International Expansion Will Diversify Operations And Boost Future Earnings

Key Takeaways

• International expansion and robust overseas performance boost revenue, with promising future growth from new branches in diverse global locations.
  
• Strategic focus on acquisitions and disciplined cost control likely to enhance revenue diversification, elevate earnings, and maintain strong profitability.
  
• Expansion into new markets and potential acquisitions pose risks related to execution, integration, and profitability, affecting E.SUN's growth and earnings stability.

Catalysts

Provides various financial banking products and services in Taiwan.

• E.SUN Financial Holding Company is expanding its international footprint, with new branches in Kumamoto, Japan, Toronto, Canada, Dallas, USA, and Mumbai, India, which could lead to increased revenue through international growth and diversification.
  
• The overseas business is performing well, with a pretax profit reaching NT$10 billion, ranking second among domestic banks, suggesting future growth in earnings as these branches continue to expand.
  
• The company is optimistic about the high single-digit growth in loans and double-digit growth in fee income, driven by wealth management and credit card businesses, potentially boosting both net interest income and net fee income.
  
• E.SUN Financial is considering acquisitions, particularly in life insurance and expanding its securities division, which could enhance its revenue and earnings potential through diversification of financial services.
  
• Disciplined cost control approach, keeping expenses below revenue growth rates, which should enhance operating margins and improve overall profitability.

E.SUN Financial Holding Company Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming E.SUN Financial Holding Company's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.1% today to 31.7% in 3 years time.
• Analysts expect earnings to reach NT$27.4 billion (and earnings per share of NT$1.82) by about March 2028, up 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 21.1x on those 2028 earnings, up from 17.3x today. This future PE is greater than the current PE for the TW Banks industry at 14.9x.
• Analysts expect the number of shares outstanding to grow by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.66%, as per the Simply Wall St company report.

E.SUN Financial Holding Company Future Earnings Per Share Growth

Risks

• Expansion into new markets entails various execution risks, such as regulatory challenges and local competition, particularly in North America and India, which could impact net margins and future revenue growth.
  
• The robust investment market performance that drove record high wealth management fees may not sustain, leading to potential variability in fee income and profitability.
  
• The strategy to balance product portfolios, such as in wealth management, while important, might lead to short-term fluctuations in earnings if there are sudden shifts in customer preferences or market conditions.
  
• Central bank restrictions or constraints on real estate lending could potentially limit the profitability and growth of mortgage and real estate-related loans, impacting loan revenue.
  
• Potential acquisitions, such as that of a life insurance company, introduce risks related to integration and capital allocation, which could affect the overall capital position and future earnings of E.SUN.

Valuation

• The analysts have a consensus price target of NT$29.673 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$34.0, 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 2028, revenues will be NT$86.3 billion, earnings will come to NT$27.4 billion, and it would be trading on a PE ratio of 21.1x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of NT$28.95, the analyst price target of NT$29.67 is 2.4% 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.