Dip in US bond yields expected to lift Dah Sing Financial's insurance business

Steady recovery trend seen for insurance business.

As the 10-year and 20-year US bond yield fell from 3.04% and 3.72% in Dec 2013 to 2.54% and 3.1% in Jun 2014, it is believed that this should help to revive the net investment return of Dah Sing Financial's insurance business in the first half of 2014.

According to a research note from Maybank Kim Eng, it expects the net premium growth of Dah Sing Financial's insurance business to have stayed at 10-15% YoY in 1H14.

The report also noted that Dah Sing Life (DSL) also saw stronger growth in high-margin whole-life products.

Here's more from Maybank Kim Eng:

Overall, we raise our FY14 net profit forecast for DSF’s insurance business from HKD280m to HKD315m, contributing 20.7% of DSF’s total FY14 net profit.

No impairment loss on investment of BOCQ. At the current share price, Bank of Chongqing (BOCQ) is trading at 0.8x 2013 P/B.

However, management believes it is not necessary for DSB to record an impairment loss for its 17% stake in BOCQ.

This is due to: (i) the value-in-use of its shareholding in BOCQ is higher than the carrying value; and (ii) the listing duration of BOCQ is too short to classify whether its current valuation is a prolonged depression of its value-in-use.

Rather, we expect BOCQ will benefit from healthy loan growth, stable NIM, strong net fees growth and improving cost efficiency in the coming years.

We forecast its effective net profit contribution (after factoring in minority interest effect of DSB) will remain strong at 20-23% during FY14-16.