3%)
Agents: 26%
(2014: 55%)
Agents
27.8%
(2014: 25.2%)
Bancassurance
49.2%
(2014: 50.3%)
Source: Deutsche Bank, OCI
Page 6
Bancassurance: 74%
(2014: 45%)
Source: Deutsche Bank, OCI
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
As stated in the company’s announcement, the strategic review will also look
at DSB’s bancassurance distribution, which makes sense. While the fee
income contribution from insurance, at about 10% in 2015, is the same as
BoCHK’s latest disclosure (10% in 1H15), the penetration shown as premium to
CASA remains low for DSB (Figure 14).
Figure 13: Insurance fee income for DSB as % of total fee
Figure 14: Penetration shown as premium to retail CASA
income
remains low for DSB
12%
4.0%
10%
10%
10%
8%
9%
7%
8%
7%
9%
8%
7%
6%
7%
6%
3.6%
3.5%
3.0%
2.5%
2.0%
1.4%
1.5%
4%
1.4%
1.2%
0.9%
1.0%
2%
0.5%
0%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Deutsche Bank, Company Report
BOCHK
HSB
SCB (HK)
Dah Sing
BEA
Source: Deutsche Bank, Company Report; For the denominator, 50% of CASA is taken
Market dominated by large global players and increasingly Chinese insurers
Despite being one of the fastest growing markets in Asia, the Hong Kong
insurance market remains competitive. As Dah Sing’s life insurance operation
lacks scale in agency force and bank branches, its market share has been on a
decelerating trend since 2008 despite the increased insurance penetration in
HK. Aside from competition, we believe the operation has become more
cautious and prudent following some investment write-downs and defaults
during the global financial crisis period. As shown in Figure 20, the proportion
of investment securities classified as AA- or above has risen to 35% of the
portfolio (23% in 2008)
Figure 15: Dah Sing Life market share (%)
Market share(APE)
Figure 16: Dah Sing Life – YoY growth
Market share(Total)
1.4%
APE
Total premium
80%
70%
1.2%
1.0%
0.8%
0.6%
0.4%
0.2%
0.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Deutsche Bank, OCI
Deutsche Bank AG/Hong Kong
Source: Deutsche Bank, OCI
Page 7
24 March 2016
Banks
Dah Sing Financial
Figure 17: HK market share: 2015 (total premium)
18.0%
Figure 18: Market share changes (2015 vs. 2005)
Market share(APE) change
16.6%
16.0%
14.6%
10%
13.3%
14.0%
Market share(Total) change
12%
8%
12.0%
6%
10.4%
10.0%
4%
7.5%
8.0%
7.2%
2%
7.1%
0%
6.0%
-2%
4.1%
3.3%
4.0%
2.3%
-4%
-6%
2.0%
-8%
0.0%
Source: Deutsche Bank, OCI
Source: Deutsche Bank, OCI
Figure 19: Top 10 countries in terms of insurance
penetration (World)
2010
Figure 20: Proportion of investment securities above AA40%
2014
20%
35%
35%
18%
30%
16%
14%
25%
14%
11%
12%
23%
20%
10%
7%
6%
8%
6%
15%
10%
4%
5%
2%
0%
0%
Taiwan
HK
Korea
Japan
UK
Source: Deutsche Bank, Swiss Re
France
Italy
US
Canada
SG
2008
2014
Source: Deutsche Bank, Company Report
2H15 earnings review
Insurance business improves

DSF reported 2H15 earnings of HKD874m (-19% HoH, +22% YoY) as
banking earnings fell to HKD955m (-23% HoH, -3% YoY) driven by
lower non-interest income and higher provisions.
Page 8

NIM surprised on the upside, expanding 14bps to 1.9%, helping to
offset sluggish loan growth.

Net fee income fell 26% HoH (-9% YoY), with an across-the-board
decline except for bancassurance. Other non-interest income fell
37% HoH, impacted by lower forex gains and trading income.

Weakness in HK corporate loans led to tepid loan growth of 1%.
Deposits grew 7%, helping LDR ease to 73%.

Credit costs continued to move up, to ann. 51bp (+18bps HoH),
with most of it coming from the HK personal and corporate
segments. The NPL ratio worsened to 75bps (+24bps). HK (81% of
loan book) deteriorated to 78bps (+36bps), with another 54bps in
overdue loans. Mainland asset quality showed improvement to
1.03% (-73bps), while Macau’s was benign at 21bps (+3bps).
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial



Capital further improved with CET1 at 12.2% (+50bp HoH).

Please see our note on DSBG for more on the banking business.
Insurance earnings rose to HKD179m (+23% HoH, +678% YoY), and
constituted 20% of DSF’s earnings.

Higher earnings were driven by net premium income (+3%) and
favorable changes in VoIF, offset by lower investment and other
income.

Claims remained stagnant, while commission and other expenses
increased 12%.

Solvency margin was 342% (1H15: 357%). Investment portfolio
moved up to HKD13.83bn (+3% HoH), while net worth (including
value of in-force) rose to HKD4.41bn (+4%).
BOCQ contributed 33% of DSF earnings, with full year at 35% (2014:
36%).
Figure 21: Insurance business: Key highlights
HKD m
2H14
1H15
2H15
% HoH
Net premium income
1,007
932
960
3
-5
316
113
(54)
-148
-117
Investment income/others
Change in value of in-force
% YoY
32
(27)
176
-752
450
Total income
1,355
1,018
1,082
6
-20
Commission and other
expenses (incl. tax)
(266)
(242)
(270)
12
2
Claims and transfer to
reserves
(1,066)
(630)
(633)
0
-41
Net profit
Solvency margin cover DSLA
23
146
179
23
678
320%
357%
342%
-15
22
Source: Deutsche Bank, Company data
Figure 22: Investment portfolio and net worth
HKD bn
2H14
1H15
2H15
% HoH
% YoY
Investment portfolio
12.92
13.41
13.83
3
7
4.08
4.23
4.41
4
8
Net worth or Embedded value
Source: Deutsche Bank, Company data
Appendix A: Recent transactions in the insurance space
JD Capital (Bejing Tongchuangjuding Investment Management Co. Ltd): a
listed asset management company in China, headquartered in Beijing. It has
offices across China, North America and Asia.
http://www.jdcapital.com/webHome

The acquisition consideration: HKD10.7bn + 1% annual interest for
2015 and +1.8% annual interest from 1 January to completion date.

The acquisition is valued at HKD11.4bn based on an income approach,
74% higher than Ageas Asia’s net worth 1H15.

The transaction was reportedly at 1.27x book value (source:
Bloomberg Finance LP).

Transaction expected to be completed in the first half of 2016.
Deutsche Bank AG/Hong Kong
Page 9
24 March 2016
Banks
Dah Sing Financial

Ageas HK has >20 years of insurance expertise and an extensive tiedagency, with >200,000 policyholders in HK.
Evergrande Real Estate Group: On 20 November 2015, Evergrande Real Estate
Group Limited acquired a 50% equity interest in GELC (The Great Eastern Life
Assurance (China) Co Ltd) through its indirect wholly owned subsidiary
Evergrande Nanchang for a consideration of RMB3.94bn and renamed it
Evergrande Life Insurance Company Limited. 25% of the equity interest in
GELC acquired was transferred by Chongqing City Construction Investment
(Group) Co., Ltd. and the other 25% of the equity interest in GELC was
transferred by Chongqing Land Group.
GELC, a joint project between the Chongqing government and the Singapore
government, was established on 11 May 2006 and was the only national Sinoforeign joint venture life insurance company headquartered in the western part
of China. GELC suffered a net after-tax loss of RMB48.2m and RMB60.5m in
2014 and 2013, respectively.
Chongqing City Construction Investment (Group) Co., Ltd. is a wholly state
owned company jointly established by the Chongqing Municipal Construction
Committee and the Chongqing Finance Bureau. Chongqing Land Group is a
municipal state-owned key enterprise established by the Chongqing Municipal
Government.
Evergrande acquired GELC to enter the insurance sector and expects the
acquisition to strengthen the group’s competitiveness in real estate.
Page 10
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
Fiscal year end 31-Dec
Model updated:23 March 2016
Running the numbers
Asia
Hong Kong
Banks
Dah Sing Financial
Reuters: 0440.HK
2012
2013
2014
2015
2016E
2017E
4.42
4.42
2.48
26.69
1.18
51.90
51.90
8,047
297
5.05
5.05
3.43
14.41
1.20
56.32
56.32
11,843
297
5.28
5.28
3.27
4.54
1.25
56.84
56.84
14,198
335
5.81
5.81
4.25
9.96
1.25
61.02
61.02
15,524
335
5.53
5.53
4.15
-4.87
1.42
65.08
65.08
16,067
335
6.18
6.18
4.61
11.76
1.52
69.70
69.70
16,067
335
6.1
6.1
10.9
0.7
0.7
8.5
0.8
4.3
3.7
26.9
7.9
7.9
11.7
0.8
0.8
9.3
0.9
3.0
4.2
26.5
8.0
8.0
12.9
0.8
0.8
9.7
0.9
2.9
4.2
24.3
8.0
8.0
10.9
0.6
0.6
9.9
0.9
2.7
4.6
22.7
8.7
8.7
11.6
0.7
0.7
8.8
0.9
3.0
3.9
25.7
7.8
7.8
10.4
0.7
0.7
9.2
0.9
3.2
4.1
24.6
2,494
843
472
738
-484
73
44
3,336
1,963
1,373
144
1,229
6
504
133
1,861
179
380
0
1,301
731
3,108
1,071
622
-44
365
79
48
4,179
2,198
1,981
310
1,671
5
596
-42
2,220
272
449
0
1,498
1,017
3,293
1,330
746
628
-197
108
46
4,623
2,386
2,237
473
1,764
4
623
109
2,492
246
520
0
1,727
1,070
3,653
1,633
803
-54
723
112
49
5,287
2,532
2,754
496
2,258
2
688
-91
2,853
345
560
0
1,947
1,425
3,949
1,421
694
282
240
147
58
5,370
2,610
2,760
617
2,143
0
510
3
2,656
266
538
0
1,852
1,390
4,196
1,556
736
349
280
147
43
5,752
2,680
3,072
707
2,365
0
598
-16
2,947
295
583
0
2,069
1,546
101,845
161,904
86,174
122,279
15,390
na
10,510
10
9
115,563
172,460
97,978
134,353
16,701
na
12,069
10
9
126,880
191,596
105,230
147,026
19,045
na
14,443
11
9
126,880
202,223
109,625
155,496
20,445
na
15,323
12
10
133,313
210,966
114,677
163,432
21,807
na
16,328
12
10
140,108
220,229
119,978
171,774
23,355
na
17,396
12
10
0.3
87.2
0.2
0.4
112.4
0.3
0.4
145.2
0.5
0.7
87.4
0.5
1.1
86.9
0.6
1.5
90.2
0.6
14.1
23.4
36.2
19.0
15.8
23.7
-20.7
13.7
6.6
6.5
70.5
1.6
58.8
1.2
22.1
24.6
31.7
27.0
25.2
11.9
44.3
115.6
13.5
13.7
9.9
72.9
1.9
52.6
1.3
-1.1
6.0
19.8
24.2
10.6
8.6
12.9
52.7
9.8
7.4
9.4
71.6
1.8
51.6
1.2
13.6
10.9
7.8
22.8
14.4
6.1
23.1
4.9
0.0
4.2
5.8
70.5
1.9
47.9
1.2
-1.0
8.1
-13.6
-13.0
1.6
3.1
0.2
24.3
5.1
4.6
5.1
70.2
1.9
48.6
1.2
5.3
6.3
6.0
9.5
7.1
2.7
11.3
14.6
5.1
4.6
5.1
69.8
1.9
46.6
1.2
6.1
Data Per Share
Bloomberg: 440 HK
Buy
EPS (stated) (HKD)
EPS FD (stated) (HKD)
EPS FD (DB adj.) (HKD)
Growth rate - EPS (stated) (%)
DPS (HKD)
BVPS (stated) (HKD)
BVPS (DB adj.) (HKD)
Average market cap
Shares in Issue (m)
Valuation Ratios & Profitability Measures
Price (23 Mar 16)
HKD 47.95
Target Price
HKD 51.50
52 Week range
HKD 34.50 - 59.40
Market Cap (m)
HKDm 16,067
USDm 2,072
Company Profile
Dah Sing Financial Holdings (DSFH) was listed on the
Hong Kong Stock Exchange in 1987. DSFH is the holding
company for the group's life and general insurance
business, as well as the majority shareholder in Dah Sing
Banking Group (DSBG) with a 74.9% stake. (The stake will
fall to 70.86% after the completion of a share placement
announced on 22 April 2009.) DSBG was spun off and
listed on the Hong Kong Stock Exchange in 2004.
P/E (stated)
P/E FD (stated)
P/E FD (DB adj.)
P/B (stated)
P/B (DB adj.)
ROE (adj.) (%)
ROA (adj.) (%)
Dividend yield(%)
Dividend cover(x)
Payout ratio (%)
Profit & Loss (HKDm)
Net interest revenue
Non interest income
Fees & Commissions
Trading Revenue
Insurance revenue
Dividend income
Other revenue
Total revenue
Total operating costs
Pre-provision profit/(loss)
Bad debt expense
Operating Profit
Goodwill
Pre-tax associates
Extraordinary & Other Items
Pre-tax profit
Tax
Minorities
Preference dividends
Stated net profit
DB adj. core earnings
Key Balance Sheet Items (HKDm) & Capital Ratios
Risk-weighted assets
Interest-earning assets
Total loans
Total deposits
Stated shareholders equity
Preference share capital
Tier 1 capital
Tier 1 ratio (%)
Tangible equity/ total assets (%)
Credit Quality
Gross NPLs / Total loans (%)
Provisions / NPLs (%)
Bad debt exp/ Avg loans (%)
Growth Rates & Key Ratios
Growth in net interest income (%)
Growth in fee income (%)
Growth in non-interest income (%)
Growth in revenues (%)
Growth in costs (%)
Pre-provision earnings growth (%)
Growth in bad debts (%)
Growth in RWA (%)
Growth in loans (%)
Growth in deposits (%)
Loan-to-deposits ratio (%)
Net int. margin (%)
Cost income ratio (%)
Cost asset ratio (%)
Trading income/ Total Rev (%)
Source: Company data, Deutsche Bank estimates
Franco Lam
+852
2203 6226
[email protected]
Deutsche Bank AG/Hong Kong
Page 11
24 March 2016
Banks
Dah Sing Financial
Appendix 1
Important Disclosures
Additional information available upon request
Disclosure checklist
Company
Ticker
Recent price*
Disclosure
Dah Sing Financial
0440.HK
47.95 (HKD) 23 Mar 16
7,14,15
*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other
information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the
primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at
http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States.
See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
7.
Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company
within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received
non-investment banking securities-related services.
Important Disclosures Required by Non-U.S. Regulators
Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
7.
Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this
research, please see the most recently published company report or visit our global disclosure look-up page on our
website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=0440.HK
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the
subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive
any compensation for providing a specific recommendation or view in this report. Franco Lam
Page 12
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
Historical recommendations and target price: Dah Sing Financial (0440.HK)
(as of 3/23/2016)
70.00
Previous Recommendations
Strong Buy
Buy
Market Perform
Underperform
Not Rated
Suspended Rating
60.00
3
Security Price
50.00
40.00
5
4
2
6
7
Current Recommendations
1
Buy
Hold
Sell
Not Rated
Suspended Rating
30.00
20.00
*New Recommendation Structure
as of September 9,2002
10.00
0.00
Mar 14
Jun 14
Sep 14
Dec 14
Mar 15
Date
Jun 15
Sep 15
Dec 15
1.
30/03/2014:
Buy, Target Price Change HKD55.00
5.
06/07/2015:
Buy, Target Price Change HKD62.00
2.
30/07/2014:
Buy, Target Price Change HKD56.50
6.
31/08/2015:
Buy, Target Price Change HKD58.50
3.
28/09/2014:
Buy, Target Price Change HKD58.50
7.
07/01/2016:
Buy, Target Price Change HKD45.00
4.
31/03/2015:
Buy, Target Price Change HKD60.00
Equity rating key
Buy: Based on a current 12- month view of total
share-holder return (TSR = percentage change in
share price from current price to projected target price
plus pro-jected dividend yield ) , we recommend that
investors buy the stock.
Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the
stock
Hold: We take a neutral view on the stock 12-months
out and, based on this time horizon, do not
recommend either a Buy or Sell.
Equity rating dispersion and banking relationships
500
450
400
350
300
250
200
150
100
50
0
54 %
35 %
20 %
Buy
17 %
Hold
Companies Covered
11 %
17 %
Sell
Cos. w/ Banking Relationship
Asia-Pacific Universe
Newly issued research recommendations and target
prices supersede previously published research.
Regulatory Disclosures
1.Important Additional Conflict Disclosures
Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the
"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
2.Short-Term Trade Ideas
Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are
consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the
SOLAR link at http://gm.db.com.
Deutsche Bank AG/Hong Kong
Page 13
24 March 2016
Banks
Dah Sing Financial
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Page 14
Deutsche Bank AG/Hong Kong
24 March 2016
Banks
Dah Sing Financial
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Banks
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Page 16
Deutsche Bank AG/Hong Kong
David Folkerts-Landau
Chief Economist and Global Head of Research
Raj Hindocha
Global Chief Operating Officer
Research
Marcel Cassard
Global Head
FICC Research & Global Macro Economics
Steve Pollard
Global Head
Equity Research
Michael Spencer
Regional Head
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Ralf Hoffmann
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Deutsche Bank Research, Germany
Andreas Neubauer
Regional Head
Equity Research, Germany
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