E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Analysis

E.SUN Financial Holdings' Record-Breaking Quarter

E.SUN Financial Holdings witnessed a historic performance in the first quarter of 2024, registering a record high in quarterly net profit. This remarkable achievement was largely driven by an impressive 26.2% year-over-year increase in net fee income【4:0†source】.

Strong Contribution from Wealth Management and Credit Cards

The wealth management sector experienced a robust 34.7% growth in fee income, setting a new record. Additionally, the credit card business also showcased a commendable performance with a 7.1% increase in transaction volume. The fee income from wealth management in April alone was the highest in recent years, elevating the overall performance expectations for the year【4:0†source】 .

Optimistic Outlook on Fee Income

E.SUN is optimistic about its fee income growth for the remainder of the year. They foresee a possibility of hitting the higher end of double-digit growth, powered by strong performances in both credit card and wealth management sectors【4:0†source】.

Overseas Expansion Efforts

E.SUN continued its aggressive overseas expansion by opening branches in various locations. They recently established a branch in Fogaca and are planning new sub-branches in Kumamoto and Toronto, aiming to strengthen their global footprint. These expansions are expected to serve large corporates like TSMC and their supply chains more effectively【4:0†source】.

Commendable Cost Control

Despite a 13.5% year-over-year increase in operating expenses in the first quarter, E.SUN successfully managed to curtail this growth to just 6.7% by April. Their dedicated cost control units and strategic spending in technology contributed to this achievement, ensuring disciplined cost management throughout the year【4:0†source】 .

Sustainable Financial Health

The financial health of E.SUN Holdings remains robust, with their net interest income growing by 18% and their net revenue reaching TWD 17.5 billion. Leveraging a strong balance sheet, the company has maintained stable earnings and consistent dividends, offering $1.2 per share in cash and $0.20 per share in stock【4:0†source】 .

Progress in Loan Growth

E.SUN saw an impressive 9.5% growth in its loan balance, driven by an 8.6% rise in corporate loans and 11.8% in SME loans. Retail banking, led by mortgage loans, also performed well with a 10.5% growth rate. These figures align perfectly with the company’s guidance of 8-10% loan growth for the full year【4:0†source】 .

Recognition and Awards

E.SUN's excellence did not go unnoticed, receiving accolades from several prestigious institutions. They were named the best bank in Taiwan by Global Finance and awarded by the Credit Guarantee Fund for the 19th consecutive year. Additionally, their commitment to ESG has placed them in the top 5% of corporate governance as recognized by the Taiwan Stock Exchange for nine consecutive years【4:0†source】 .

Earnings Call Transcript 2024-Q1

[Chiwei Hsiao, executive]

Dear investors, welcome during the earnings call of results of First Quarter 2024. The time is 8:00, so we will begin now. My name is Chiwei, I'll be the moderator today. With me in the meeting room, we have my colleague, Alex Chiu and Martin Lin. At the beginning, I would like to invite the Vice CFO of E.SUN, Ms. Sarah Chen, for a brief opening now.

[Sarah Chen, executive]

Good day, dear investors. Welcome to join today's investor conference call. E.SUN delivered a good performance in the first quarter this year, making a record high in quarterly net profit. In this quarter, our net fee income set a new record and growing at a rate of 26.2% Y-o-Y. The net fee income from wealth management also achieved a record high. This year, the investment market has been active with double-digit growth in fee income from major products such as mutual funds, insurance and overseas bonds. Additionally, credit card transaction amount also marks the highest record for the first quarter in Q3. Today, before the earnings conference, we announced the result for April. -- growth rate of net profit for the first 4 months reached 5.4%. Net fee income continued to grow, reaching 31.3%. The fee income from wealth management in April was the best monthly resource in the past years. We are optimistic about our fee income performance for this year and expected to achieve good results. In the presentation, operating expenses in the first quarter were slightly higher with Y-o-Y growth exceeding 10%. And However, in April, the Y-o-Y growth rate of operating expenses decreased to 6.7%, and the CI ratio dropped to 53.5%. We will still strictly control the growth rate of expenses to single-digit growth for the whole year. Our overseas expansion last year, Eton established a branch in Fogaca, making it the first Taiwan Men's owned bank to establish a brand in Q2. This year, we are further applying to establish a subbranch in Kumamoto.The location of TSMC factory, which will serve TSMC and its supply chain. In additional, we are also applying to open a branch in Toronto, Canada. In the next few years, E.SUN plans to strengthen our overseas presence. Lastly, E.SUN has consistently received recognition in ESG. Last week, E.SUN has been lifted in top 5% in corporate governance in acceleration for the 9 years by Taiwan Stock Exchange. We will continue to deliver value to our shareholders. Thank you for your attention.

[Chiwei Hsiao, executive]

Thank you, Sara, for summarising the highlights of the first quarter. Then now I will spend a few minutes to quickly walk you through the presentation of the first quarter on Page 1, the E.SUN Financial Holdings financial summary, both the holding company and the bank, the asset growth year-to-date is 2.7%. The book value per share is $15.66 per share, which is slightly increased from the December of 2023 double leverage ratio and the cost ratio for financial holding company are both at a very adequate level. Next page is the business and financial review. As Sara just mentioned, both our revenue and the net profit were record high. In the first quarter, net revenue grew by 10.7%, and the net profit was a 3.4% growth, and it also set a record highest profit of a single quarter. According to the latest latest monthly results, our net profit as of April is TWD 8 billion, and the growth rate further slows up to 5.4%. So first quarter and for the first 4 months, E.SUN continued to deliver very consistent and very stable performance, not only the bank but also the other 2 subsidiaries security and also E.SUN central capital, both delivered very good performance in the first quarter. On business development, the loan balance as of the first quarter grew by 9.5% in which the corporate loan grew by 8.6% in which SME loan growth was 11.8%. On retail banking, the growth rate was also very good. It was at 10.5%, mainly contributed by mortgage. On the fee income, which is a highlight of our performance this quarter, the growth rate is 26.2% in which the wealth management fee income, it was a 34.7% growth. And it was also the highest net fee income from wealth management of any single quarter. On credit card, it was also a very good performance. The growth rate was 7.1%. And as of the first 4 months of April, the fee income continued to go up the growth rate more than 30%, especially Wealth management net fee income growth rate was more than 40% and -- so we are very positive about the income performance and also wealth management. This is something that we are very confident in this year. On other business highlights, of course, the dividend policy, the payout ratio is more than 4% for cash dividend payout ratio. We plan to pay $1.2 per share for cash and $0.20 per share for stock. And this resolution made by the Board is subject to approval by the AGM. On the other hand, we are also recognised by many institutions. For example, global finance and fourth, both approved that E.SUN is the best bank in Taiwan for this year. And E.SUN once again awarded by credit guarantee fund for 19 years in a row. So on the other hand, the asset also gave the best SME bank in Taiwan to E.SUN and this is -- and this is the 12th consecutive year for E.SUN to receive this award. And both the world recognise that E.SUN is the top-performing bank in SME sector.On next page is the financial performance for the past 5 years. As well, you can see the net profit is TWD 6.25 billion. EPS was $0.40, ROE was 10.38% and ROA is 0.68%. All of these numbers are at a very decent level. Next page is the net income of the company and the subsidiaries. The bank contributed to 89% of the net profit, while other 2 subsidiaries, security and mature capital both performed adequately in the first quarter and also contribute a fair amount of profit. The next page is the net profit breakdown. The net revenue grew by 10.7%, operating expenses, the growth rate was more than 10%, 13.5%. The bottom line was 3.4%, but that's what we just indicated earlier, as of April, the operating expenses growth rate went down -- goes down from 13.5% to 6.7%. So cost control is something that we are aware of and very important. So we will continue to maintain a very disciplined cost controls. Next page is the revenue breakdown for the financial holding company. The first quarter, the net revenue was TWD 17.5 billion. The net interest income contributed contributed 44.7%, followed by net fee income, 35.7% and other income. On the right-hand side, the growth rate of the 3 categories of revenues. The net interest income grew by 18% and fee income grew by 26.3%. The other income, there was some decline, but there was the and-- but the decline is partly offsetted by the increase in net interest income. Maybe we will discuss that later in the Q&A session. On the next page is the net fee income breakdown. And the total net fee income is TWD 6.2 billion. The wealth management contributed to -- contributed 47.8% followed by credit card, brokerage and corporate banking. On the right-hand side, where you can see wealth management growth rate is 34.7% until April, the growth rate continuing to grow to more than 40%. So our wealth management is performing very well this year. We are very we are very confident about the the investment sentiment this year, and our customers are -- have strong willing to make investments through E.SUN. On next page is the breakdown of wealth management fee income. The mutual fund accounts for 45%. -- bank-insurance accounts for 35% and other products account for roughly 20%. On the right-hand side, the mutual fund growth rates very astounding. Is it 67% year-on-year growth. Other products, including overseas bond and structured loans. The growth rate is also very impressive. It's 28.8%. Bank insurance, we maintained a good growth rate at 10%. In all of these 3 categories of products will continue to grow in the months to come and in the second quarter.On the next page, Page 9, is the -- we use 4 graphs to illustrate our market position in credit card. On active cards, the market share is 12.7% in card consumption of the market share is 12.4%. As what we mentioned before, we do not want to jump into the price competition with our peers. So it may cause some loss and market share. However, we also maintain a very healthy profit growth in E.SUN coming from credit cards. At the same time, the credit card consumption year-on-year, the growth rate was 8.6%. And on the left bottom corner, the per card spending is passed TWD 9,000 per month, and the growth rate is also more than 6%. So I would say both the quality and the quantity of our credit card are improving. On the next page is illustration of our overseas business development. In the first quarter, the overseas subsidiary and branches contributed nearly 35% of net profit and the profit growth rate is more than 10%. We especially want to highlight the overseas business will continue to be very important to E.SUN, and we want to maintain a very healthy proportion in our profit from the overseas at 35% to 40%, it is our target. Business development, we find a location for Toronto branch and the rep office in Colombo in Malaysia. And also, as Sara just mentioned, we are applying for sub-branding Kumamoto, and it will help us to deliver better services in the semiconductor supply chain, which is going to be established in Kumamoto. And the subbranch will work alongside with the Bukogabranch. On next page, Page 11, is a table of deposit and loan structure. The total deposit year-on-year growth rate is more than 8%. The year-to-date growth rate is 2.4%. The foreign currency deposits year-to-date growth rate is 2.7%. The time deposit growth rate is 3.7%. On total loans, the Y-o-Y growth rate is 9.5%, the year-to-date growth rate is 2.4%. And in which the corporate loan growth rate is 8.6% year-on-year, and the year-to-date growth rate is 1.6%. Foreign currency loan growth rate year-to-date is 4.5% year-on-year is 7.5%. The consumer loans performed quite well. The year-to-date growth rate is more than 4% year-on-year growth rate more than 10%, especially the mortgage loan growth rate 3.3% year-on-year growth rate 10.7%. The unsecured personal loans, even though there was a slight decline, but it was mainly because of the phaseout of the long release during profit period. So there was some decrease in the balance of [Indiscernible] personal loan. But we are confident that the unsecured personal loan growth rate will turn positive later this year. So the strong growth in consumer loan sector, they also represent that the consumption market in Taiwan now is very healthy and going very strong.On the next page, Page 12, is the loan portfolio breakdown. Teleloan is nearly TWD 2.1 trillion, which is quite evenly break into the corporate side and the the retail side. On the right-hand side is the year-on-year comparison of all the loan sectors, as well as you can see, all the loan sectors are performing very well. On the next page, Page 13, is the deposit structure. On the left-hand side, the loan-to-deposit ratio, the NT-dollar LDR is 86%. Overall, LDR is 69%, and the foreign currency LDR ratio is 36%. On the right is the deposit structure. In this quarter, the year-on-year growth rate for the NT-dollar demand deposit growth rate is more than 7%. Now the cost out ratio of E.SUN is 57.3%. And the foreign currency deposit also nearly flat, grew a little bit by about 2.7%. And the foreign currency deposit now accounts for 34% of the overall deposits for [insiscernible]. Next page, Page 14 is the Neman spread. In this quarter, NIM slightly dropped by 1 basis point, and it was mainly due to the increase of funding costs, especially by-- in March, the Central Bank of Taiwan raised the interest rate by 12.5 basis points. And it will be reflected in our funding costs immediately after the announcement. However, the fixing rate of the -- on the asset side will not reflect immediately. So there will be a delay effect. It will be fully on the asset rate, it will fully reflect -- it will not fully reflect until June. So there was some -- so there was some impact to our NIM and the spread for this quarter the NT dollar in the rate hike is one of the reasons. On the right-hand side is the quarterly interest spread. The interest spread is 1.24%. On next page is the asset quality. The NPL ratio is 16 basis points. The coverage ratio is at 770%. And on the right-hand side is the provision and credit costs, the annualized credit cost is about 9 basis points. So E.SUN continues to maintain the asset quality at a very good level. Next page is the NPL ratio by product. on corporate, the NPL ratio is 16 basis points and mortgage NPL ratio is only 4 basis points. Compared with the market, E.SUN is in line with the market in terms of the NPL ratio level. On cost-to-income ratio, in the first quarter, even though the cost increased by 13%. But as of April, the cost growth -- the growth rate of cost declined to only 6.7%, which drove down the cost CI ratio to 53% of April, 53% of April. The CI ratio is a very important indicator that we are watching, and we will continue to implement cost-saving measures to control costs. On the next page is the capital adequacy ratio. We do not renew the this CAR ratio and BIS ratio for holding company for the bank. It is the same as what we disclosed for the end of 2023. So this is all for the presentation of the first quarter earnings. Now we can head into the Q&A section.

[Chiwei Hsiao, executive]

[Operator Instructions] We have our first question about the loan growth target for this year.

[Chiwei Hsiao, executive]

In the first quarter, the loan growth was quite robust. And however, we still do not change the loan growth guidance for the full year, still maintain at 8% to 10% for the full year. And until now, we are in line with the growth target and growth guidance for this year.

[Chiwei Hsiao, executive]

 The second question is about the fee income growth target for this year.

[Chiwei Hsiao, executive]

And in our previous earnings call, the guidance that we gave for the fee income, it was double-digit growth for the full year, but judging from the very robust performance in both credit card and wealth management. It is potentially that we can revise the -- our target for fee income upward. Yes, so we still maintain double-digit growth, but there is a chance the the full year target will be at the higher end of double digit,

[Chiwei Hsiao, executive]

The third question is about the OpEx growth. How can E.SUN slow down the OpEx growth from 13% to single-digit in April

[Chiwei Hsiao, executive]

I think there are 2 reasons. First of all, of course, cost control is something that E.SUN is very concerned. And we have set up some units in every business unit, which is dedicated to cost control, especially in the spending in technology, we have a special unit that will review every project before the implementation and to prioritise is the -- if it is necessary to implement such projects and to -- and to manage the overall cost of every project and to spend our money more smartly. So this is the first reason. This is something that we are working on. And the second reason is in April last year, there was a one-off cost associated with the rights offering that we had last year. Last year, we raised capital and there was some costs associated with the employees, write-off ring subscription, and the amount is about TWD 400 million. So that contributed to the single-digit growth rate.

[Chiwei Hsiao, executive]

Our next question is about the foreign currency loan growth in the first quarter. What is the driver for foreign currency loan growth in the first quarter?

[Chiwei Hsiao, executive]

The main driver for the foreign currency loan coming from the overseas market, especially in countries, for example, like Australia and our Los Angeles branch in the U.S., there are many renewable energy and project finance going on. And our branches capture those opportunities to participate in syndicated loans in those markets. So that contributed to quite good growth for foreign currency loan. However, the foreign currency loan at the first quarter is still not very strong. And it is still mainly because 2 reasons. First is the currency rate. The strong U.S. dollar, it will make corporate less well in to borrow in U.S. dollar at this point. And secondly, of course, the high interest rate. So we expect our foreign currency loan, the growth momentum will be better in the second half of this year as the currency and the interest rate becomes more favorable for borrowing in U.S. dollar. The foreign currency loan growth, we expect to be better in the second half than the first half.

[Chiwei Hsiao, executive]

We don't see any new questions coming in. So I think we have answered all the questions. And thank you for your participation in the earnings call for the first quarter with E.SUN. We hope to speak to you soon again. Bye-bye.