omniture

PJAM reiterates concerns in letter to SinoPac FHC (2890 TT) Board

2018-09-26 08:52 468

TAIPEI, , Sept. 26, 2018 /PRNewswire/ -- Yuan Tong Investment Ltd. (a full subsidiary of PJ Asset Management ("PJAM")) recently issued a letter to the board of directors of SinoPac Financial Holdings Company Limited ("SinoPac FHC" or "Company") in September 2018. The letter, which is reproduced below, raised questions relevant to SinoPac FHC's 18Q2 analyst meeting and publicly reported financials. The original letter in Chinese can be found on PJAM's official website http://www.pjam.com.tw/. This letter was also copied to Audit Committee of SinoPac FHC, Taiwan Stock Exchange Corporation, and Financial Supervisory Commission Banking Bureau.

The Board of Directors
Sinopac Financial Holding Company

Dear Members of the Board,

I am writing to you on behalf of Yuan Tong Investment Ltd and its affiliates (collectively "we"), which currently own more than 8% of the outstanding shares of the Company, making us one of your largest shareholders.

On August 3rd, 2018, we sent a letter to the board of directors of SinoPac FHC which addressed concerns on the business performance and risk management. We received an emailed response from the investor relations department but did not receive a response from the Board. We are concerned that the questions raised have not been delivered to the board of directors by the management. Thus, please do deliver this letter to the board of directors and formally reply to us in the name of the board.

Regarding your response and the business performance and risk management in the second quarter, we have the following questions regarding reported financials for SinoPac FHC subsidiaries:

1. Risk Management:

(1) SinoPac Leasing: In the 18Q2 Analyst Meeting, it was declared that around NT$517 million of allowance for loss was booked in Q2 by SinoPac Leasing owing to collateral price decline of a single client. This allowance for loss, which is 11% of SinoPac Leasing's NT$4.68 billion share capital, led to a NT$0.3 billion loss after tax for the first half year of 2018. The loan has been provided for 9 years, but the collateral price decline was not discovered until last quarter, indicating that not only post loan management was not fully implemented, but also the assessment of collateral value and the practice of collateral supplement or loan payment was not in line with market practice. We ask that the board of directors hold management accountable if there has been any possible negligence.

(2) SinoPac Securities: About NT$ 199 million of "Expected Credit Impairment Loss", which is equal to the total income of the quarter, and the highest among the securities peers, was booked in SinoPac Securities' 18Q2 financial report. Overdue receivables increased from NT$18 million last year to NT$194 million at the end of this June. The above situation suggests that the company's risk management has not improved after the NT$1 billion loss that was booked last year at SinoPac Securities Asia, a subsidiary of SinoPac Securities, when trading for China Huishan Dairy Holding Co was suspended on the Hong Kong Exchange. Moreover, in the analyst meeting, a NT$421 million investment loss in 18H1 was attributed to fixed income securities. However, this significant investment loss is not explicable when examining financial market trends in the same period for peer security firms. SinoPac Securities was the only company that suffered a loss in 18Q2 among its securities peers. We feel that these losses when compared to peers could be indicative of shortcomings in business strategy, risk management and management oversight. We would request that the board of directors review these matters thoroughly and rectify any weak practices immediately.

2. Business Performance:

The emailed response we received from the investor relationship team of SinoPac FHC regarding business performance noted that it is more appropriate to use "core revenue: net interest revenue + net fee revenue" to determine the business performance of the company, and emphasized that the core revenue has increased NT$324 million YoY while the non-core revenue decreased NT$811 million. If we use the same criteria to analyze peer performances (see chart below), the core revenue growth rate of SinoPac FHC is far behind the average growth rate of peers, and is lower than same-size listed financial holding companies – E.SUN FHC and Taishin FHC. Furthermore, SinoPac FHC is among the few companies with a negative growth rate of non-core revenue. These results seem to indicate that the company's profit engine is weaker than its peers and, combined with the above-mentioned losses from potentially poor risk management, we have a reasonable concern over management's ability to execute on its desired goals. We earnestly request that the board of directors thoroughly review the capability and aptitude of the current management team and make any required changes to protect the company's market niche, employee talent, and customer base.

Chart: YoY Growth Rate in 18H1


SinoPac FHC

Avg 15 FHCs

E.SUN FHC

Taishin FHC

2017H1 Core Revenue

12,912

381,238

17,479

14,757

2018H1 Core Revenue

13,238

438,245

18,552

15,885

Core Revenue Growth (%)

3%

15%

6%

8%

2017H1 Non-Core Revenue

3,789

609,706

4,714

3,285

2018H1 Non-Core Revenue

2,960

646,644

6,398

4,633

Non-Core Revenue Growth (%)

-22%

6%

36%

41%

2017H1 Net Revenue

16,701

990,944

22,193

18,042

2018H1 Net Revenue

16,199

1,084,889

24,951

20,518

Net Revenue Growth (%)

-3%

9%

12%

14%

2017H1 Net Income

4,324

135,307

7,429

6,813

2018H1 Net Income

4,759

192,475

9,252

7,826

Net Income Growth (%)

10%

42%

25%

15%

(in NT$ million)

Source: Taiwan Stock Exchange Market Observation Post System

Note: Average peer data for FHCs includes SinoPac, E.Sun, Taishin, Hua Nan, Fubon, Cathay, China Development, Yuanta, Mega, Shin Kong, Waterland, CTBC, First, JihSun, and Taiwan Cooperative.

Contact:

Pamela Wu
+886227916668#712
Pamela.wu@pjam.com.tw

Cision View original content:http://www.prnewswire.com/news-releases/pjam-reiterates-concerns-in-letter-to-sinopac-fhc-2890-tt-board-300718951.html

Source: PJ ASSET MANAGEMENT CO., LTD
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