Fubon Financial Holding Co Ltd
TWSE:2881
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Fubon Financial Holding Co Ltd
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Thank you for standing by, and welcome to Fubon Financial's First Half 2023 Financial Results. [Operator Instructions]And now I will hand the call over to your host, Mr. Amanda Wang, the IR Officer of Fubon Financial Holdings.
Welcome, everyone. Thank you for joining Fubon's first half 2023 results call today. And in this call, we will have 2 sessions, including Fubon's performance review and followed by the Q&A, hosted by President Mr. Harn and also the senior management team.Firstly, please turn to Page 4. Here, you can see that Fubon's first half result is quite decent. We have a net profit of TWD 42.9 billion and total assets reached over TWD 10.9 trillion, while the book value per share -- also increased at TWD 52.23 compared to TWD 49.80 in previous quarter. In Fubon Life, the earnings topped among the peers in Taiwan, whilst premium is top 2 ranked. The earnings performance from its recurring return before hedge has shown improvement year-over-year and the total investment return reached slightly over 4%. From the capital perspective, the capital ratio remained decent, while equity to asset ratio at over close to 9% and RBC at over 300%. We plan to issue sub-debt that is about TWD 22.5 billion and which will further enhance the capital position.In Taipei Fubon Bank, the net profit reached a record high. The key drivers, including the net fee income shows quite meaningful growth of over 27%, which is mainly driven by the wealth management and also the credit card business. In terms of credit card, the launch of the COSTCO affinity cards have a meaningful contribution, which we have a new card issuance of around 1.7 million, out of which 75% contribution is from COSTCO affinity cards.In Fubon Insurance, the net loss of slightly over TWD 3 billion, mainly still due to the COVID-related policies impact, while we can see the monthly profit starting from April already turned positive. The underlying business in terms of premium grew at 1.9% and investment return at 4.84%, which remains stable, whilst capital position returned to 267% after the completion of the capital injection of TWD 16 billion.In Fubon Securities, the net profit doubled in first half mainly due to the investment gains increase as the market trend up. And we also expect the merger with Jih Sun will further enhance the growth driver in Fubon Securities as well as in Taipei Fubon Bank.And in the following page, we can see the ESG's results. Firstly, it's our honor that Fubon won the Top of the Most Honored Companies in the Asian insurance sector from the [ AAE's ] survey, which we appreciate and the recognition from investment community. And also, there are several other awards in this pool as well as the awards from other organizations.And in terms of actions in decarbonization that we performed in investment and lending that we can see in Fubon Life, Fubon Securities and Fubon Bank -- Taipei Fubon Bank, all shows the growth year-over-year, the positive momentum. While in Fubon Insurance, we are the first in the insurance company in Taiwan to propose a net zero underwriting goal by 2050.In Page 7, the net profit, again, that we showed in earlier bullet point, here we can see the trend in data point here. In spite of the decline first half year-over-year, we actually we already in the first 7 months a cumulative net profit that is above TWD 50.4 billion. That is higher than the full year result in year '22.And in Page 8, in terms of the profit composition by subsidiaries, we can see the decline here largely comes from a few -- mainly from the Fubon Life, but it's more of the market-driven factor as we can see that the capital markets volatility that shows a Y-o-Y decline, but in fact, we see Q-on-Q growth. And while in Fubon Insurance and Fubon Bank China is more of a one-off factors. In Fubon Insurance, it's mainly due to the COVID-related policies claim. And in Fubon Bank China, largely due to the increase in mortgage portfolio as well as the rise of the general provision ratio due to the regulatory requirement. Product performance in other subsidiaries, including Taipei Fubon Bank, Fubon Securities and Fubon Hong Kong are quite robust.In Page 9, the assets and also the book values data point here that we can see a sequential growth year-over-year.Well, on Page 10, ROA and ROE, we showed here both on an annualized basis for your reference.In Page 12, we start to move on the Fubon Life section. The total premium shows a decline of 13.1% year-over-year, largely because of one FYP declines, we shift our focus from single pay more towards regular-paid. And the renewal premiums declined largely due to the paid-up of the regular-paid policies. So the total premiums declined that is in line with the market trend.And in Page 13, the composition in FYP actually shows quite a meaningful change as we are in preparation for the IFRS 17 and ICS adoption. And therefore, we transition to more of a regular-paid and also protection-related products. So in terms of the results, we can see our regular-paid contribution now go up to 37.7% of the first half FYP, while the health, accident and others contribute another 6.4% of FYP.And in Page 14, we can see the FYPE has a growth of over 30% year-over-year, also on back of the strategy. While we can compare to the markets FYPE growth at only single-digit at 7%, Fubon Life showed some meaningful growth compared to the industry performance. For the VNB growth at 30% and the margin also increased up to 23.3%, that also shows the product mix improvement.In Page 15, by channels, in terms of the -- internal channels are still the main focus. They contribute around 70% of the FYP. While at the same time, the bancassurance in Fubon Life also topped in the industry. While FYPE on your right-hand side, you can see across all channels, all shows a focus on regular-paid, and therefore, delivered positive growth.In Page 16, the investment portfolio. We can see the major change year-to-date is the increase in equity position, both in overseas and domestic equity. That comes from the increase of valuation and also equity allocation. For the cash position, that we maintained at an adequate level and in order to respond to the market movement opportunities going forward.Page 17, the migration is quite minimum year-over-year or quarter-over-quarter.On Page 18, we can see the income from investment activity that the recurring income shows quite meaningful growth at 15.6% that reflects a higher interest rate environment and also the dividend income from domestic stocks. And in the meantime, the challenge comes from the hedging cost increased and also a decrease in capital gain this year that led to the overall investment return and came down to 4.06% in the first half.In Page 19, the hedging cost deal. Here we can see the FX gain shows quite meaningful improvement quarter-over-quarter and that shows 158 basis points in Q2, while the challenges from the higher hedge costs from CS and NDF. And therefore, the overall hedge cost and FX gain and loss in Q2 is a gain of 12 basis points gain or cost of 88 basis point cost in the past. While the recurring return before hedge showed some meaningful improvement, up to 3.5% and the after hedge basis, again, due to the swap cost is high, and therefore, it came down to 2.57%.In Page 20, in terms of spread, Fubon remained a positive spread between cost of liability and the total investment return, as you can see from the upper side of this page. All the recurring return after hedge came down, and therefore, between the breakeven point shows a slightly negative one.And in Page 22, the unrealized position still carries some losses, but we can see the magnitude gradually narrowed down quarter-over-quarter. And by end of June, it was TWD 47.1 billion, mainly from the -- actually comes from the fixed income assets, while the equity side is -- carry a positive unrealized gains. And equity to asset ratio also shows improvement at 8.99% and RBC up to over 300%.In Page 23, in Taipei Fubon Bank, the total revenue was up 16% on back of, firstly, the NII growth of 4%; secondly, the fee income growth of 27%; and thirdly, from the treasury income also showed quite robust growth.And in Page 24, the loan composition here. Overall speaking, we see retail grow faster than corporate year-over-year and led to the overall loan growth at 2.9% up.In Page 25, we further break down the corporate loans. The corporate loan balance shows kind of flattish, slightly down by 0.3%, largely because we adjust the NT denominated portfolio, while the foreign currency loans continued to show growth, which is 3.6% up year-over-year or 16% up year-to-date. And the SME portfolio also shows growth and the contribution sequentially improved and now is about 36%, 37% of the total corporate credit.In Page 26, in terms of the retail portfolio, the mortgage growth is pretty much in line with previous quarters, while the personal unsecured loans we see the decline gradually mitigated. And quarter-over-quarter speaking, it shows a slight up by about 3%.In deposits, in Page 27, the bank overall speaking showed a growth of about 4%, mainly comes from retail NT dollar deposit. The CASA ratio declined as the customers' preference over the time deposit under the interest rate environment, while the foreign currency book, we can see both the loan and bond investment shows increase and that will further enhance our margin.In Page 28, the margins trend quarter-over-quarter showed 5 bps up. As we just described, the foreign currency utilization has been increased and also the overall asset yield also enhanced. While the spread on a year-over-year basis was down, was mainly due to the rise in foreign currencies deposit costs. And in the meantime, if we take into consideration of the swap revenue, the NIM on that basis will be 1.29% in Q2, which is about 17 basis points up year-over-year.In Page 29, the asset quality-wise pretty much is stable and we can see the NPL and coverage ratio both outperforming the industry average, while the general provision increase was the key reason to show that Q2's provision was up.And in Page 30, in terms of credit card, in terms of the card number and also the card spending, both showed pretty high growth at over 30% and close to 27% respectively, and that's mainly impact of increase in the COSTCO affinity card.And in Page 31, the fee income in the bank showed quite meaningful growth at 27% up. It comes from both wealth management at 27 -- 24.6% and also the credit card growth. And we can also see wealth management from all business lines on a half-on-half year basis showed growth. For AUM in the wealth business also showed decent momentum at 7% growth.And in Page 32, the revenue from overseas branches, overall speaking, showed quite meaningful growth with 90% up in revenue and more than doubled in net profit. In Fubon Insurance, the premium growth of 1.9% is slightly lagged behind the market growth, mainly because Fubon is in the process to adjust its business lines. And the underwriting profit remained quite decent. If we exclude the COVID-related policies, net combined ratio at 87.6%, showed improvement on a year-on-year basis. While on the COVID-related policies, we reserve around TWD 920 million of reserves on balance sheet to cover the future related plans.In Page 35, in Fubon Securities, the net profit was up nearly doubled, mainly because of the investment gains. But we expect the synergies to deliver going forward upon the merger between Fubon and Jih Sun.And the last section about the overseas bank subsidiary. Firstly, on Fubon Bank Hong Kong, which has a very strong result this first half. The net profit was up by also more than doubled. The growth comes from the balance sheet growth of loan at 3% up and also the margin of 30 basis points up. While its asset quality shows improvement and we can also see NPL ratio and coverage ratio both improved.And finally on the Fubon Bank China, the loan growth of over 8% is mainly on back of the growth in mortgage, while its profit is slightly -- is down -- is a loss mainly because of the increase in its GP ratio, which is in line with the regulatory requirement. The margin contraction is also a pressure in the first half. That's mainly on back of the rate cut in RMB as well as the scale back on online lending as well as the increase in dollars funding costs. In the meantime, if we look at the NIM considering the swap revenue, in fact, the contraction in NIM will narrow down to about 22 basis points. Its asset quality pretty much is still at a reasonable level and we aim to continue its stable asset quality trend going forward.And this is the end of this briefing. And next, we would like to open for Q&A hosted by the President of Fubon Financial Holdings, Mr. Jerry Harn. Thank you for your attention.
[Operator Instructions] And now we have Steven Lam of Bloomberg Intelligence for questions. Go ahead, please.
I'm trying to kind of overlap what you already had mentioned in the Chinese call. So I will focus on perhaps 2 parts. One is on investment, the other one is on life insurance. On the investment side, just a very small question. We noticed that I think on your asset allocation there has been quite a strong increase in terms of the foreign stocks to about TWD 300 billion quarter-on-quarter. And I mean, from a percentage of the total holdings now is at about 6.3% versus 5.3% in March. Of course, I suppose there is some sort of mark-to-market increase element in there because global stocks did pretty well, but that increase is probably way higher than the benchmark increase, let's say, I don't know, S&P 500 is up 9% or something like that. So I just want to see if there's an active element in there that you are intending to continue to increase the foreign stocks allocation? And I guess, on the same tangent, just want to hear more about your outlook for, say, the overseas bond allocation versus domestic, for example. So that's part 1.Part 2, very impressive growth in NBV, your monthly updates provide a lot of color in terms of the product and whatnot. I just want to see if there's anything that you would also add on in terms of, say, the strong increase in both margin and FYPE. I can see that there's a lot of participating policies that you have been selling, and those are doing well, probably into July. But could you give us some maybe outlook in terms of for the rest of this year? How do you think -- would you expect sort of similar growth pace via VONB or it may have sort of a slower second half? And if so, any reason behind that?
Okay. We will start with the product strategy first.
Okay. We have pretty good first half year with the transitioning from single premium to regular premium. That's why our VNB grew substantially in the first half year. And in the second year, we expect the trend will continue, because comparing to last year -- last year, we have 73% in single premium and this year we successfully reduced to 53%. And for the second half year, we expect the single premium unit-linked sales will drop more. So we expect that the regular premium will reach about 60% of total sales. So for the whole year, we expect that the market will still grow. [Technical Difficulty]So actually, if you see from the top, we have the local equity and foreign equity together still at around 18%. So I would say like actually it's kind of rebalancing between the domestic bond and equity bond. So it's not really increased the total exposure of our equity. But as you just mentioned that the market value increased more than our investment in terms of the second quarter, so I would say that actually, the increases are incremental, the market value up is more than our investment.And also, in terms of the -- why we increase our use of foreign equity, actually it's because we see a resilient U.S. economy. We will cope with the new development in technology such as [Indiscernible] application are expected to provide a support for the submarket. That's the reason why we increased offshore equity.And about the second, you are asking about bond investment for the foreign part. The parity will still be place in the so-called Taiwan dominated ETF, which is because we try to minimize our hedge costs and also the -- with a higher yield, actually more than 5%.
Any more questions? I hope you have the answer you were asking.
[Operator Instructions]
Okay. If there's no more question received, then we'll close the -- call the day off for the meeting.
President Harn, sorry, we have Jemmy of JPMorgan on line. Should we take it?
Okay, that's good.
Jemmy, go ahead please.
Yes. Just 2 questions from me. I think the first one, if you look at Taipei Fubon Bank, we know the bank merged with Jih Sun in second quarter, just trying to understand when we look at the fee income growth over 20%, OpEx also grew over 20% year-on-year, how much is that due to the merger? If it's very limited impact then just also trying to understand what's the key reasons behind the OpEx growth? Is that partially due to the credit card or anything else?And second question is for your Fubon Life, I think it's already adopted IFRS 17. So is there any implications or read through that you have observed in terms of the underlying insurance operation for Fubon Life that you can share with us?
Okay. We'll start with the bank. The fee income impacted by this merger is very minimal because the wealth management business in Jih Sun is about 1/10 of our size, and the merger effective on April the 1st. So the impact is very, very minimal for our fee income growth. And on the increase of OpEx is it comes from 2 parts for the increase. First is the -- on the merger, we offer a subsidized [Indiscernible] retirement program for Jih Sun colleagues and that probably reserve about TWD 500 million for the subsidized retirement program for colleagues of Jih Sun for this year. And for the COSTCO card issuance, the card, we have about TWD 1.1 billion OpEx for this new business. So this is the main 2 part of our increase of the OpEx.
And a little color on this question. #1 in Taipei Fubon Bank, each branch earned about TWD 18 million wealth management fee. So with the additions of 44 branches, we are expecting the Jih Sun branch will deliver the similar performance in the next, let's say, 2 years. So we are expecting through the expansion of branch network there will be a proportionate increase in our wealth management business, not including the productivity improvement gain. #2, we are -- with the merger of Jih Sun, we are expecting a reduction of about TWD 150 million personnel costs on a permanent basis moving forward.
We expect to inject about $300 million, 200 Life in the third quarter this year. And after the injection, we expect the capital should be sufficient. And in the meantime, we try to adjust the product mix. For the next few years, we try to reduce the pension business and increase more protection products and try to match the asset and liability better and create more CS. So we expect -- we don't have additional capital requirement for the next few years.
May I follow-up with the COSTCO corporate card expenses, I think you mentioned TWD 1.1 billion. Is that in the second quarter as more like one-off or annual cost? And will we still incur similar costs in the following year?
Not in the following year, but in the second half of this year when all the existing card holders converted their into corporate card, then such kind of expense will increase in the second half. It's primarily the customer migration benefits program.
I see. So it's TWD 1.1 billion in the second quarter and there is additional in the second half or TWD 1.1 billion is for the full year?
We'll have similar expenditures or OpEx in the second half of this year, a rising of the COSTCO card conversions. But we do not expect that the same OpEx will occur next year. It will be much less.
And there appears to be no further questions at this point. And we thank you for all your questions. That will be the end of the question and answer session. And I'll hand the call over back to President Harn. Thank you.
Yes. Thank you very much for your participation and thank you very much by not asking that many questions. Anyway, if you want to ask some more later on, please contact our IR colleagues. Okay. And then we will speak again next quarter. Thank you. Thank you again for your participation.