ASEAN Expansion Will Strengthen Future Prospects

Key Takeaways

• ASEAN market expansion, particularly Malaysia's growth, is a catalyst likely to benefit revenue growth.
  
• Maintaining operational efficiency and potential cost reductions in China could enhance net margins and future earnings.
  
• Deteriorating credit quality and rising costs in key markets threaten revenue, profitability, and net margins due to increased delinquency and funding expenses.

Catalysts

An investment holding company, provides leasing and financial services in Taiwan, China, ASEAN countries, and internationally.

• Expansion in ASEAN markets, particularly driven by Malaysia's double-digit growth, is a forward-looking catalyst likely to positively impact revenue growth.
  
• Efforts to maintain operational efficiency, such as improving the cost-to-income ratio, could enhance net margins, benefiting future earnings.
  
• Potential reduction in cost of funds in China, due to beneficial central bank policy changes, might improve net interest margins and elevate earnings going forward.
  
• Continued growth in Taiwan's solar asset segment, showing an 11% year-over-year increase, is expected to contribute significantly to future revenue streams.
  
• Strategic slowdown in the used car financing segment, while other sectors such as SME equipment and micro business financing show resilience, may stabilize and ultimately increase net profit margins by reducing credit risk.

Chailease Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chailease Holding's revenue will grow by 31.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 37.3% today to 20.5% in 3 years time.
• Analysts expect earnings to reach NT$29.3 billion (and earnings per share of NT$17.0) by about December 2027, up from NT$23.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as NT$26.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.7x on those 2027 earnings, up from 9.5x today. This future PE is lower than the current PE for the TW Diversified Financial industry at 18.2x.
• Analysts expect the number of shares outstanding to decline by 1.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.32%, as per the Simply Wall St company report.

Chailease Holding Future Earnings Per Share Growth

Risks

• The slower-than-expected portfolio growth in Taiwan and China, driven by a decreased credit appetite due to macroeconomic conditions, could negatively impact future revenue growth.
  
• Increasing delinquency ratios, particularly in China and ASEAN, highlight potential issues with credit quality, which may lead to higher credit costs and lower net margins.
  
• The decrease in net profit and earnings per share, due to increased expected credit losses and reduced tax rebates in China, poses a risk to profitability and overall earnings growth.
  
• The rising cost of funds in Taiwan, resulting from increased benchmark rates, could compress net interest margins if not offset by increased loan yields.
  
• The deterioration in credit quality and a slight increase in delinquency in China and ASEAN regions may require higher provisions for loan losses, impacting net earnings and profitability.

Valuation

• The analysts have a consensus price target of NT$151.67 for Chailease Holding 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$175.0, and the most bearish reporting a price target of just NT$125.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be NT$143.0 billion, earnings will come to NT$29.3 billion, and it would be trading on a PE ratio of 10.7x, assuming you use a discount rate of 6.3%.
• Given the current share price of NT$122.0, the analyst's price target of NT$151.67 is 19.6% higher.
• 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.