Expansion In ASEAN Regions And Lower Funding Costs Will Improve Financial Stability

Key Takeaways

• Optimistic revenue growth forecast in Taiwan, China, and ASEAN regions suggests confidence in portfolio expansion and income stream diversification.
  
• Expected stabilization of interest rates and delinquency ratios could improve net margins and enhance financial stability.
  
• Challenges such as economic uncertainty in China, increased delinquency ratios, and volatile solar revenue impact earnings predictability and potential revenue growth.

Catalysts

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

• The management has projected robust portfolio growth targets for 2025, with expectations of 5% in Taiwan and China, and 10% to 15% in ASEAN regions such as Vietnam, Malaysia, and Cambodia, indicating an optimistic outlook for revenue growth.
  
• With the interest rate hike cycle coming to an end, the company anticipates a continued improvement in funding costs, potentially enhancing its net interest spread and positively impacting net margins.
  
• The company plans to accelerate the recovery process after write-offs, which could lead to improved earnings by reducing losses from bad debts and enhancing overall financial health.
  
• Chailease aims to generate additional solar revenue of NT$150 million in 2025 through the sale of renewable energy certificates, which could contribute to higher revenue and support a diverse income stream.
  
• The stabilization trends in delinquency ratios in Taiwan and cautious optimism for improvement in China suggest an operational focus on reducing credit-related losses, potentially improving net margins and future earnings stability.

Chailease Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Chailease Holding's revenue will grow by 26.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 36.6% today to 24.8% in 3 years time.
• Analysts expect earnings to reach NT$30.7 billion (and earnings per share of NT$16.92) by about March 2028, up from NT$22.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.6x on those 2028 earnings, up from 10.0x today. This future PE is lower than the current PE for the TW Diversified Financial industry at 22.3x.
• Analysts expect the number of shares outstanding to grow by 1.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Chailease Holding Future Earnings Per Share Growth

Risks

• The company experienced a decrease in net profit due to higher expected credit losses and reduced tax rebates, particularly in China, which can directly affect earnings.
  
• The slow loan portfolio growth in Taiwan was partly due to an intentional slowdown in the used car financing segment, impacting revenue growth potential.
  
• The delinquency ratios have increased in key markets like China and Taiwan, indicating potential challenges in loan repayments that could affect profitability and net margins.
  
• China's operations face continued economic uncertainty and have shown an increase in delinquency ratios, which might require conservative lending, affecting revenue growth.
  
• The seasonal impact on solar revenue, as seen in reduced income due to less sunshine during winter, introduces volatility in quarterly revenues, which could impact quarterly earnings predictability.

Valuation

• The analysts have a consensus price target of NT$140.222 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$161.0, and the most bearish reporting a price target of just NT$110.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NT$123.8 billion, earnings will come to NT$30.7 billion, and it would be trading on a PE ratio of 10.6x, assuming you use a discount rate of 6.5%.
• Given the current share price of NT$123.5, the analyst price target of NT$140.22 is 11.9% 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.