E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2023-Q1

[Chiwei Hsiao, executive]

Hello, investors. Welcome to the E.SUN Financial Holding Webcast Conference for the First Quarter of 2023. Today, I'll be the moderator. My name is Chiwei, along with my colleague, [ Stephanie ] and Alex.

And at the beginning, I would like to invite CEO and President of E.SUN Financial Holdings, Ms. Magi Chen, for a brief opening note.

[Magi Chen, executive]

Welcome. Thank you for joining our investor conference. For the first quarter, E.SUN Financial Holdings and E.SUN Bank, both reported the highest quarterly earnings in history. E.SUN Holdings net profit grew by 39.7% with an ROE of 12.03%, and E.SUN Bank grew by 49.7%.

Today, we also disclosed the profit for first 4 months, TWD 7.6 billion. It is 56.1% Y-o-Y growth, and it's a record high for the same period. We have a strong start for the year, and we will carry on our good work.

In response to the recent global economic slowdown, Taiwanese corporates are also acting prudently to deal with the cycle and inventory levels. E.SUN provides corporate clients with financial [indiscernible] solutions, including loans, FX hedging, [ pro ] business and ESG advisory. The first quarter total loan growth was 5.6%, especially ESG-linked loans grew by 83.8%. The ESG related loans now accounts for 34.8% of corporate loans.

On fees, credit card fees grew by 12.3% and had double-digit growth for the third quarter in a row. The main driver is overseas travel and consumption, which increased by 17% Y-o-Y. Wealth management fee in the first quarter is flat year-on-year, but has improved significantly than the fourth quarter 2022. As the financial market recovered, demand for wealth management product is also getting stronger. By the way, E.SUN set up a new position, financial planner, over 100 people, who is mainly responsible for advisory on insurance products. We expect wealth management product mix will move balanced, and we expect to deliver double-digit growth in fee income.

Lastly, I want to thank investors for supporting the TWD 16 billion capital raising, which has closed on May 3 with great success. With strong capital, E.SUN will continue to strengthen our business in Taiwan, in overseas, in digital and in ESG. We will work hard to create more value for all shareholders, and we are confident that E.SUN will have a good performance this year. Thank you.

[Chiwei Hsiao, executive]

Thank you, Magi. And now I will spend a few minutes to walk you through the presentation of the first quarter. On the first page is the financial holding summary. For the holding company and the bank, the assets surpassed TWD 3.4 trillion in the first quarter. On book value per share, it went up to $14.34 per share. On double leverage ratio, it was 103% and the CAR ratio for the holding company, it was 128%. There was no change to our channel, no matter in domestic or overseas.

On the next page is the business and financial review for the first quarter. The net revenue was TWD 15.8 billion, and net profit as we just pointed, it was a record high for any quarter of history. The net profit was TWD 6 billion, and it grew by 39.6%. And for the bank, it was also a record high with a growth rate of 49.5%. And for the EPS of the holding company, it was $0.42 per share, ROE of 12%. And for the first 4 months, the -- we also reported the preliminary net profit. It was TWD 7.6 billion, and the growth rate was 56%. It was a record high for the same period in history.

And I also want to know that in April, we -- the net profit, it took the expenses associated with the rights offering because we reserved 15% of the share for the subscription for our employees. And there were some expenses, about TWD 455 million, associated with the rights offering. And it has -- and we -- after taking that expense into consideration, we still set a record high for the same period in net profit.

On our business operation, the total loan growth rate was 5.6%, in which SME was 5% and foreign currency was 3%. I also want to mention is that the sustainability-related loan growth rate was 14%, especially what has been mentioned by Magi, the ESG-linked loan, the growth rate is even higher, more than 80%. And the sustainability-related loan now accounts for about 35% of the corporate loan. And the net fee income in the first quarter, it was TWD 5 billion, which was a 4.4% decline. However, we are quite positive about this result because in credit card fees, we see a very strong recovery of overseas travel and the growth rate for the credit card fee was 12% growth.

And for the wealth management, it was generally flat. However, we still see some very positive signal, especially from strong growth rate of our VIP clients, no matter in the new accounts or the AUM. So we are quite positive and quite promising about the outlook for the year.

And also, what's worth mentioning is that in assets, fixed income and other revenue, we had very strong growth in the first quarter, and it was mainly due to the market -- mark-to-market gain and our very appropriate market -- money market operation. And on asset quality, we maintained a very stable and benign asset quality in the first quarter.

And there are some highlights in the first quarter. First of all, is the capital raising. We have successfully raised TWD 16 billion, and we will use the funds to enhance capital adequacy ratio and business development of E.SUN Bank. And in this quarter, we continue to receive many honors and recognition from many outside institutions, including Forbes'’ which nominated E.SUN as the best bank in Taiwan. And also a very famous magazine, Global Views magazine, it also nominated E.SUN as the first prize in ESG Awards. And also E.SUN and its subsidiaries were certified by Taiwan's Corporate Governance Association with “Excellence” grade in the CG evaluation.

So I think E.SUN is pursuing the overall performance, not only the financial performance, but also want to be the most respected company by the community. And ESG is our long-term commitment, and we will continue to put more effort into ESG.

In the next page, which is a performance of net profit, EPS and ROE and ROA. As what you can see in the ROA, we see a very strong bounce back. In the first quarter, the ROE recovered strongly from the previous year level and the ROA also delivered 0.7%.

Next page is the net income of holding and subsidiaries. As what you can see for the bank, it was a very strong growth in the first quarter.

Next page is the net profit breakdown. In net revenue, the growth rate was 16.6%. In operating expenses, we have a 5% growth mainly due to a relatively low base. In net provision, we have a positive number for the net provision. It was mainly due to, in the first quarter, there was a slight decline in our total loan balance. So we do not have to reserve the general provisions.

And for the next page, is the net revenue breakdown. In the first quarter, E.SUN reported net revenue of TWD 15.8 billion, including NII accounts for 42% and fee income accounts for 31.3%. Other income accounts for 26.8%. That's what you can see in the right-hand side, both NII and net fee income declined slightly, but other income, it was a very solid performance in the first quarter.

In the next page, there was the fee income breakdown. In the first quarter, we reported TWD 4.9 billion in net income, including 45% coming from the Wealth Management and 33% from credit card. And especially in credit card, we delivered a 12% growth in the first quarter.

Next page, I would like to use 4 graphs to illustrate our performance and market position of our credit card. In active card, our market share was 13%. In card consumption, our market share was 13.2%. And I want to say something about the card consumption is that, in this year, our strategy is we do not want to compete with our peers on price or to pursue a higher market share at the expense of our profitability. What we want to pursue is a profitable growth. However, we still managed to maintain our consumption growth at double digits in the first quarter. Still, we maintain our credit card consumption market position as the third in the market.

On next page is the deposit and loan structure. On total deposit, it was TWD 2.86 trillion. It was a 1.3% decline year-to-date, among which the foreign currency deposits declined by 8.3%. And it was mainly our strategy because the high-rising interest rate and foreign currency deposits will jeopardize our funding costs. So we strategically want to lower the high cost deposits to maintain a more stable funding cost level.

On total loan balance, it was TWD 1.95 trillion, which was 0.3% decline year-to-date. On foreign currency loans, it was a 5.5% decline year-to-date. It was mainly due to a weaker demand for foreign currency loans from Taiwan domestically. Because the local corporate, they would rather to borrow money in NT dollar rather than in U.S. dollar because of the interest rate different. However, but for the overseas market, we still see quite healthy on loan growth in our overseas branches and subsidiaries.

On next page is the deposit structure. On the left-hand side is the LDR for the loan-to-deposit ratio of foreign currency, it was 34%, and the overall, it was 30 -- sorry, it was 68%.

On the next page is the loan portfolio breakdown. Our total loan, it was TWD 1.9 trillion, in which SME accounts for 26.7%, and large corporate accounts for 21.8%. On retail banking, mortgage accounts for 25.3%, and secured personal loans account for 19%, unsecured personal loans was 6.5%. When you look at the right-hand side, when you compare to the same period of last year, as what you can see across all sectors, we have a growth across the 4 sectors of loan.

On next page is the NIM and spread trend chart. On the left-hand side, we managed to improve 4 basis points quarter-on-quarter in our NIM. And our spread, it was a 1 basis point decline. And we have explained in great detail in our earlier session, early earnings conference this afternoon.

On the next page is the asset quality. Our NPL ratio was 0.17% NPL ratio. The coverage ratio is nearly 700%.

Next page is the NPL ratio by product category. For the corporate NPL, it was 19 basis points and mortgage NPL was only 5 basis points. So as what you can see, we still manage a very sound, very benign asset quality.

And when you flip to the next page to look at our asset quality trend relative to the market, still the asset quality is a very important strength of E.SUN.

On the next page is the CI ratio. It was 53%, a very significant improvement compared with last year. So we hope we can continue the very good performance in management of cost of CI ratio. On capital adequacy ratio, we do not renew our CAR ratio or BIS ratio in the first quarter, and we will report our BIS ratio in our second quarter earnings conference.

On next page is some of our recent improvements and achievements in ESG. E.SUN will continue to enhance and expand our scope of concerns in ESG, no matter in biodiversity or on the social side, we are included in the Bloomberg GEI, Gender Equality Index, or on Corporate Governance.

And on next page is some of the recognition E.SUN received from a very important sustainability rating agencies or institutions, including DJSI, MSCI for Sustainalytics. And E.SUN is also nominated by the regulator to be one of the founding member of Coalition of Movers and Shakers, which is the very important and leading commission for ESG in the banking industry.

And this is all for the presentation of the first quarter. And now we are open to answer your questions. Thank you.

[Chiwei Hsiao, executive]

Yes. We have our first question about the wealth management performance and the wealth management fee outlook for the year.

So first of all, I would like to -- so first of all, on the wealth management fee breakdown, we used to disclose our fee breakdown in mutual funds and bancassurance and other financial products. In this year, the breakdown is 36% from mutual fund sale, 43% from bancassurance and 21% from other financial products. That's what you can see. In the past, E.SUN used to have a more skewed fee breakdown in our wealth management products. We used to have nearly like 50% from mutual fund sale. And now we have a more balanced wealth management fee breakdown. And this year, we still see a very good outlook from the sale of insurance and other financial products. Especially as Magi just mentioned in the opening remarks, we set up a new position is called financial planner. Their role will mainly be the insurance consultants for our clients who have a need for insurance protection for the wealth succession or the protection against market volatility. So we have a very positive outlook for the fee income associated with bancassurance sales. And for the full year, we expect our wealth management fee income will grow by 10% or double-digit growth. Thank you.

[Unknown Executive]

Dear investors. We have another question asking why we see a weak quarter-on-quarter loan demand and how are we targeting the full year target for loan growth?

I think for the first quarter due to -- as Chiwei was mentioning in the introduction, I think due to inventory issues, our market are more conservative and the lending, the vacation loan kits are less in the first quarter. So that's why we see a weak quarter-on-quarter loans. But overall, we see the market are more stabilized in the following quarters. And in Taiwan, the real estate market are stable. So therefore, we think the full year, our loan target will be around 7%. And if we break down by corporate and retail, corporate will be around 8% to 8.5%, which the lending from overseas branches will be very strong drivers. And for the consumer lending, which is around 5% to 5.5% for full year loan growth. Thank you.

[Unknown Executive]

I would like to add on, on the previous answer. On the first quarter, I think because we see -- because of the high U.S. dollar interest rate, so the incentive for the local corporate are less willing to borrow foreign currency loans. But we see -- but this trend -- but the loan demand is still okay in overseas. And this trend, we think, has been -- I mean, the trend of weak -- less willing to lend has changed in May, which people are more willing to startup and do the lending. That's why we are confident that the loan will pick up in the second quarter following out.

[Unknown Executive]

We have another question asking what is the trading time for the income outlook for the remaining years?

So first of all, I would like to briefly break down the outlook FX, investment and other income breakdown. So around our income, 1/3 is from customers flow, for example, the FX trading -- their derivative trading with E.SUN. And the other 1/3 come from the swap. And the last 1/3 is from our investments, our mark-to-market. So from these 3 parts, so first, for the customer flow, we think that we expect this will continue to [indiscernible] We are approaching more customers, and the customers still have needs to hedge against their activity. So we think that will continue to grow. And for the part -- the portion of swap, we think that will remain stable for the remaining of the year. And the last part for our investment and the mark-to-market, so if we think the Fed will stop raising interest rates, I think that will be benefit for mark-to-market. Thank you.

[Chiwei Hsiao, executive]

Okay, investors. Now we seem to have answered all the questions that we have for this session. So it's very great to have you to join us in the English session web conference. And hope to see you again soon. Thank you. Bye-bye.