What’s New

Rising US bond yield may lower insurance profit. The 10-year US bond yield rebounded from 2.17% in Dec 2014 to 2.37% recently . We thus lower our estimation of the investment return of Dah Sing Financial’s (DSF) insurance business from HKD350m to HKD200m for 2015 (HKD819m in 2014). Still, DSF will shift towards selling highmargin regular life products. We also expect its new premium will maintain stable growth of 15% YoY in 2015. Overall, we lower our 2015 net profit forecast for DSF’s insurance business from HKD340m to HKD290m (HKD252m in 2014), contributing 16% of our 2015F net profit forecast for DSF (15% in 2014).

Dilution in profit contribution of BOCQ. Following BOCQ’s share placement, DSB’s shareholding of BOCQ will be reduced from 17% to 13.05%. We believe BOCQ should continue to benefit from strong loan growth, rising net fees contribution and tight cost control. Excluding the MI effect of DSB, we expect BOCQ’s net profit contribution to DSF will drop from 25.9% for 2014 to 22-24% during 2016-17.

Potential special DPS from selling DSB & BOCQ. We believe DSF may dispose of DSB before further dilution of its stake in BOCQ. If we assume DSB sells (i) its stake in BOCQ at HKD7.65; and (ii) the rest of its book at a P/BV of 1.8x, we estimate DSF will receive proceeds of HKD26.6b (or HKD79.38 per share). DSF may consider paying these proceeds to shareholders as special dividends. If we assume the rest of DSF’s book is trading at a holding company discount of 11.1%, we estimate the fair value of DSF (including the special dividends) should be HKD90.80 under this scenario.

What’s Our View

Maintain BUY. We lower our net profit forecast by 8.4% for 2016. We arrive at a new TP of HKD63.15 (from HKD65.35) based on our SOTP valuation, equivalent to 2016F P/BV of 0.96x.