E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2021-Q1

[Alex Chiu, executive]

Ladies and gentlemen, welcome to E.SUN Financial Holding Company 2021 First Quarter Investors Conference. This conference will be moderated by me.

My name is Alex, from investor relations. IR team member Chiwei is also here. Besides, we are glad to have our President, Ms. Magi Chen, to join with us.

Today, the event is composed of 2 parts. Firstly, I will give the presentation on our operation in the first quarter. Second part is Q&A section, where we will answer your questions. Before entering to the presentation, I would like to invite President to give the opening speech.

[Magi Chen, executive]

Welcome, investors. Thank you for joining our investors conference.

For the first quarter, E.SUN net profit grew by 14.6% to TWD 5.2 billion. ROE was 11.28%, ROA 0.71%. And EPS was TWD 0.41.

E.SUN fee income business performed very well in the first quarter, with E.SUN [ boasting the highest ] fee income of any quarter in history. This was mainly driven by wealth management, which contributed TWD 2.5 billion and was also a record high of any single quarter. Moreover, security brokerage and underwriting fee income both performed very well. As for E.SUN loan business, strong domestic investment momentum helped boost loan demand. E.SUN grew by 9% Y-o-Y in loan business. In the -- gross volume was the second highest among peers. Net interest income grew by 20.3% [ during ] well-controlled funding cost, as quality was excellent with an NPL ratio 19 basis points.

2 weeks ago, the government announced an escalation of COVID control. E.SUN makes employees' safety and health our priority. At the same time, we are maintaining uninterrupted service and [indiscernible] business, and serious preventative measures have been implemented. We split the employees into different groups; and arranged groups to work from home, in the office or [ at a big ] location. E.SUN has fully prepared for this situation and can therefore ensure smooth operations during this period. Last but not least, E.SUN was recognized [ at the ] best banks in Taiwan by Forbes. The award recognized our high customer satisfaction and excellent service.

Moreover, based on ESG performance, E.SUN was ranked in the top 1% in the diversified banking industry by Sustainalytics to honor our strong management of ESG risk. Looking ahead, we will continue to pursue sustainable developments and create more value for our shareholders.

Thank you.

[Alex Chiu, executive]

Thank you, Ms. Chen.

Now we will move on to the presentation, starting with Slide 1, summary of financial holding company.

For the first quarter, total assets of financial holding company reached TWD 2.9 trillion, grew by 12% year-on-year. Key financial figures remained healthy: book value per share, TWD 14.89; double leverage ratio, 103.13%; and financial holding company capital adequacy ratio, 160 -- 136.20%. Operation channels are unchanged.

Let's move on to Slide 2. For the first quarter of 2021, financial holding company's net revenue were TWD 13.7 billion. And net profit was TWD 5.2 billion, grew 14.6% year-on-year. EPS TWD 0.41 and ROE 11.28%, ROA 0.71%.

As for business operations, I would like to highlight our net fee income, which reached its record high for a single quarter with 4.9% year-on-year growth. Also, wealth management fee income reached TWD 2.5 billion, grew by 3.8% year-on-year. Both numbers were new highs for the single quarter. Besides, E.SUN captured opportunity of increasing investment in infrastructures.

Based on that, loan balance grew 9%, mostly driven by SME and mortgage. SME loan growth was 15%. And E.SUN was awarded SME partner award for 16 years in a row. At the same time, our asset quality stayed benign. NPL ratio is 0.19%, and coverage ratio 649.4%.

Also there are some highlights in this quarter. The Board has announced dividend, TWD 1.22 per share, TWD 0.61 cash dividend and TWD 0.61 stock dividend, respectively. Please notice that the regulator has request all companies to postpone its AGM due to COVID-19, so we will announce new schedule when there is update for release. And E.SUN has ranked the first in Taiwan by Forbes' World's Best Banks 2021. As for ESG performance, E.SUN is top 1% in diversified banks industry in Sustainalytics' ESG risks rating and first financial institution in Asia to adopt 1.5 Celsius climates target.

Let's move on to Slide 3 for our financial performance. Key financial figures remained stable. Net profit reached TWD 5.2 billion. And EPS is TWD 0.41, while ROE is 11.28% and ROA is 0.71%.

On Slide 4. Net income of financial holding company is mostly contributed by E.SUN Bank, was 83.5%. And subsidiaries E.SUN security and E.SUN Venture Capital delivered strong [ profit ] performance.

Let's move on to Page 5, net profit breakdown of financial holding company. E.SUN well managed operating expense, with 2.6% decrease year-on-year. For our bottom line, net profit grew 14.6%.

Let's move on to the next slide for revenue breakdown. The total net revenue is TWD 13.7 billion, with 44% -- 44.3% coming from net interest income and 38.5% coming from net fee income and 17.2% from fixed income and others. Net interest income grew 20.3% year-on-year, and net fee income grew by 4.9%.

For Slide 7, net fee income breakdown. Total net fee income reached TWD 5.3 billion, mostly contributed by wealth management and -- with 47%, and 27% from our credit card business. For the first quarter, net fee income for wealth management grew 3.8% year-on-year, which reached its record high. And brokerage and other is also a strong [ performance ].

On Slide 8, credit card business breakdown. For active card, E.SUN has more than 4.4 million cards. That ranks the third in the market with 13.5% market share. Market share of card consumption is 14.5% in the first quarter.

Move on to Slide 9, deposit and loan structure. Total deposit grew 14.8% year-on-year, driven by demand deposits' 22.3% growth. Total loan growth -- grew 9%, with SME loans grew 15%. And the driver of consumer loan is mortgage with 19.7% growth.

Please move on to Slide 10, deposit structure. Overall LDR is 66.4%, increased 9 basis points compared to last quarter. Foreign currency LDRs rose slightly to 29.4%.

Please turn to Slide 11, loan portfolio breakdown. E.SUN maintained loan balance between corporate side and consumer side. For corporate loan breakdown, led by -- SME was 26.8%, followed by large corporate with 21.2%. On consumer side, mortgage loans account for 25.1%; followed by secured personal loan, 18.6%; unsecured personal loan, 7.5%; and credit card revolving, 0.8%. The right chart shows that major loan categories are stable growth.

Moving to Slide 12, NIM and Spread. NIM was 1.20%, and interest spread was 1.32%. E.SUN managed its funding costs well. Spreads increased 2 basis points this quarter.

Turning to Slide 13, asset quality. E.SUN maintained benign asset quality, relatively low NPL at 0.19%. Coverage ratio is 649.4%. Please turn to next slide, asset quality by product line. NPLs major product line is stable with mortgage NPL ratio 0.07%, decreased 1 basis point when compared to 2020; corporate NPL 0.21%; and credit card 0.15%.

Moving on to Slide 15. For the first quarter of 2021, [ compare is ] 0.19%, while the market NPL ratio is 0.23%, demonstrating that -- E.SUN's excellent asset quality management.

Please move on to Slide 16, CI ratio. For this quarter, CI ratio is 60.1%. Turning to Slide 17: Capital adequacy ratio of financial holding company was 136.20%. Bank Tier 1 ratio was 13%, and BIS ratio [ 15.64% ].

This is the end of the presentation. Now let's proceed to Q&A session. We will be happy to answer your question.

Thank you.

[Chiwei Hsiao, executive]

Okay, investors, we are open for questions right now. [Operator Instructions] Okay, we have the first question coming in. Wanted to share our thoughts and opinion on the recent COVID-19 and its impact in Taiwan economy. Basically we think the COVID-19 will cause some impacts on Taiwan, but it is expected to be a short-term impact due to a few reasons. First is that, during the past year, the Taiwanese citizen has demonstrated high level of discipline to contain the infection of COVID-19. Secondly, we have learned a lot of experiences from what has been through in other countries. And third is that the vaccine is already invented and it's already [ deployed ], so as long as the government can start to launch massive-scale vaccination, we think the pandemic can be contained in short or medium term of time.

[Magi Chen, executive]

[indiscernible].

[Chiwei Hsiao, executive]

And also, secondly, Taiwan is an export-oriented economy. Overall, Taiwan economy could continue moderate growth due to strong demand from major trade partners and investment in semiconductors and IT industry. The recent COVID-19 outbreak prompts government to impose strict restrictions, which could hit domestic activities in short term. From the experience from other Asian major countries, it did not have persistently impacts on export and IT productions. We have closely monitored COVID-19 uncertainties such as domestic new confirmed cases and restrictions, new variance, vaccine distribution and efficiency.

[Magi Chen, executive]

[indiscernible].

[Chiwei Hsiao, executive]

And also that the Taiwanese economy is -- there are a few sectors and industries that are important to Taiwanese IT manufacturing and industry; for example, 5G, Internet of Things or AI. And according to the statistics, in the first 4 months, the export number have a year-on-year growth of 28%, which is a record high. And also, the export order, the growth rate, is 48.2% year-on-year. So just because our export industry is highly related to the economy of developed countries such as U.S. and Europe and with the recovery of the global economy, our ICT industry will still remain resilient. And secondly, the investment from private sector is still growing on a stable pace, carrying on the re-shoring Taiwanese companies invest for the past 2 years, along with the investment in semiconductor, 5G and renewable energy. The investment from private sector sentiment is still very strong. Thank you.

[Alex Chiu, executive]

[indiscernible].

[Chiwei Hsiao, executive]

Yes. We have a few investors asking. The first question is about the reason why loan growth for the first quarter [ declined or stable ] and the guidance for the loan growth for the full year. I think, for the first quarter, the loan growth was not very strong for a few reasons. First is on the foreign currency change. The Taiwanese dollar was very strong, and that would cost if the loan balance denominated in NT dollar. The -- it just offsets our growth in foreign currency loan. So that's been the first reason. And second reason is from the corporate loan. Actually the corporate loan demand is still quite nice. However, there are a few cases are -- coming from international syndicated loans or merger and acquisition loans from P/E funds, and for those deals, it will take bit of time for the deal to complete and for the loan to draw down. And so we expect there will be some delay in the drawdown, maybe in second quarter or later this year.

And thirdly is on the individual or retail loan. In the first quarter, just because of seasonality, that is when the employees will get their annual bonus. So in the first quarter, there was a larger amount of repayment of the loan, so that caused the retail loan balance to decline in the first quarter. However, we still think the loan demand either from personal or from mortgage is still drawn this year. And actually, from April, the trajectory of loan demand has already gone up. And for the full year, we still guide a high single digit, 8% to 10%, loan growth the full year.

Okay, we have the second question coming in about operating expense, the guidance for operating expense growth for this year.

[Magi Chen, executive]

Yes. You can see our first quarter. Our operating expenses was negative and because E.SUN already have a cost control plan, yes. And so for full year's, I think our operating expenses should be -- we hope we can keep [ the breadth ], yes, for 2021, for whole year.

[Chiwei Hsiao, executive]

Thank you. Okay, now we have the third question. It's about credit costs. How much was write-backs during the first quarter? Yes, indeed, in the first quarter, we have negative provisions, and that is due to a few reasons. First, on the write-back level, actually it was built on a normalized level. So we did not see significant hike in the write-back amount. Secondly is because in the first quarter the loan growth was nearly flat, so since there was no large amount of loan growth and we do not -- we did not need to reserve high amounts of provisions for the first quarter. And the third reason is, for the first quarter of 2020, that is -- that was the time when COVID-19 outbreak started. And at that time, we did a very strict review on individual cases. And we reserve higher amounts of provision because -- in a conservative manner. And at the end, not all of the cases turned sour. So yes, combine the 3 reasons. That is why we have a negative provision for the first quarter.

Okay, we have next question coming in, about the loan growth. What areas are the main growth driver for the year, SME, retail or corporate? Okay, for the year, our guidance for loan growth is going to be 8% to 10%. And if we look at the split across corporate and retail: The retail banking loan growth will be...

[Magi Chen, executive]

Around 8%.

[Chiwei Hsiao, executive]

Around 8%. And corporate banking will be higher than 8%.

[Magi Chen, executive]

Higher.

[Chiwei Hsiao, executive]

So altogether will be higher than 8%; 8% to 10%. And on corporate banking, mainly we will focus on a few areas. First is the large domestic Taiwanese companies jumbo corporates. And we will -- because the investment sentiment is strong and capital expenditure need in Taiwan is quite good. According to our statistics, the loan purpose applied for capital expenditure has risen during the past quarter. So the CapEx loan demand is strong. And secondly, renewable energy. And ESG is also another catalyst for us to deepen our customer relationship with the customers. For example, we have initiated ESG-linked loans with a few customers. One is one of the main -- one of the major shipping company in Taiwan, and the other is one of the major telecom company in Taiwan. And thirdly is we will capture the opportunity if Taiwanese company want to allocate or relocate their manufacturing facilities in Southeast Asia. We have a very comprehensive cross-border platform and we will capture that opportunity. And on retail, the -- yes. So mainly still from the retail, personal loan or mortgage. And the momentum is still the same, quite stable.

We have the next question, about NIM. When do you see NIM bottoming out? We think the NIM will bottom out in the second quarter of this year. And the NIM is quite flat because of few reasons. First is our -- the main reason is we absorb a lot of deposit in NT dollar just because the liquidity in Taiwan is still very strong, very affluent. So if we have too much deposits, that will be negative to our NIM. So we are still trying to work out the situation. And also, on the other hand, if you look at the performance of our spread, it has steadily going up for 3 quarters in a row. So we have good faith that our NIM will bottom out in the second quarter and also...

[Magi Chen, executive]

[indiscernible].

[Chiwei Hsiao, executive]

Yes, in the second quarter.

[Alex Chiu, executive]

[indiscernible]...

[Magi Chen, executive]

NII...

[Chiwei Hsiao, executive]

Okay. And if you look at our...

[Magi Chen, executive]

Net interest income.

[Chiwei Hsiao, executive]

Net interest income. The net interest income growth rate for the first quarter was more than 20%. That was a very strong growth in the interest income related business.

Okay, so [ all the friends on the call ] -- it seems that we have answered all the questions, so we're going to call it a day. If you still have any questions, please contact IR.

So this is the presentation and the discussion for the first quarter. Thank you for joining. Bye-bye.