Cathay Financial Holdings Co. Ltd. :CHYFF-US: Earnings Analysis: Q1, 2017 By the Numbers : June 9, 2017

Cathay Financial Holdings Co. Ltd. reports financial results for the quarter ended March 31, 2017.

We analyze the earnings along side the following peers of Cathay Financial Holdings Co. Ltd. – Ping An Insurance (Group) Company of China, Ltd. Class H (PIAIF-US) that have also reported for this period.


  • Summary numbers: Revenues of USD 7,349.22 million, Net Earnings of USD 344.99 million.
  • Year-on-year change in operating cash flow of -156.67% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Unusual items pull down operating performance

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-03-31 2016-12-31 2016-09-30 2016-06-30 2016-03-31
Relevant Numbers (Quarterly)
Revenues (mil) 7349.22 2460.58 6213.52 4384.8 3761.83
Revenue Growth (%YOY) 95.36 -16.63 73.55 -1.54 9.05
Earnings (mil) 344.99 278.08 785.32 176.6 248.19
Earnings Growth (%YOY) 39 194.48 87.58 -76.38 -56.51
Net Margin (%) 4.69 11.3 12.64 4.03 6.6
EPS 0.28 0.22 0.63 0.14 0.2
Return on Equity (%) 8.05 6.89 20.95 4.92 6.94
Return on Assets (%) 0.53 0.44 1.27 0.3 0.42

Access our Ratings and Scores for Cathay Financial Holdings Co. Ltd.

Market Share Versus Profits

Revenues History
Earnings History

CHYFF-US‘s change in revenue this period compared to the same period last year of 95.36% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that CHYFF-US is holding onto its market share. Also, for comparison purposes, revenues changed by 198.68% and earnings by 24.06% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

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Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s earnings have gone up year-on-year. But this growth has not come as a result of improvement in premiums earned as a percent of total revenues or any underwriting policy improvements in its operations – premiums earned as percent of revenues are currently at 31.18%, while the loan loss ratio is 139.69%. For comparison, these were 104.68% and 126.11% respectively in the immediate last period.

Premiums Earned Percent Versus Loss Ratio

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

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Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

CHYFF-US‘s change in operating cash flow of -156.67% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.


Improvements in operating margins after interest from 9.52% to 48.72% have also impacted the company’s earnings growth. However, one-time items have weakened the operating performance. As a result, the company’s pretax margins registered a decline from 6.30% to 4.59%.

EBIT Margin Versus PreTax Margin

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Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Cathay Financial Holdings Co. Ltd.

Company Profile

Cathay Financial Holdings Co., Ltd. provides financial services. It operates through the following segments: Banking, Life Insurance, Properties Insurance, Securities, and other operating segments. The Banking operating segments operate the permitted businesses of commercial banks provided by the Banking Act of the Republic of China. The Life insurance operating segments operate the sales of traditional insurance policies, investment-linked insurance policies, and floating-rate annuity insurance products. The Properties insurance operating segments engage in fire, marine, land and air, liability, bonding, reinsurance and other insurance. The Securities operating segments are responsible for securities brokerage, discretionary and underwriting. The company was founded on December 31, 2001 and is headquartered in Taipei, Taiwan.

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