Fubon Financial Holdings' 1Q26 results improved; Goldman Sachs raises target price to NT$96 but maintains Neutral

Overview

This report is Goldman Sachs' commentary on Fubon Financial Holdings' 1Q26 results briefing. The report believes that Fubon Financial Holdings achieved earnings improvement across life insurance, banking, securities, and property insurance in 1Q26. Life insurance book value and capital ratios improved significantly due to interest rates and mark-to-market liability valuation, while banking benefited from NIM, loan growth, and wealth management fee income. Goldman Sachs therefore raised its earnings, book value, DPS, and target price forecasts, but still maintained a Neutral rating.

Core views

The core views include: first, the life insurance business improved supported by CSM release, gains from FVOCI equity disposals, and mark-to-market gains on liabilities; second, the life insurance capital position is strong, with the equity asset ratio rising to 11.5%, or 17.5% including after-tax CSM; third, the banking business performed well in NIM, loans, and fee income, and management maintained positive FY26 guidance for NIM and fee income; fourth, dividend distribution remains based on adjusted net profit, with the 40-50% payout ratio guidance unchanged, but life insurance upstream dividend remittance still awaits regulatory guidance; fifth, the target price increase reflects fundamental improvement, but hedging costs, FX, regulation, and liquidity risks keep the rating at Neutral.

Analysis framework

Goldman Sachs incorporated actual 1Q26 results, the latest management guidance, and recent market changes into its forecasting model, focusing on updates to FY26-28E net profit, book value, and DPS assumptions, and used a 12-month SOTP valuation approach to assess the target price. The analysis focuses on life insurance CSM, new business CSM, book value, hedging cost and hedge ratio; bank NIM, loan growth, credit cost, and fee income; as well as dividend-paying capacity and regulatory constraints.

Methodology notes

• Valuation methodsSum-of-the-parts valuation

  12-month SOTP target price

  The report uses a sum-of-the-parts valuation approach to derive a 12-month target price of NT$96.0, with the increase mainly driven by higher book value and earnings outlook.

• Relative valuationP/B and P/E

  FY27E P/B and FY27E P/E

  The NT$96.0 target price implies approximately 1.2x FY27E P/B and 10x FY27E P/E, used to assess how the target price aligns with future book value and earnings.

• Factor frameworkGoldman Sachs Factor Profile

  Growth, financial returns, valuation multiples, and composite percentile

  Goldman Sachs' factor framework compares stocks against the market and industry peers through growth, financial returns, valuation multiples, and composite metrics; financial stocks mainly use indicators such as EPS, revenue growth, ROE, P/E, P/B, and P/D.

• Event frameworkM&A Rank

  M&A probability ranking

  Goldman Sachs discloses that its globally covered stocks may be assessed under an M&A framework for potential acquisition probability, where 1 represents high probability, 2 medium probability, and 3 low probability; if rated 1 or 2, M&A factors are usually incorporated into the target price.

• Data toolQuantum

  Goldman Sachs proprietary financial database

  Quantum is used to obtain historical financials, forecasts, and ratio data for companies, supporting both deep single-company analysis and cross-company comparisons.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Fubon Financial Holdings (2881.TW)

  The covered company and equity subject of the report.

  Strengths

  Growth in life insurance CSM and book value, improved equity asset ratio, expanding bank NIM, loan growth and wealth management fee income growth, and stable payout ratio guidance.

  Weaknesses

  The stock lacks clear upside relative to the target price, and life insurance earnings and capital remittance remain affected by market interest rates, FX, regulation, and hedging costs.

  Comparison

  Goldman Sachs notes that if future dividends are raised significantly, Fubon's valuation discount relative to bank-led peers could narrow further; covered peers include CTBC Financial Holdings, Cathay Financial Holding, Mega Financial Holdings, TS Financial Holding, and Yuanta FHC.

  Risks

  Downside risks include persistently high hedging costs, NTD appreciation against USD and major Asian currencies, tighter regulatory scrutiny before IFRS 17, restrictions on life insurance dividend remittance, and potential liquidity pressure from a significant increase in policy surrenders.

Key data

• 1Q26 reported net profitNT$33.6mnThe original report states NT$33.6mn; this differs in units from the adjusted net profit of NT$66.3bn and should be cross-checked against the original report before use.
• 1Q26 adjusted net profitNT$66.3bnAdjusted net profit including gains from FVOCI equity disposals.
• FY26E net profit forecast revision+12%The upward revision mainly reflects improved earnings outlooks for the life insurance and banking businesses.
• FY26-28E book value forecast revision+4-6%Driven by higher earnings forecasts and mark-to-market gains on liabilities during the quarter.
• FY26E-28E DPS forecast revision+7-8%Reflects improved dividend expectations after stronger earnings and capital.
• Target priceNT$96.012-month SOTP target price, versus the previous NT$90.
• Life insurance 1Q26 net profitNT$15.1bnSupported by NT$8.3bn CSM release and positive recurring spread after IFRS 17.
• Life insurance 1Q26 adjusted net profitNT$47.3bnOn a basis including after-tax capital gains from FVOCI equities.
• Life insurance CSMNT$414.7bnUp 3% YTD, driven by NT$18.3bn inflow from new business CSM.
• FY26 new business CSM guidanceabove NT$62bnThe company expects FY26 new business CSM to exceed FY25's NT$62bn.
• Life insurance book valueNT$630.2bnUp 19% qoq in 1Q26, mainly due to NT$72.4bn in mark-to-market gains on liabilities.
• Equity asset ratio11.5%17.5% including after-tax CSM.
• Hedging cost1.26%1Q26 hedging cost, with hedge ratio reduced to 24%.
• Target hedge ratio range20-40%The company stated it will dynamically adjust the hedge ratio.
• Bank NIM1.27%Improved 3bps qoq in 1Q26; the company expects 5-7bps expansion in FY26.
• Bank loan growth+6% qoqDriven by corporate and retail demand; foreign currency loans grew 17% YTD.
• Bank fee income+28% yoyWealth management fee income grew 30% yoy; management expects FY26 fee income growth of 15-20%.
• Payout ratio guidance40-50%The company maintained payout ratio guidance and expects it to be based on adjusted net profit.

Impact & implications

The report positively revises its view on Fubon Financial Holdings' marginal fundamental improvement: stronger life insurance capital and book value, better bank NIM and fees, and higher dividend expectations all support a higher target price. However, the disclosed share price is close to or above the target price, and regulatory rules on life insurance dividend remittance, as well as FX and hedging costs, may still constrain valuation re-rating. Therefore, the investment conclusion remains balanced rather than actively bullish.

Risks

• If future dividends are raised significantly, the valuation discount could narrow further, creating upside risk relative to Goldman Sachs' Neutral rating and target price.
• Rising equity markets, a stronger USD, and lower hedging costs could create upside risk.
• The Taiwan-US interest rate differential may keep hedging costs elevated for an extended period, potentially pressuring life insurance earnings and capital performance.
• Continued NTD appreciation against USD and other major Asian currencies may pressure FX and hedging performance.
• Tighter regulatory scrutiny before IFRS 17 implementation may affect Fubon Life's upstream dividends and Fubon Financial Holdings' dividend-paying capacity.
• A significant increase in policy surrenders could create potential liquidity constraints.

What to watch

• Whether FY26 new business CSM can exceed FY25's NT$62bn.
• Changes in life insurance book value, equity asset ratio, and capital buffer including after-tax CSM.
• Changes in USD and NTD interest rates and their sensitivity impact on the equity asset ratio.
• Whether the hedge ratio remains within the 20-40% target range and whether hedging costs continue to decline.
• Whether the bank's FY26 NIM can expand by 5-7bps.
• Whether bank fee income can achieve the FY26 growth guidance of 15-20%.
• Final regulatory guidance on life insurance dividend remittance.
• Whether the 40-50% payout ratio can be stably executed based on adjusted net profit.