International Expansion Into Japan And North America Will Diversify Future Income Sources

Key Takeaways

• International expansion into Japan, Malaysia, and North America could drive revenue through new customer bases and diversified income sources.
  
• Strong demand in wealth management and breakthroughs in expense management and loan growth enhance potential for increased earnings and net profits.
  
• Geopolitical shifts and market uncertainties threaten funding costs, profitability, and expansion efforts, with potential risks from economic downturns and reliance on wealth management.

Catalysts

Provides various financial banking products and services in Taiwan.

• The company’s expansion into international markets, including recent openings in Japan, Malaysia, and applications for locations in North America, is likely to drive future revenue growth by capturing new customer bases and diversifying income sources.
  
• Record-high net fee income and wealth management fees, fueled by strong demand for mutual funds and insurance, suggest a forward-looking rise in revenue streams from the wealth management segment, contributing to higher earnings.
  
• Disciplined expense management improving the cost-income (CI) ratio indicates potential for stronger net margins, as operating expenses grow at a slower rate than income.
  
• The notable growth in loan balances, particularly in corporate and foreign currency loans, could enhance revenue through interest income, supporting higher net profits as these segments expand.
  
• Increased emphasis on bancassurance is anticipated to provide a stable source of fee income, less sensitive to market volatility, which may lead to sustained earnings growth in the wealth management division.

E.SUN Financial Holding Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming E.SUN Financial Holding Company's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.1% today to 32.1% in 3 years time.
• Analysts expect earnings to reach NT$26.4 billion (and earnings per share of NT$1.7) by about December 2027, down from NT$26.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.1x on those 2027 earnings, up from 16.4x today. This future PE is greater than the current PE for the TW Banks industry at 13.1x.
• Analysts expect the number of shares outstanding to decline by 0.89% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.36%, as per the Simply Wall St company report.

E.SUN Financial Holding Company Future Earnings Per Share Growth

Risks

• The uncertainty in market conditions due to geopolitical shifts, such as the U.S. presidential outcomes, may create fluctuations in funding costs that could impact net interest margins and overall profitability.
  
• Expansion efforts, including the opening of international offices, could involve significant capital expenditure and operational risks, potentially affecting net margins if these ventures do not deliver expected returns.
  
• Though asset quality is currently strong, any economic downturns could increase non-performing loans (NPLs), negatively impacting overall earnings and financial stability.
  
• Heavy reliance on strong performance in the wealth management sector, especially bancassurance, could be a risk if there is a downturn in investment markets, thus potentially impacting fee income growth.
  
• The forecasted increase in loan and fee income growth rates could be overly optimistic if overall economic conditions worsen, resulting in lower-than-expected revenues.

Valuation

• The analysts have a consensus price target of NT$28.34 for E.SUN Financial Holding Company based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NT$30.59, and the most bearish reporting a price target of just NT$24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be NT$82.2 billion, earnings will come to NT$26.4 billion, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 6.4%.
• Given the current share price of NT$27.5, the analyst's price target of NT$28.34 is 3.0% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.