China Development Financial Holding Corp

TWSE:2883

Earnings Call Transcript 2020-Q1

[Lily Li, executive]

Welcome to CDF's performance review for the first quarter of 2020, and I'm Lily from the IR team at CDF.

To enhance investor communications, we began to hold quarterly investor conference in 2020 instead of on a biannual basis. However, CDF has not published its audited quarterly financial statements. And therefore, the financial information included in this presentation is unaudited and subject to revision upon completion of CDF's audit process.

Today's broadcast consists of 2 parts. We will start with a 15-minute presentation, followed by a question-and-answer session. Please follow the instruction at that time if you would like to raise any question.

Today's presentation will begin with CDF's performance review, followed by performance updates of CDF subsidiaries, that is China Life, KGI Bank, KGI Securities and CDIB Capital Group.

Without further delay, please turn to Page 5 for a quick summary. The COVID-19 pandemic outbreak has tracked down global financial markets, and CDF posted unaudited net loss of TWD 488 million for the first quarter of this year, with China Life still being the largest profit contributor for TWD 1.198 billion, followed by TWD 532 million from KGI Bank, while KGI Securities posted net loss of TWD 322 million, and CDIB Capital Group, in particular, posted net loss of TWD 1.717 billion, mainly due to unrealized mark-to-market loss. However, we anticipate such investment valuation should pick up amid financial market recovery due to COVID-19 containment and stimulus package adopted by major economies.

It is worth mentioning that CDF's unaudited net income rebounded to TWD 2.056 billion in April, bringing net income to TWD 1.567 billion for the first 4 months of 2020, with China Life contributing TWD 1.434 billion for the first 4 months, KGI Bank contributing TWD 990 million, KGI Securities contributing TWD 611 million, while CDIB Capital Group's net loss has narrowed to TWD 900 million as global capital markets recovered from previous downswings.

We did observe that global financial markets have gradually got back on track since April. However, we have thoroughly reviewed the credit quality of our loan and investment portfolio and have further tightened our already prudent risk management by increasing the frequency of monitoring and evaluating the economic impact of COVID-19 on our profit and net worth as well as conducting stress tests for stricter supervision of our Board and Risk Management Committee.

Next, regarding each subsidiary's performance. China Life continues to deliver resilient net income of TWD 4.459 billion for the first quarter of 2020, of which CDF recognized TWD 1.198 billion. Its VNB margin has been increased with a focus on traditional regular premium products. You may be concerned about the status of CDF's acquisition of further equity interest in China Life. The FSC approved a grace period before June 2022 when CDF's Board members' terms expire, and CDF will report any progress in the deal to the Board and FSC on a regular basis.

As to KGI Bank, it continues to implement its customer-centric and value-oriented strategies to focus on better efficiency, lower funding costs and higher asset yield, all aiming to increase its ROE. In spite of stable core earnings, KGI Bank posted net income of only TWD 565 million for the first quarter of this year as trading was impacted by financial market fluctuations. However, with solid capital structure and sound asset quality, KGI Bank will continue to optimize its loan and deposit structure to lower funding cost and enhance yield.

As to KGI Securities, affected by the fluctuations of global financial markets, KGI Securities posted net profit of TWD 71 million in the first quarter of this year. In addition to strengthening its risk management, KGI Securities will also continue to rationalize its regional footprint to complement Taiwan and add revenue diversification as well as grasping opportunities amid COVID-19 storm.

Last but not least, affected by capital market corrections, CDIB Capital Group posted net loss of TWD 1.717 billion for the first quarter of this year primarily resulting from unrealized mark-to-market valuation loss. With investment valuations coming down as well as small and midsized venture capitals exiting the market, CDIB Capital Group is actually in a better position to engage targets at more reasonable price. In addition, CDIB Capital Group continues its asset monetization strategy, and CDF's Board recently approved the launch of a public tender for our headquarters building. On the other hand, its private equity AUM reached TWD 37.5 billion as of the end of the first quarter of this year, with multiple forward-looking thematic funds in the pipeline. More specifically, please turn to Page 6. The chart shows CDF's net loss of TWD 488 million in the first quarter of this year, with China Life still being the largest profit contributor.

Now please turn to Page 8. China Life continues to deliver solid growth with net income of TWD 4.46 billion in the first quarter of this year.

Please turn to Page 9. As China Life continues to promote traditional and regular premium products to enhance new business value, regular premium products accounted for 45% of FYP in the first quarter of 2020, boosting its VNB margin to 32%.

Now let's move on to Page 11 for KGI Bank's net revenue. KGI Bank maintained steady growth of 12% in core revenue for the first quarter of this year although its trading income was impacted by financial market fluctuation. The chart on the left-hand side of Page 12 shows KGI Bank continues to optimize its deposit structure with our cross-selling efforts and expanding product lines. As a result, the demand deposits grew at 12% in the first quarter of this year to reduce the funding cost, while the chart on the right-hand side show that KGI Bank continues to realign its loan portfolio to focus more on yield rather than on growth alone. As a result, the chart on the left-hand side of Page 13 shows that interest spread and NIM improved in the first quarter of 2020, while the chart on the right-hand side showed that, with strong risk discipline, KGI Bank maintained a stable NPL ratio of 0.17% as of the end of the first quarter, much lower than the peer average of the 0.24%.

As to our KGI Securities, Page 16 shows that brokerage business remained KGI Securities' major income source in the first quarter of this year.

Please turn to Page 21. It is worth mentioning that its subsidiary, KGI SITE, has initiated a transformation plan since March on 2018 and witnessed its AUM growing by leaps and bounds to reach TWD 169.2 billion as of the end of the first quarter of this year, ranking the seventh among its peers.

Now let's move on to Page 23 for CDIB Capital Group. Echoing CDF's strategy to monetize assets and reallocate capital, CDIB Capital Group's principal investment stood at TWD 28.2 billion as of the end of the first quarter, as shown in the chart on the right-hand side. On the other hand, our private equity fund AUM registered TWD 37.5 billion in AUM as of the end of the first quarter, with multiple forward-looking thematic funds in the pipeline to further increase the AUM.

Page 24 shows that our asset management portfolio covers the entire spectrum of investing, including TWD 4 denominated funds, USD 4 denominated funds and CNY 3 denominated funds already established to focus on different regions and investment stages.

This page summarize our fund size vintage year, our shareholding of these 11 funds under our management for your quick review.

This concludes today's presentation session. And now we begin the question-and-answer session. [Operator Instructions]

There is no further question. We thank you for your participation in our webcast conference. There will be a webcast replay within an hour or so. Please visit www.cdibh.com under the Investor Relations section. And if you have further questions, please feel free to contact our IR team.

You may now disconnect. Thank you again, and goodbye.