China Development Financial Holding Corp

TWSE:2883

Earnings Call Transcript 2022-Q1

[Richard Chang, executive]

[Foreign Language] Hi, Steve, the floor is yours.

[Steve Bertamini, executive]

[Foreign Language], Richard. [Foreign Language] Hello, everyone. Thank you very much for joining us today. I'd like to begin by giving you a very brief highlight of our first quarter performance.

To begin with, first quarter net income was TWD 9.7 billion, which ranked us #4 among the financial holding companies in Taiwan. We also continued to implement our ABCDE strategy and made a lot of good progress, particularly on the digital area regarding ecosystems.

We also made more progress during the first quarter on our Net Promoter Score in terms of developing more data, in terms of getting information now from multiple channels as opposed to only 1 channel, and we'll update you more on our progress on that in the future.

China Life had a very strong first quarter as well, TWD 8.8 billion in profits. And importantly, they continued to improve their VNB margin. It increased to 36.1%, up from 23.2% a year ago. So year-on-year, a very big improvement.

Also, you'll be updated a bit later from the team regarding the embedded value going up 12.6% to over TWD 400 billion. In terms of KGI Bank, continued strong performance with net income up 25% year-on-year. They also continued to maintain a superior net interest margin of 1.39%. We continue to see strong growth in lending, particularly in SME and personal loans, up 18%, and asset quality remained very strong with an NPL ratio of 0.14.

CDIB Capital had a more challenging quarter, particularly due to mark-to-market as a result of market fluctuations, but they also upstreamed -- or they plan to upstream during the second quarter, TWD 8 billion, some of it attributed to the sale of the building last year. They also received new fund commitments of TWD 1.4 billion.

KGI Security recorded net income of 1.4% -- sorry, TWD 1.4 billion, and ROE was at 8%, outperforming the industry, but also a more challenging environment in financial performance due to the state of the markets. They maintain their leading ECM and DCM position. Brokered and warrant market share also improved year-on-year. And also, we managed to increase our customer AUM by 11% year-on-year and launched a new mobility fund, which is based on EV technologies.

In terms of our strategy today, I'm only going to touch on a few comments. As I mentioned earlier, we continue to do a lot of work on the digital front, particularly to improve the customer experience and also to build the partnerships and alliances. On the becoming employer of choice, we just completed our strategic talent review, which will enable us to better identify and position our talent for future growth and opportunities in our business.

In terms of customer focus, as I mentioned briefly, NPS continues to be a key driver of how we improve customer experience. We're beginning to gather a lot of data that will enable us to improve our performance and the customer experience across all our channels.

In terms of driving growth, you continue to see a strong improvement in ROE and margins across the board. And also when it comes to cross-selling and data analytics, we're beginning to use better tools. Recently, we launched the first machine learning model for risk at the bank, which we believe is one of the first, if not the first in Taiwan. And on execution excellence, continued work, particularly around optimizing our investment and risk appetite given the more challenging environment. And we continue to make strong progress on our ESG agenda.

You can quickly turn to the next page. What we've done is just given you a brief update by subsidiary. Again, I do not plan on cover these in detail. I'll only just touch on a few. First of all, I want to remind everyone the very strong position that we have in China Life. We continue to have the lowest cost of liabilities and continue driving the VNB growth, which you can see as reflected in the improvement on our EV value up 12%.

The book remains very prudently managed with our duration averaging between 15 and 16 years. You can see continued progress on the digital front, particularly with the launch of the new iLife app. Every subsidiary now is working on implementing our new HR system, Workday, which is a world-class platform as well as implemented LinkedIn across -- learning across the board. There's been strong progress made in terms of NPS and more recently also expanding micro insurance services to underprivileged people. A lot of good work continues on driving growth. But again, given the more challenging environment, it's about continuing to perform in a difficult environment.

And on expanding distribution, we continue to work with our channels to improve the mix so that we can keep driving our VNB margin. In terms of the bank, just to remind you, key focus for the bank remains to continue to improve margins, to continue to improve CASA and the fee income mix. And also, as you can see, for example, in the first letter, we launched our 12 ecosystem partner, and we'll be rolling out e-account signature opening in April.

We continue to look for ways to accelerate the deployment of our new mobile applications, and we're currently piloting a new design, which we expect to launch during the first half of the year. There's a lot of good work that continues on the data analytics side, and we've seen very good progress in China despite the tough environment of our consumer finance JV, reporting a profit during the first quarter even though it's only 12 months old.

And you can see also in terms of continued progress on the ESG agenda, as well as continuing to fine-tune our models to further improve analytics. If we move to the following page, CDIB Capital. Despite the tougher environment, they completed 2 transactions for TWD 1.5 billion. We continue to streamline our processes, a big upstream of dividends this quarter, which will really help the overall financial results in terms of cash flow, and we continue to work on automating further workflows across the company.

KGI Securities continues to focus on shifting to more of a wealth management model, and they began to make very solid progress on our digital agenda. And we continue to work on a better platform for ages so that we can expand our wealth management services.

Some more work has begun to happen around RPA and process engineering. We've also renovated our branch. We're trying to improve the image and the quality of the customer experience when they come to see us. Good progress in terms of branding and also in green financing. I'll now turn it over to Jenny to make some comments on the financials.

[Jenny Huang, executive]

Thank you, Steve. [Foreign Language]

[Richard Chang, executive]

[Foreign Language]

[Operator]

[Foreign Language]

[Unknown Analyst]

[Foreign Language] But just specific, either way can you give a lot of color on the thinking behind capital raising approval. [Foreign Language] now what kind of EV, the moment year-over-year, [Foreign Language] on the hedging cost, the split between NDF and the currency swap. Now this [Foreign Language] the spread Q-on-Q is down 8 basis point. That's a year-over-year net interest margins of [indiscernible] basis points. [Foreign Language]

[Steve Bertamini, executive]

[Foreign Language] [indiscernible] Okay. We'll try again. That we would issue a share [indiscernible]. [Foreign Language]

[Richard Chang, executive]

[Foreign Language] Steve, can we restart again?

[Steve Bertamini, executive]

Okay. Thank you. Apologies to everyone for the technical issue. I think when we activated the Q&A session to see everyone, it created an echo. So the answer to the question is twofold.

First of all, as you're aware, we obtained approval from the Board to issue up to 2.5 billion shares that based on the closing price at the end of May, it would be TWD 40 billion. The reason for this is twofold. The first is we want to make sure that we retain a proactive and sound financial structure for our company, particularly because of the potential and the market volatility we've seen. And second is because we believe there'll be some M&A and strategic investment opportunities available to us.

We've identified a few, and we want to make sure that when the right time comes, we are prepared to do the offering. We haven't yet finalized the timing of the amount, but the approval that we have will be in place for the next 12 months. And as soon as that decision is made, we will get it ratified by the Board, and we will inform the market at that time. I will now get China Life to answer the second question.

[Unknown Executive]

[Foreign Language]

[Jenny Huang, executive]

[Foreign Language]

[Unknown Executive]

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[Jenny Huang, executive]

[Foreign Language]

[Richard Chang, executive]

[Foreign Language]

[Operator]

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[Unknown Analyst]

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[Unknown Executive]

[Foreign Language]

[Jenny Huang, executive]

[Foreign Language]

[Unknown Executive]

[Foreign Language]

[Operator]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Unknown Executive]

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[Unknown Analyst]

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[Unknown Executive]

[Foreign Language]

[Operator]

[Foreign Language]

[Unknown Analyst]

[Foreign Language]

[Richard Chang, executive]

[Foreign Language] Yes, please.

[Steve Bertamini, executive]

Yes. Thanks for your question. Obviously, as you know, market volatility has been pretty wide ranging. We currently purchase data both domestically and overseas. That allows us to, every month, update all our scenarios, our run sensitivity analysis so that we understand the potential impact, not only for the balance of this year, but next year.

We've also made adjustments to our book, particularly in China Life beginning late last year to mitigate the impact of further rate increases. Obviously, we're not in a position to disclose the actual amount because it depends on what the market does, and these scenarios get updated every month. But we're very comfortable that the team has done a good job managing the current scenario. They've anticipated different scenarios, both good and bad. And as more information becomes available, they will adjust the books accordingly.

[Operator]

[Foreign Language]

[Steve Bertamini, executive]

Since there's no more questions, I just want to briefly thank everyone for dialing in today. As I think you saw, we've managed to perform well in the first quarter. Obviously, April has been quite challenging for the whole industry. And I think we'll see some impact as well, but we remain cautiously optimistic about the second half. We have a very good team, a very clear strategy, and we'll continue to execute as the year goes on, irrespective of the challenges in the environment that we face. So thank you very much for dialing in, and thank you for your support.

[Richard Chang, executive]

[Foreign Language]