Fubon Financial Holding Co Ltd

TWSE:2881

Earnings Call Transcript 2018-Q4

[Operator]

Thank you for standing by, and welcome to Fubon Financial's 2018 Full Year Financial Results. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time.

I will hand the call over to your host, Ms. Amanda Wang, IR Officer Fubon Financial Holding. You may begin.

[Amanda Wang, executive]

Okay. Thank you. Thank you, ladies and gentlemen to -- welcome you to join Fubon's full year '18 financial review. So please turn to Page 4 of the presentation. And as you can see, we highlight 3 milestones we achieved in the year '18. Firstly on the financial side, we achieved top earnings per share record 10 years in a row among Taiwan Financial Holding Companies and while our asset size reached a historical high at over TWD 7.7 trillion.

And regarding our operation in Taiwan and also overseas, in Taipei Fubon Bank, we invest 19.99% in LINE Pay. That is our first achievement in payment area. And in Korea investments, there is Fubon Hyundai Life, Xiamen's stake transfer are completed, while the new branch openings in Fubon Bank (China) continues. That will mark our first steps into the middle and west part of China. And the achievement in ESG area that we continue to be inclusive in key indexes, including the Dow Jones and also the MSCI.

And in Page 5, the operation highlight among our major 4 subsidiaries. In Taipei Fubon Bank, the NII growth drive the overall top line growth. And we will see in more detail that the revenue contribution specifically from foreign currency asset and also contribution from overseas branch increase. In Fubon Life, the market position remain strong in terms of the total premium at #2, while our overall cost of liability continue to improve. In our investment side, the recurring return before hedge shows the improvement in year '18, while we top up the FX reserve of TWD 3 billion to enhance the overall management flexibility.

In Fubon Insurance, we continue to keep our top position, which is the top one in Taiwan for 37 years in a row, while the underwriting quality remain a very strong position, and we continue to gain the market share. And in the meantime, the quality itself remain very benign as you will see in the combined ratios result. In Fubon Securities, we keep our top three position in brokerage and also underwriting.

In the following page, that you will see the overall net profit shows a decline trend YoY, largely because of the Q4 market volatility.

And in Page 7, if we look among the subsidiaries, Fubon Life and Taipei Fubon Bank remain the 2 major earnings contributor, while the earnings growth from the bank -- Taipei Fubon Bank, Fubon Insurance and Fubon Bank (Hong Kong) continue to be deliver decent growth momentum.

In Page 8, the asset growth in the holding company is 11.5%, largely driven by the inclusion of Hyundai Life. And the net worth came down by 6%, mainly due to the capital market's volatility, while you can see the capitalization among the subsidiaries remain at a healthy level.

In Page 9, that pretty much echo what we just described above regarding the earnings trend because of the capital market's volatility. While in Page 10, the market position across our major business line remain a strong position, including in the life side, we are top 2, top 3 market position. And insurance, solid #1. Fubon -- Taipei Fubon Bank, we are equally balanced among corporate and retail business. While securities, we are in top 3 market position across various lines.

And in Fubon Holding's growth prospects, overall speaking, we expect the growth opportunity continues as the -- long-term business growth is our key focus. And we continue to look for portfolio as that growth opportunity. And in business management focus, we expect that the fintech will play a more and more important role to enhance the overall customer's experience and also satisfaction, while the cross-sell to create synergy will continue to be a key point for each of the subsidiary to deliver.

And regarding a longer-term perspective, we expect that other entire market, overseas expansion will be also equally important to the whole group's long-term growth. So we'll prioritize certain markets, including Southeast Asia, China and Korea to cultivate in the long term.

And next section regarding Taipei Fubon Bank. In Page 13, the overall revenue growth is 6.7% and the net interest income actually is a key growth driver, which is over 10% growth. While you can see the table on the lower part of the chart of the page, the overseas branch revenue contribution gradually increased. We are talking about 10 -- 11% in the year '18. And if we look at the absolute level, which is over 14 -- close to 14% growth rate year-over-year.

In Page 14, in terms of the balance sheet composition, we see the growth pretty much driven by the investment asset, that is 20.9% growth and also foreign currency loan growth of 14.2%. That give us a 10% average interest-earning asset growth in year '18, while on your right-hand side, that's loan by -- different loan type by outstanding perspective. That is about 3% growth, which is mainly driven by consumer and mortgage loan.

In Page 15, the further breakdown of the corporate banking book. That you can see the NTD corporate loan pretty much flattish result as we are selective in customers' pricing and also the customer profile. And while the non-NTD, i.e., the foreign currencies outstanding shows a bit of a decline, that reflects pretty much the quarter and year-end customers' funding needs. But as you see in the previous page, on the 4-year average basis, the foreign currency loan of 14 percentage shows -- continue to be a key growth driver. In SME, it's a continuously a steady growth area, which is 8% in year '18.

In Page 16, the overall margin trend shows about 2 basis points' improvement in net interest margin, driven by, as we described, the investment through the bond portfolio and also loan mix enhancement through foreign currency loan, consumer loans and SME. While the loan-to-deposit spread narrowed down about 1 bp, largely due to the funding side, as you can see on the right-hand side, the deposit rate go up and that reflect mainly the foreign deposit average balance increase of about 13.6%.

In Page 17, the deposit mix in NT book shows improvement year-over-year. As you can see, demand deposit contribution increased year-over-year. While the foreign currencies outstanding came down, it's more of a year -- in the second half of the year, we are more selective in providing the time deposit rate and structure. So if we look at quarter-over-quarter, if you compare to previous quarters' disclosure, you'll find our time deposit percentage actually came down a little bit. And on the right-hand side, the loan deposit ratio in NT remain at about 80% -- 87% level, while the foreign currency, if we top up the investment book, that will give you about 65.7% utilization rate.

In Page 18, the overall asset quality remains very healthy, if we compare to our entire market average in NPL and coverage ratio.

In Page 19, the fee performance in Taipei Fubon Bank is marginally increased in total fee. It's a net basis which is driven by syndication, wealth management business. While on the right-hand side, you can see the wealth management fee growth by about 3%, that is driven by the sales volume increase specifically from the insurance side.

In Page 20, the outlook and business focus in Taipei Fubon Bank are pretty much on the 3 key areas. One is margin improvement; second, cross-selling; and thirdly is the financial ecosystems through the payment and fintech development. Through our NIM improvement, we expect the foreign currency asset will continue to outweigh the growth of the overall asset, with a focus in overseas branches and also in the investment side.

While in the local market, we expect the SME's client expansion and also consumer loan that should help the overall NIM's enhancement. Through cross-selling, we expect the wealth management benefit through segmentation and through the support with Fubon Life that should continue to enhance the overall fee revenue opportunity. And meanwhile, the credit card business that's another focus for year '19. And finally, in mobile payment solution, we expect the alliance with LINE Pay that should help us to enhance the overall customer's adhesion and also the expansion.

In Page 22, we move onto Fubon Life. The total premium growth is 5%, that is driven by FYP and also the renewal premium. While you can see the contribution from renewal premium now reached to close to 65%, with a trend to continue to increase, that shows our effort to enhance regular-paid product.

In Page 23, the breakdown of FYP. Here you can see that the growth is largely driven by investment-linked and traditional life regular-paid policy in year '18. While the foreign currencies' policy will continue to be our focus, you'll see the growth rate is very marginal and slightly decline in year '18. That reflects the currencies' movement in year '17 and '18 that -- especially in the year '17, that the customer may be more in favor to invest in dollar asset. And also we have stop selling of the NT dollar single-paid policy in January, so there is roughly last-minute sales effect in Q4 '18. So over 3Q, we expect that foreign currency growth should continue.

In Page 24, the first year premium equivalent and VNB shows a decline trend, but the magnitude, in fact, narrowed down quarter-over-quarter. And also with the product mix to improve in year '19, we expect both indicator to turn to a positive growth in year '19.

In Page 25, the contribution through different channels that you can see. Taipei Fubon Bank remain a very critical part and also with the higher contribution.

In Page 26, the composition of the investment income in Fubon Life that you can see the recurring investment return account for the majority of the total investment income. And while the recurring income growth rate of 12.6% that outweighs the total investment asset growth of 7%, and the total investment return, still, however, declined largely due to Q4's capital market volatility and also higher hedge cost. We also top up the TWD 3 billion FX reserves that negatively impact on the total investment return. So if we add back that one-off factor, that will give us 3.7% investment return after hedge, i.e., about 8 basis points impact.

In Page 27, that you can see the breakdown of the total investment portfolio. We don't see meaningful change quarter-over-quarter or year-over-year, but a slightly increase in the cash position that reflects our conservativeness towards the fourth quarter as the market more turbulence. While the overall asset portfolio, we will continue to reshuffle in accordance to the market condition, especially we see the domestic equity market in year '19 should provide us more opportunity to enhance the recurring returns through a dividend stock investment.

In Page 28, we further breakdown the overseas fixed income. The portfolio is also similar across the quarters. As you can see, we continue to invest in investment grade, in corporate and financial bonds.

In Page 29. The hedge cost you can see on the upper left-hand side, the recurring return is increased quite meaningfully in year '18 to 134 basis points. While the interest rate spread widening situation is even more intensified in Q4, so the hedge cost increased quarter-over-quarter. However, we see the first quarter in year '19, the trend actually already mitigate and improve. And second part of the hedge cost is the FX gain and loss, plus the provision for FX reserve. We showed 9 basis points cost by -- largely reflect the FX reserve provision.

The pure FX result actually is a gain instead of a loss as we see appreciation of dollar in year '18. And the third part of this bar is one-off provision, TWD 3 billion. That translate into about 13 basis points' impact. And we expect the hedge cost for CS, NDF and plus FX impact should not be as high as year '18, in year '19. And the recurring return on the same page in your lower left-hand side, you can see the recurring return before hedge improved by 4 basis points. That also demonstrate in our new money investment in Q4 and also further enhance in Q1 this year. And on the FX page -- basis that reflect the CS, NDF cost increase, and therefore, it came down.

In Page 30, the COL continue to show improvement, which is 5 basis points in year '18, and we expect a similar trend to continue in year '19, while in your right-hand side, the breakeven point also shows improvement because of the lower first year strain. So if we compare to the cost of liability with the total investment return I just shared with you before the FX top up reserve, we showed a little bit of positive spread between COL and total return.

In Page 31, in investment unrealized balance due to the market volatility, it further widened the unrealized loss in Q -- end of December. While we see the trend stabilize year-to-date, the FVOCI plus FVTPL with overlay, already reverse back to close to a breakeven level, while the amortization cost type of investment asset also show recovery of over TWD 30 billion of value -- variation upward performance. And therefore, shareholder equity in Fubon Life also deliver a recovery accordingly.

In Page 32, the outlook and the business focus in Fubon Life are 3 areas: In terms of the channel development, we focus in a balanced approach as we continue to expand our agency force, now we will continue to enhance its productivity and also to enhance the cross-sell among Fubon Life, Taipei Fubon Bank and also Fubon Insurance. And in the investment side, we expect the asset -- investment asset to steadily grow. Our hedging cost should show some improvement, while the overall portfolio will continue to adjust along with the market condition.

Next section regarding Fubon Insurance. We deliver a top position, with the market share continuing to increase year-over-year. The 6.9% premium growth outperformed the industry growth of about 5%. On the quality side, you can see on the right-hand side, the net combined ratio remained very benign. About 1 percentage pick up in net claim ratio that reflects the Taiwan earthquake impact.

In Page 35, regarding the Fubon P&C (China), the premium is slightly came down that reflects the auto lines' impact because of the pricing utilization and therefore, the market competition intensified in -- especially in the expense side. And therefore, we are more selective in auto line, while the growth from the commercial line and the health accident business continue to grow. And because of the more selective approach, the loss ratio shows improvement and therefore, drives down the overall net combined ratio. And in terms of the business outlook, we aim to keep the leading market position and further widen the lead in margin.

And in terms of the business growth opportunity, we expect the midsize corporate and also the online channel and cross-sell through our bank channel, Wesure health, to -- sorry, cross-sell through our life channel, Wesure health, to enhance the overall business momentum.

We're also very keen to keep our niche position in the fintech area. We continue to keep our #1 market share in the fintech despite the market size is not big enough, but we are latest in terms of the underwriting and service area.

In Page 38, in Fubon Securities, as you can see on the upper right-hand side, the market position and ranking keep us at a solid top 3 position and while the ETF growth in AUM shows a very tremendous growth, the operating revenue and net profit came down, largely due to the tough tradings' result in Q4.

In Page 40, the business outlook in security. We focus in customer's wealth management opportunity and therefore, the AUM management will be a key focus going forward. And in the meantime, fintech is also a key area. We are having over 70% of the trading is still online, compared to markets at 60%, we outperformed in that area already. And in the meantime, we introduced a robo adviser service, which we will continue to enhance the function.

In Page 41, we move on to the Fubon Bank (Hong Kong). Firstly on the balance sheet side, you can see the asset breakdown and the growth of 4%, which is largely driven by the investment side. The loan outstanding is pretty much flat. That reflects our focus in pricing and also the quality control.

In following page, the net profit growth of over 40%, largely driven by the NII and also Xiamen Bank's earning contribution, while the provisioning cost came down in year '18. The NIM improvement of 10 basis points that also demonstrate the efforts that we rebalance our loan portfolio.

In Page 43, the outlook for Fubon Bank (Hong Kong) that we will continue to adjust our asset portfolio and try to enhance our net interest margins' performance. And in the fee revenue, we expect the wealth management will be the key focus, while other banking fee, that will be also another area to enhance.

In Fubon Bank (China) in Page 44, the asset shows a bit of declining, that's largely due to the deleveraging measures since year '16. While the situation now is more stabilized, and we also benefit from that and therefore, the deposit outstanding shows a recovery quarter-over-quarter. Total loan growth at 4.9% and while the deposit steadily grows at 3.7%.

In Page 45, the net profit came down, but if we exclude the one-off property gains in '17, it actually shows about 2% growth, and this is largely due to the NII, as you can see the NIM increase to 1.7% and while the asset quality remain in a very healthy level.

And regarding the business outlook, we focus in the corporate and retail equally. In the corporate side, Taiwan -- Taiwanese clients is our low hanging fruit. We'll continue to enhance the cross-border service in this segment. While in the retail business, the payroll accounts through the client base -- corporate client base, that's our new initiative focus in year '19 and also the wealth management expansion. And finally, the branch growth continues. We currently have 26, including 2 that we are about to open this year. And we'll continue to look for opportunities in the Tier 1 and Tier 2 cities in China.

And so I will stop my presentation here. Thank you. Operator, we can open the floor for question now.

[Operator]

[Operator Instructions] Our first question comes from Steven.

[Unknown Analyst]

I have a few here. Maybe I'll start with the easier ones from data point. So I see that the -- I think on the Chinese section, you mentioned about the company expects on the bank side, wealth management fee increase. I think it was about 5%. I was just curious, which area you think will be the biggest driver for that fee increase? That's one. And then secondly, also on the bank side, if I'm not mistaken, then within the corporate loan, the non-Taiwan dollar loan, probably fell sequentially I think for 2 quarters. So I was just curious, is it just some kind of rebalancing or mix shift or what was causing that? And then -- and this is more like a broader topic. So given the Fed's dovish tone, which is more dovish than the market expected, how is that going to impact, I guess, your conversation with the banking -- on the banking side as well as on the life insurance side, in terms of would there be any response, in terms of the product that you'll provide to your client and, obviously, that must have some kind of investment implication, so to speak in terms of perhaps your foreign asset allocation, hedging cost, so on, so forth? And then finally, also on the life insurance side, if I'm not mistaken, there is some decent growth in terms of the FYPE in January and February. So I was just curious if there is any particular reason behind it, some campaign or it's more like a base effect?

[Amanda Wang, executive]

Okay. Steven, let me repeat your question, again. I think your first question is, wealth management's key driver, right?

[Unknown Analyst]

Yes. Yes.

[Amanda Wang, executive]

And your second question regarding the foreign currency loan in the Taipei Fubon Bank. Can you repeat your question, again?

[Unknown Analyst]

Yes. I think I saw some Q-on-Q drop...

[Amanda Wang, executive]

Q-on-Q drop, okay.

[Unknown Analyst]

Yes. Q-on-Q drop, right so -- yes.

[Amanda Wang, executive]

Okay. And your third question regarding the hedge cost, can I be more specified in your third question?

[Unknown Analyst]

Oh, so -- yes, so I was thinking, I remember in the Chinese section, I think the company expects some drop in terms of hedging cost. I'm not so sure if that has to -- has anything to do with the Fed change in terms of their tone. So the interest-rate path basically, right. And then I guess, the consensus right now is that the yield is just going to keep falling, right. And if anything, interest rates probably going to drop and I don't know how the Asian Central Bank is going to response or Bank of Taiwan, Taiwanese Central Bank. But just want to hear any thoughts in terms of the hedging costs, investment allocation and then also the products, the life insurance products, would there be a scenario where you think the clients will really want more savings type to lock in that interest rate at the moment before it falls further? Some kind of...

[Amanda Wang, executive]

Okay. So it's more of the Fed rate and also our response in the underwriting side and also on investment portfolio income side. And finally, your last question is FYPE's increase in the January and February, correct?

[Unknown Analyst]

Yes.

[Amanda Wang, executive]

Okay. So we'll have the [ wealth ] management to answer your question first.

[Unknown Executive]

Okay. Firstly on the key driver of the wealth management fee in year 2018, it mainly comes from the bancassurance business. The last year, the stock market is quite volatile. The sentiment on the investment field is not that stable. So most of the clients' investment interest focused on the insurance kind of product. So on this area, we see substantive growth on the management -- wealth management fee, that's on your first question. Second one on the Q-on-Q loan drop, it mainly comes from some logical seasonal issues. We see the loan demand on the year-end quarter reduced quite substantially, but this mainly on the NT dollar side. But on the foreign currency asset growth, we still see a good growth, mid-single double-digit growth on the whole year basis, is on your question number two?

[Unknown Analyst]

Oh sorry. Sorry, if I may, so for the wealth management fee, you were talking about 2018, but I was thinking if my impression was correct, the company expect for 2019 that the wealth management fee can go up by around 5%. So is that also going to come from insurance side and less so on the mutual funds, is that the concept?

[Unknown Executive]

That's still the -- I think the trend will be similar to last year.

[Unknown Analyst]

I see. I see. Okay.

[Unknown Executive]

Okay. I will say that the dovish announcement recently and we see the short-term end of the yield actually have a downside pressure and the -- in that configuration we will say the hedge costs, actually have been lower since the announcement is more aggressive. And also we were -- because our foreign reserve has been increased, and we will lower the proportion of the hedge position, when appropriate. So decrease a unit hedge cost and also hedge a proportion will give us -- reduce our overall hedge cost. This is on the hedge cost. And also the long end of the yield curve, actually, we will see, it will be likely to increase later this year. If the U.S. economy is not as weak as Fed prediction, then you will have [ a moon ] to go for a higher and also, if the stimulus relation in the U.S. fiscal policy trends into effect later maybe -- later this year or next year, then on your, you have the chance to go higher and then the curve will be more steepen than currently then -- which is our view on the yield curve and also hedge.

[Unknown Analyst]

Okay. And sorry, so you're saying there's a chance that you will lower the hedge ratio. And what is the main rationale behind that to lower the hedge ratio?

[Unknown Executive]

Okay. The hedge ratio is -- actually, right now we have higher and monthly required reserve ratio by our authorities from this year. That means our following reserve will keep increases -- reduce the monthly reserve increase. And also because we are hedged for TWD 3 billion in key reserve for the following reserve last year, that means we have more flexibility to leverage this kind of increasing or incremental of the following reserve. So we will leverage that.

[Unknown Analyst]

But conceptually, right, if the Fed is going to pause the rate or even cut it, dollar will stay weak. So don't you want to lock in that dollar strength right now, instead of later, because the dollar may fall. I'm just curious.

[Unknown Executive]

Yes. You're subject to market.

[Unknown Analyst]

I mean, we can probably take this off-line. But yes, I'm just curious, if that's what would be part of the...

[Unknown Executive]

Yes. I will say that most likely we will actively adjust, which is quite consistent in our strategy.

[Unknown Analyst]

I see. I see. And a strong FYPE, if time permits.

[Unknown Executive]

Okay. In order to deal with the hedging cost problem, this year we tried to adjust our product mix. And our strategy is reduce the NT dollar policy, the sales by -- stop the single premium policy. And right now, we only focus on regular pay NT dollar. And we also tried to reduce the credit rate to reflect the high cost. And we try to shift to foreign currency policies. And we also try to push more unit-linked policy. So that's why you will see in January and February, the FYPE grow lower than FYP growth.

[Unknown Analyst]

Sorry. No, no, I was actually quite pleased to see the strong FYPE growth in January and February.

[Unknown Executive]

Right. Yes, I tried to explain why the growth is higher than before.

[Unknown Analyst]

So the growth is higher because you sell more regular pay?

[Unknown Executive]

Right. For NT dollar.

[Unknown Analyst]

And non-NT dollar.

[Unknown Executive]

NT dollar.

[Unknown Analyst]

For NT dollar...

[Unknown Executive]

For non-NT dollar, we still have a single pay policies.

[Operator]

Speakers, our next question comes from Anderson.

[Anderson Cha, analyst]

This is Anderson Cha from BNP Paribas. And let me ask you 3 questions. First of all, with regards to your 2019 earnings guidance, can you be more specific, how much do you expect in terms of recurring yield and cost of liability for your life insurance business for this year? And also how much of OpEx growth have you modeled in for your banking business? And second -- my second question is, looking at Page 14 of your presentation, Taipei Fubon Bank allocated a large proportion of funds into investment assets. Can you elaborate a little bit more about the profile of such investment? And lastly, with regards to your China banking operation, can you update within operational development, especially with regards to weaker noninterest income in 2019? And can you also share some expectation? And when can we see more meaningful contribution from the China banking business? And also you mentioned about branch expansion going forward. Will it lead into a additional cost for 2019 and '20?

[Unknown Executive]

Okay. About the recurring, actually, our outlook is based on considering tightened new money rate and also lower hedge cost. And so it's reasonable to believe both our prehedge and also after hedge so that have the opportunity to improve business areas. This year we expect the customer liability will continue to drop, but the speed will be slower because we sell more foreign currency policy, which has a higher credit rate. And we will expect maybe drop of 5 basis point this year.

[Amanda Wang, executive]

On the banking side expense, we typically -- it's very careful to monitor. And we typically, we -- if we look at the cost income ratio that should be a very steady result, which is in the range of about 50%.

[Unknown Executive]

And on the investment portfolio, we -- mostly comes from the offshore U.S. dollar corporate bonds. And it mainly comes from a floating rate of about 40%. This rate comprise about 60% and mostly on the investment grade portfolio, which we -- we build up the portfolio quite substantially in the last 2 years.

[Amanda Wang, executive]

And regarding Fubon Bank (China), the -- I mainly reflect the indications the fee revenue in year '18 is not as strong. While that we think that in year '19 there should be some pickup opportunity and also from the wealth management business. And branch expansion, we actually are talking about 1 to 2 branches a year. So it will be very selective. Anderson, do we answer your questions?

[Anderson Cha, analyst]

Yes.

[Operator]

Speakers, our next question comes from [ Chantal ].

[Unknown Analyst]

Hello? Hello?

[Amanda Wang, executive]

Yes, please. Yes. please.

[Unknown Analyst]

My first question is on, it seems like many years ago, Fubon Life has an internal target of keeping life subsidiary leverage ratio at 15x or below. So is that still a valid metric or is it serving some kind of guideline for Fubon Life? And my second question is, because on Page 26, on life asset growth fell to 7%, so with FYPE target to be flat year-over-year this year. So what will be your life asset growth target for this year, while if further fell down? And so if we think from the group level, what will be the overall asset growth pace? And third, do you -- you still have room to issue preferred shares? And the last question is just in the Chinese section, the NIM guidance was 10 bps of increase and spread was 5 bps of increase. So is this already adjusted for the swap impact?

[Amanda Wang, executive]

Okay. I think let me quickly answer your question. We saw -- I don't think we have the leverage guidance in the past, no. But I think, if we look at our equity-to-asset ratio, I think we are still quite prudent. You can refer to the appendix in the back. And Page 26, you referred to the total investment asset growth, right? We think it should be quite steady in mid- to high single-digit growth range. And no, preference share, not in our plan at this moment. And while the NIM and spread -- NIM and spread...

[Unknown Analyst]

As for the preferred share, I just want to ask on -- hello?

[Amanda Wang, executive]

Yes.

[Unknown Analyst]

For the preferred share, I just want to know if do you still want to issue preference shares, do you still have room to issue? Is there any requirement by the regulators, like there's a quota, a limitation on the quota?

[Amanda Wang, executive]

I think it still depends on the need for the funding. And so far, we think on the demand side, internally we don't see the need to have such a capital issuance plan. And in spread and NIM guidance, it's exclusive of the swap.

[Operator]

Speakers, our next question comes from Steven.

[Unknown Analyst]

Just have some follow-up questions. Want to piggyback on I think Anderson's question on the recurring yield. I mean, I'm just looking at the screen right now. Looking at German 10-year yield falls to 0%, the U.S. yields are coming down, everywhere, basically, it's coming down. How -- what do those mean to your investment -- like does that mean the recurring yield, the new money yield it's going to go up because you are investing into a different asset class. Are you writing -- how would the company be able to achieve that under these environment? So that's on the investment side. I understand there's a lower hedging cost involved, but let's say, if you strip out the lower hedging cost, can you also do it before hedge, so to speak? And then secondly, I remember in the Chinese section, there's some data points mentioned around the LINE Pay, like REV pocket money and things like the -- I -- for some reason, I couldn't -- I wasn't able to capture most of those. So would it be okay if we can kind of talk about those again? And just broadly speaking, how can the LINE Pay initiative help the banking and the insurance business?

[Amanda Wang, executive]

Okay. So maybe we'll start from the recurring yields outlook.

[Unknown Executive]

Okay. I will say that for this year, our main focus will be on the domestic stock. As I just mentioned earlier, that we will be targeting at about 10% of our AUM and which we'll generally hedge for the higher dividend payout this year. So you will be -- so but, however, this may not reasonably decrease of the interest rate. I would say that we will dynamically invest and also subject to the market condition. So we still see we have possibility to have a more or even higher new money rate compared to last year. And also the real estate and the mortgage, we also prefer to have a more higher yield generally this year, yes.

[Unknown Analyst]

What is the scenario where there would be perhaps maybe more emerging market credit, where the yield is still attractive? And then because...

[Unknown Executive]

Yes. You are right. You are right. As you can see that in our power point, actually, we have -- we do have a increase more emerging market there. Actually, it's more focus on China and on the major target across the sovereign and also large-cap corporate, which is the main driver to increase or to enhance our corporate bond portfolio.

[Unknown Executive]

Okay. And then on the question on the LINE Pay corporation, I think on the Chinese section, the amount that we mentioned is a little bit confusion -- make some correction here. The accumulated transaction that we fit through LINE Pay as a payment method and the amount is close to TWD 200 million. But it's also linked second to -- number second to the market.

[Unknown Analyst]

The TWD 200 million, billion?

[Unknown Executive]

TWD 200 million.

[Unknown Analyst]

Okay, accumulative transaction. Okay. And if some other about users like, there was like some -- I even remember something about in RMB or I was -- it's not RMB, right? You're talking about the...

[Unknown Executive]

The current payment in Taiwan.

[Unknown Analyst]

Yes, yes, yes. It's the year-end, okay. And then there's some about 100,000 or 100,000 users or something like that and RevPAR [ k ].

[Unknown Executive]

Yes.

[Amanda Wang, executive]

Operator, do we have any other question in the queue?

[Operator]

Speakers, there is no question in queue as of this moment. [Operator Instructions] Speakers, we show no further question at this time.

[Amanda Wang, executive]

Okay. If there's no further questions, we appreciate your participation in today's call. If any further questions, please feel free to contact IR team. Thank you.

[Operator]

And that concludes today's conference. Thank you all for your participation. You may now disconnect. Speakers, please stand...