Fubon Financial Holding Co Ltd

TWSE:2881

Earnings Call Analysis

Fubon Financial Reports Record High Net Profit and Growth

Fubon Financial reported a record high net profit of TWD 107 billion for the first half of 2024, surpassing the full year of 2023. Earnings per share reached TWD 1. The company saw significant contributions across its subsidiaries, especially from Fubon Life and Taipei Fubon Bank. Fubon Life achieved a strong investment return of over 5% and topped first-year premium rankings in Taiwan. Taipei Fubon Bank's profit was driven by a 12% rise in net interest income and a 43% increase in fees. The firm’s assets grew to over TWD 11 trillion, and book value per share hit TWD 64. Overall, Fubon Financial demonstrated robust growth and strong financial health.

Fubon Financial’s Record-Breaking Performance

Fubon Financial has achieved a remarkable first half of 2024, setting new records in EPS and net profit among Taiwan's holding companies. The company's assets and book value saw notable growth, reaching over TWD 11 trillion in assets. With net profits hitting TWD 107 billion, surpassing the full-year results of 2023, the EPS stood at $1 per share. This outstanding performance is largely driven by the robust results of its subsidiaries, including Fubon Life, Taipei Fubon Bank, and Fubon Insurance.

Subsidiaries Shine Across the Board

Fubon Life, in particular, led the pack with a strong net profit fueled by an investment return of over 5%. The capital position remained solid with an equity asset ratio exceeding 11%. Additionally, Taipei Fubon Bank posted record-high profits, supported by core earnings from net interest income and fees, while also expanding its customer base, especially through its digital platform. Similarly, Fubon Insurance saw steady profit growth driven by both underwriting results and investment performance.

Growth in Asset and Equity

Fubon Financial's total assets and net worth grew significantly, with asset levels reaching over TWD 11 trillion. This growth also translated into a book value per share exceeding TWD 64, reflecting a strong rebound from the previous year's levels. Return on assets (ROA) and return on equity (ROE) also saw increases, indicating improved efficiency in generating profits from its asset base and shareholders' equity, respectively.

Impressive Investment Income

The company reported robust investment income, with return rates before hedge at 6.19% and after hedge at 5.43%, both higher than the previous year's figures. These strong returns were mainly achieved through successful equity investments and realized gains, although recurring investment income slightly decreased by 1.8% year-over-year due to a strategic adjustment in cash dividends from equities.

Strong Performance in Banking Sector

Fubon Bank demonstrated a solid performance, with an 18.8% increase in revenue, driven by a 12% growth in net interest income (NII) and a 43% surge in fees. The bank effectively managed its funding costs, leading to improved foreign currency utilization rates and a rise in net interest margin (NIM). Asset quality remained stable, with a non-performing loan (NPL) ratio of 0.11%, outperforming the industry's average and reflecting effective risk management.

Consistent Growth in Loans and Deposits

Both retail and corporate loans saw over 10% year-over-year growth, with SME loans growing by 8.7% and mortgage loans by 7%. Personal unsecured loans posted an impressive 30% growth. On the deposit side, the growth in NT dollar deposits outpaced foreign currency deposits, highlighting the company's effective management of funding costs and improved loan-to-deposit ratios.

Exceptional Results in Securities and Insurance

Fubon Securities benefited from a bullish market environment, posting strong revenue and profit growth while further expanding its wealth management services. In the insurance sector, Fubon Insurance continued to dominate the market with an 11% increase in written premiums and improved risk management, resulting in a combined ratio of 86.2%.

Overseas Subsidiary Performance

Fubon Bank Hong Kong saw a 22 basis point rise in NIM, reaching 1.79%, driven by asset yield enhancement amidst a higher interest rate environment. Despite a slight 1.4% drop in net profit due to increased impairment losses, the bank’s asset quality remained strong. Fubon Bank China also achieved an 11.5% increase in deposits and stable asset quality, although net interest margins remained flat.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to Fubon Financial's Second Quarter 2024 Financial Results. [Operator Instructions] This call is being recorded. And now I will hand it over to your host, Ms. Amanda Wang, IR Officer of Fubon Financial Holdings. Ms. Wang, please begin.

[Amanda Wang, executive]

Hi. Welcome, everyone. Thank you for joining Fubon's first half '24 results call today. There will be 2 sessions, including Fubon's performance review and followed by the Q&A, hosted by the President, Mr. Harn and senior management team. Please turn to Page 4 of the presentation.

The net price for holding the first half record another record high. We can see the EPS and net profit both top among Taiwan's holding companies industry, while scale both grow in terms of assets and book value and purchases that reached over $64. And the earnings growth out of the subsidiaries, you can see that are all well performed.

Firstly, in Fubon Life. The net profit, again top among the peers in Taiwan. That's driven by the investment return at over 5% and also the first year premium ranked top one. In the meantime, the capital position remains strong, while the equity asset ratio at above 11%.

In Taipei Fubon Bank, the profit also reached a record high. It mainly comes from the core earnings, including net interest income and fees, which we'll go into more details later on. And the franchise, we also see the customer base expansion specifically from the digital platform.

In Fubon Insurance, the net profit resumed its pattern and steadily grow of the underwriting results and also the investment performance. And securities, a beneficiary from strong capital market. In the meantime, this is the scale grow on back of the brokerage, props trading and wealth management business.

In Page 5, the net profit growth, as we just shared with you that record strong level. And although we see the strength into July as well, the net profit reached TWD 107 billion and net is higher than the full year in year '23 and EPS reached $1 per share.

In Page 6, we share with you the numbers across the subsidiaries, which as we just highlighted, the key strength, this first half is the growth across all subsidiaries. So other than the major fall, we can also see Fubon Bank Hong Kong and Fubon Bank China also shows earnings growth as well.

In Page 7, the assets and net worth of growth, which reached over TWD 11 trillion in terms of assets and book value growth, where we can see level value per share reached over TWD 64. That's a sequential growth from point of year '22 level that we take a strong rebound.

In Page 8, the ROA and ROE both increased the result, and the number is on an annualized basis that we can see pretty much close to the high level in year '21. And in Page 9, in terms of the early actions that we continue to develop the business along with a positive impact. In the meantime, the world across Taiwan international market give us the recognition that Fubon is a progress on this regard.

In Page 11, let's move on to Fubon Life. Across first year premium, renewal premium, total premium, all intentions show that result -- the growth results outperformed the market average, which we deliver the growth to resume after the decline over 3 years and we had to the growth outperform peers.

In Page 12, the product mix, which we focus on transforming toward higher CSM product, such as the regular case and also protection. And the results you see here, the regular pace, the results reached 61% in the bottom of this table and also the foreign currency percentage also increase up to 41.5%.

In Page 13, the FYPE grow also is a strong one compared to the industry's results, we outperformed here. Again, the regular pace traditionalized contribute, while the VNB growth of 7.9%, mainly on back of the product mix adjustment. The Y-o-Y, 7.9%, which is not as high as FRP, but if you compare with previous quarters, Y-o-Y, we start to catch up the growth momentum.

In Page 14, in channels across all channels, we take a balanced approach between bank assurance and Thai agents, which both contribute over 40% of FYP, while we take the top position in bank assurance. In FYPE, across all channels, we can see the growth. While the bank and also the Thai agent, again, deliver more of a higher growth ratio at over 30%.

In Page 15, in the investment side, we can see the portfolios changed mainly in the foreign supposition. In overseas allocation in the bottom of this table, they reached 66.9% of the total portfolio. Revenue reflects the valuation increase in equity position and also fixed income side, we have the impact from -- positive impact from exchange rates.

While the cash position at 4.3% of allocation, that is relatively higher in our track record, which will leave us room to further allocate to intend [indiscernible]. In Page 16, our overseas fixed income portfolio allocation pretty much stable, which we focus on investment grade in corporate and fixed financial.

In Page 17, the investment income results, if we see the bottom 2 of this table, the return before hedge basis of 6.19% and at hedge at 5.43%. That goes higher than the same period last year and also higher than the full year in year '22 and '23. The strong result mainly comes from equity investments and realized gains. The recurring investment income slightly decreased at 1.8% year-over-year in the first line of this table. That mainly reflect the decline in cash dividend from equity as we have a slightly adjustment in our allocation approach, strategy and also the increase interest income and mutual fund income net of that.

In Page 18, the hedge portfolio, we can see the recurring hedging cost in the upper left-hand side shows in print in Q2 versus Q1, that was 167 basis points in Q2. That mainly reflect the potential rate cut and also the moderate interest rate environment in Taiwan. While the recurring yield in first half before and after hedge basis, both show a decline, let me reflect, as we just mentioned, the cash dividend income decreased and also the recurring hedge cost in first half still higher than the same period last year.

In Page 19, the spread between cost of liability and the total investment return that record another strong result in the first half. The spread is positive one and further expand to 228 basis points from Q1 level as recent return increase. While the breakeven point versus the recurring return after hedge narrowed and -- sorry, it's a negative one, and that mainly due to the rising hedging costs, recurring hedging costs, which helpfully we can see some improvement as the rate card take place. And also the cash dividend income lower level, that is another reason. And hopefully, for the full year, when we book the full results, they will also mitigate this on negative levels.

In Page 20, in the unrealized balance of the life investment portfolio, we can see a sequential improvement even on back of the strong equity gains realization. The balance as of June is over TWD 50 billion unrealized gain. That also led to the equity to asset ratio up to 11% and 7%, and RBC reached 3.71%.

And next, please move on to Page 22. Fubon Bank's revenue record another strong result, up by 18.8%, mainly driven by NII growth of 12% and also fees growth at 43%. And in the meantime, the treasury-related income shows a slight decline, mainly due to the bond market volatility and also stock revenue slightly decreased.

In Page 23, the loan mix in [indiscernible] and also the growth. There, we can see the Y-o-Y remained a decent one, both retail and corporate record over 10% growth. While in Page 24, if you move on to the cost breakdown. The foreign currency growth carry a stronger momentum at 11% year-to-date versus 5% in NT dollars.

While in [indiscernible], we can see SME remains a key growth driver, where its year-to-date growth is 8.7%. And in Page 25, mortgage grew steadily at 7% year-to-date. And personal unsecured loans, that's the key growth area that record nearly 30%, Y-o-Y of 13% year-to-date.

In Page 26, in the deposit side, we -- you can see the dollar growth faster than foreign currency, that reflects our management on the funding cost side. While the foreign currency utilization in the lower right-hand side, you can see the deposits versus the loans and fund investments. The utilization rates improved up to 81% versus 75.9% by end of last year. And that also led to the NIM improvement in the following page.

So here, you can see the loan deposit ratio in the first half is a decline one, mainly because of the time deposit increase during the period. While the NIM was up 3 bps in first half, that reflects the bond investment. Well, on a Q-on-Q basis, in the right-hand side of this page, you can see the numbers here. The loan deposit spread and also the NIM both are spending that mainly reflects the rise in the loan rate.

In the following page, the asset quality remains stable. While the bank's NPL ratio of 0.11 continue to outperform the industry's average at 0.16, while the overall speaking still carried at a very benign environment. If we see the breakdown detail, the personal secured NPL shows a slight increase. It's mainly due to the expiration of government's more favorable measures. While Fubon's results, if we see here and also in credit cards result in the following page, that shows that the quality remains outperformed compared to peers.

In Page 29, the hard outstanding and also cost spending, both record very strong results, which we can see 33% up in cards and 44% up in [indiscernible]. The many bank of Costco affinity cards contribution and also the consumption momentum across the market. And on the lower left-hand side, the monthly per cost spending are slightly down, but not much, which still remain at stable level. Then many reflect both the numerator and denominator change. The card number, in spite of strong growth, but in the meantime, we also see the insurance transform toward regular pay that both have an impact on this number.

And in Page 30, the fee income was up by 46% for the whole bank, which we can see the wealth management grow at 40% and also the credit card has a very strong recovery. [indiscernible] fee across all product lines, we can see decent growth.

In Page 31, the overseas results of the bank. We can see both the top line and also the bottom line deliver in the range of about 17% Y-o-Y growth, mainly on back of the loan and also stable asset quality. And next in Page 33, in Human Insurance. The underwriting results remain strong. We can see the written premium growth at over 11%, that we continue to gain market share with the top 1 market position.

For the net combined ratio, we further improved to 86.2%, that reflects the business structure improvement and also the risk management. And next, let's move on to Page 35, Fubon Securities. The profit and revenue both record a very strong result on back of the market's bullish environment and also the security house itself further expand its business franchise. And we also further add our focus in wealth management and aim to further deepen our customers' relationship.

In Page 37, Fubon Bank Hong Kong, we see if NIM has a very strong result in this first half, up by 22 bps and reached 1.79%. It's mainly from the asset yield enhancement as the interest rate environment was higher than before, while its net profit actually fell by 1.4%, mainly due to an increase in Stage 3 impairment losses. That also is the situation that we can see the credit environment in Hong Kong's market.

While its NPL and other asset quality indicators, you can see here, that remain at outperform compared to peers. And in Page 38, in Fubon Bank China, it's our balance sheet basically from the deposits up by 11.5%, primarily due to Taiwanese customers' contribution, which we focus the customer segmentation. While the net interest margin kind of flat in first half, while adjusted basis will be increased by 29 basis points.

For its net offers, we can see a turnaround. The growth actually is across the net interest income, swap and also capital gains from bonds. While in first half last year, we had the one-off impact that was behind us. While the asset quality is NPL ratio slightly above 1%, while if we compare to peers, again, it continues to be better. And also, we see a stable NPL as our management goal.

So this is the end of the briefing. And next, we would like to open for Q&A and host by the President of Fubon Financial Holdings, Mr. Harn, and thank you for your attention.

[Operator]

[Operator Instructions]

[W. Harn, executive]

Just about this since that the attendee are pretty happy about the presentation made by Amanda. Okay. If you are so kind enough not to have any questions, then we will call this meeting off after Amanda's presentation. If you do have any questions in mind, you are most welcome to contact Amanda and her team after the conference call. Last call, any questions, please?

[Operator]

[Operator Instructions]

[W. Harn, executive]

Okay. I think this is probably we can call this meeting off for the day. Okay.

Okay. Thank you very much for your participation. Again, if you do have any questions afterwards, you are most welcome to contact our team members. Thank you very much. Speak to you next time.