Rebuilding DSL’s growth platform. Dah Sing Life (DSL) recruited a newteam of 24 financial planners to support the bancassurance sales andincreased its agency force by 15% YoY to 400 in 2011. It plans to grow itsagency force by an additional 5-10% and hire another 5-6 financialplanners in 2012E. The recovery in stock market sentiments substantiallyhelped in improving the investment returns in Jan-Feb 2012 (6.5% in2011). We forecast its net profit to grow 10-15% per year for 2012-13E,contributing 35-37% of DSF’s net profit during the period.
BCQ in good shape. Dah Sing Bank (DSB) holds a 20% stake in Bank ofChongqing (BCQ). Asset quality of BCQ remained solid, with provisioncoverage ratio of BCQ increasing to 527% as of Dec 2011. This impliesBCQ is adequately prepared for excess provisions from potentialweakening of asset quality in the future. We see limited capital and depositconstraints for BCQ in 2012E. We forecast its net profit contribution toDSF to rise from 26% in 2011 to 30% in 2012E (adjusted for minorityinterests of DSB)
Relatively higher cost-income ratio. DSB will continue to open newbranches in China in the coming years. DSL plans to hire new financialplanners and agency force in 2012E. We forecast the total expenses ofDSF to grow at a CAGR of 10.9% during 2012-14E. We forecast itscost-income ratio to remain higher than most peers at 62-63% during thisperiod (61.0% in 2010).
Maintain BUY rating. Based on our sum-of-the parts (SOTP) valuationand a historical average holding company discount of 16.1%, we derive atarget price of HK$32.05 (Previously: HK$33.45) for DSF. This isequivalent to a projected 2012E P/B of 0.6x.