E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2021-Q2

[Harris Lin, executive]

Dear investors, welcome to E.SUN's Investor Conference for the second quarter of 2021. This conference will be moderated by me. I'm Harris from Investor Relations. Alongside, President of E.SUN Financial Holding Company, Ms. Magi Chen and IR team members, Chiwei, team and Alex are also here. Today's event will be 2 parts. First is the presentation of our quarterly results. Second is the Q&A section.

Before we get started, I would like to invite President Magi to give an opening speech.

[Magi Chen, executive]

Dear all, thank you for joining our investor conference. In the first half of this year, E.SUN net traffic grew by 5.8% to TWD 10.2 billion, ROE was 10.96%, ROA was 0.69% and EPS was TWD 0.81. Net fee income delivered a record high of TWD 10.4 billion, up 6% year-on-year, reflecting the record high fee income from both wealth management and security brokerage services. The COVID alert level was elevated to Level 3 in mid-May. During the past 2 months, certain sectors such as department store sales and the catering has taken the hardest hit. Revenues in these 2 sectors have dropped to about 60% and 70%, respectively. Thanks to good management by the government and the cooperation of the public, the alert level has been lowered to Level 2 within 2 months, and the pandemic is now largely under control.

COVID has also had a short-term impact on our wealth management business, which declined in May due to limitations on client business. However, E.SUN has used technology to stay connected with our customers through digital banking. COVID's impact on wealth management has not been significant.

With the higher vaccination rate in Taiwan, we expect the domestic economy and local consumption to be back to normal trend. The recovery of the global economies are also relatively benefiting Taiwan as lockdown orders have been lifted in many countries around the world. Strong demand is forcing export activities and local investment in Taiwan. Consequently, the GDP growth suggestion of Taiwan has been adjusted upwards to [ 5.46% ]. The sound economy is leading to stable corporate loan demand, which was grown 7.7% year-on-year. Asset quality has been benign with FPL range, down 2 basis points to 0.17% from the end of the first quarter.

Lastly, ESG remains an area of long-term focus for E.SUN this year. We participated in over 20 sustainability-related financing cases. We were also [indiscernible] in the FTSE4Good Emerging Market Index and awarded the Best Sustainable Bank in Taiwan by Financial Asia. Going into the future, we will aim to pursue sustainable development and create more value for our stakeholders. Thank you.

[Harris Lin, executive]

Thanks, Magi. Now let's proceed to the presentation, starting with the first line financial holding summary. As of the end of June 2021, total assets of financial holding company reached TWD 3 trillion. Key financial figures remain healthy. Book value per share TWD 15.32; double leverage ratio 99.19% and the capital adequacy ratio 134.29%. For operating channels, security branches increased to 17 because 1 new security branch was opened in April. And other operating channels were unchanged.

Let's move on to Slide 2, business and financial review. E.SUN Financial Holding Company's preliminary net revenue was TWD 28 billion for the first half. On the bottom line, net profit was TWD 10.2 billion, up 5.8% year-over-year. EPS TWD 0.81, ROE 10.96% and ROA 0.69%. Also, ROE of the main subsidiary, E.SUN Bank, was 10.04%, which ranked second highest among all banks under financial companies in Taiwan.

This quarter's highlight was net income for the first half. Net fee income rose by 6% and reached a record high. The main driver came from wealth management and security brokerage and underwriting as strong domestic investment and efforts led to higher loan demand, E.SUN's total loan balance was up 7.7% year-over-year and SME loan was up 15.5%. Meanwhile, our asset quality was healthy with NPL ratio dropping by 2 basis points to 0.17% from last quarter.

Next, I would like to highlight some information. This year's dividend payment has been approved in Annual Shareholder Meeting. Every shareholder will receive TWD 1.22, including TWD 0.61 in cash and TWD 0.61 in stock. Secondly, our active users of mobile banking were up 21% year-over-year as our online banking was more quickly used by our customers.

Lastly, our performance was recognized by external institutions. We received best SME bank in Taiwan from Asiamoney and the SME Best Mortgage Product from the Asian banker and best AI Projects from The Asset.

Please move on to Slide 3, our achievement in ESG. In environmental aspect, E.SUN has been committed to 100% renewable energy for domestic operations by 2030 and becoming a net zero bank by 2015. We also incorporated TCFD framework into our management and information disclosure. Relevant information has been certified as excellence grade by BSI. Moreover, we continue to integrate ESG with our business. We launched ESG-linked loan and participate in project finance captive follow the equator principles.

In social aspect, E.SUN follows United Nations sustainable development goals to promote E.SUN work and economic works. We have financed 18,000 small businesses and launched relief loan program during the pandemic. Besides sustainable development committee and risk management committee were set up under the Board of Directors to management ESG issues like climate change. As a result of all our effort, E.SUN was once again listed in FTSE4Good Emerging Market Index and awarded Best Sustainable Bank by FinanceAsia.

Moving on to Slide 4, financial performance. For the first half, net profit was TWD 10.2 billion, EPS TWD 0.81, ROE 10.96%, ROA 0.69%.

Moving on to Slide 5 for the net income breakdown by entities. E.SUN is a bank-centric financial holding company, of 86.5% of its net profit came from the subsidiary, E.SUN Bank, followed by E.SUN Securities 8.9% and E.SUN Venture Capital 4.6%. From the first half, E.SUN Securities delivered a strong growth in profit, up 233% year-over-year.

Turning to Slide 6. The net profit breakdown. E.SUN Financial Holding's revenue decreased by 3.2% year-over-year. Operating expense was down 2.9%. On the bottom line, net profit grew by 5.8%.

Moving on to Slide 6 -- Slide 7 Financial Holding's Company revenue breakdown. 44.3% of net revenue came from net interest income followed by net fee income, 37.2% and other income, 18.5%. Compared with the previous year, net interest income was up 21.8%, and net fee income increased by 6%.

Please turn to Slide 8 for net fee income breakdown. The majority of fee income came from wealth management, 46.6% and credit card 26.5%. For the first half, security brokerage and underwriting delivered higher fee income, up 92.9% year-over-year.

Moving on to Slide 9. Overview of credit card business. E.SUN's credit card business ranked top 3 in the market in terms of active cards and card consumption. As of the end of June, our active card has 13.5% market share. Total card consumption has a market share of 14.5%.

Turning to Slide 10, deposit and loan structure. Total deposits rose by 0.7% year-to-date, mainly driven by foreign currency deposit with 1.9% growth. Total loan rose by 2.4% year-to-date, mainly driven by SME loans, up 4.9% and foreign currency loans up 3.8%.

Please move on to Slide 11, deposit structure. As of the end of June, overall LDR rose slightly to 66.6%. NT dollar LDR was 85.8%. Foreign currency LDR 29.2%. NT dollar demand deposit rate increased by 15.1% year-over-year and foreign currency loan was up 9%.

And please turn to Slide 12, loan portfolio breakdown. We maintained balanced growth between corporate and consumer loans, SME loan accounts for 27.2%. On the loan book followed by large corporate, 20.9%. On consumer side, mortgage 25.1%; secured personal loan 18.5%, unsecured personal loan 7.6%; and credit card revolving 0.7%.

Moving on to Slide 13, NIM and spread. NIM was 1.18%. In second quarter, interest spread rose 1 basis point to 1.33% as we continue to focus on funding cost control.

And moving on to Slide 14, asset quality. E.SUN maintains healthy asset quality. NPL ratio was 0.17%; coverage ratio, 703.2%.

Please turn to Slide 15, asset quality for each product line. All product line NPL ratios stay at low levels. Corporate NPL ratio decreased slightly to 0.2%; mortgage, 0.06%; and credit card, 0.17%.

Please turn to Slide 16. The latest market average NPL ratio was 0.21%. E.SUN's NPL ratio has been lower than the market average for a long time.

Moving on to Slide 17, cost-income ratio. For the first half, CI ratio decreased slightly to 57.3%.

And moving on to Slide 18, capital adequacy ratio of financial holding company was 134.29%; E.SUN Bank's Tier 1 ratio, 12.46%; BIS ratio, 14.85%.

And this is the end of the presentation. And now let's proceed to Q&A section. We will be happy to answer your questions. Thank you.

[Harris Lin, executive]

Dear investors, before we enter the first question, there is an information that I would like to add to the presentation just then. In fact, in June, the E.SUN Financial Holding Company, the asset just exceeded a milestone of TWD 3 trillion. And during the nearly 30 years of history of E.SUN, we spent 18 years to hit the first $1 trillion in assets, and we used another 7 years to hit the second milestone, the TWD 2 trillion in assets, but we only spent 3.5 years to hit the TWD 3 trillion milestone. I think that also represents that E.SUN is growing and growing at an accelerating speed. So yes, this is our strength, and we will keep the very strong growth momentum in the future.

Okay. The first question is I want to get an update on the loan growth, the fee income growth and the credit cost target for the year.

For the loan growth, at the beginning of the year, the guidance that we give is to have 8% to 10% of loan growth this year. And we do not revise our growth target for the year. However, in the first half, the loan growth year-to-date, the growth rate was only 2.4%. I think that is mainly due to 2 reasons. First is on the foreign currency loan. Because the overseas market was hit by the pandemic more severely than in Taiwan, so the overseas market is reopening now. So we foresee that the loan market will be better in the second half. And also in the first half, there are some syndicated loans. The time line was delayed, but we expect those deals will start to drill down and to finalize the signing process. So for the second half, we are more positive in the loan growth.

And on the fee income. In fee income, we still remain our growth guidance at mid- to high single digit for the full year. And for the fee income business, there are 2 main revenue streams. One is the wealth management, and the second is credit card. In May and June, there was a COVID-19 outbreak that took place in Taiwan. And that caused some impact to credit card business because people stopped going now and shopping or go to restaurants or go travel. So there was a decline, a very significant decline in credit card spending that also caused some pressure on the fee income from credit card. However, starting in August, we hope the consumption momentum will come back. And in the fourth quarter, which is the traditional consumption peak season, we hope the momentum will be better for the remaining of the year. That is on the credit card.

For the wealth management, just because the COVID-19 Level 3 alert. So there was some limitation for client visits so that our financial consultants could not visit our clients as usual. But the impact only, I would say, short-term impact, it only lasts for around 3 weeks. And on the other hand, E.SUN is quite progressive in using technology and to maintain connected with our clients. So that, for example, there was -- there is an application called Wealth Management Express. And with that application, our financial consultants, they can construct an investment advice for the clients. And they can send the advice, the portfolio advice to the clients, and the clients just need to authorize through their online banking platform. So that makes the transaction easy through the digital solution. Therefore, there was some impact on the insurance sales, but the impact on the mutual fund sale is quite limited.

So yes, for the wealth management, we think the impact should be quite limited, and we are still quite optimistic about the wealth management fee income for the year.

And also on the equity market, it has been performing very bullish this year. So as you can see, in our security subsidiary, the fee income from brokerage was performing very well. The fee income almost doubled in the first half. And it also helped the fee income to grow in the first half.

On the credit cost, E.SUN has been performing very well in asset quality. In the first half, the net provision was only TWD 309 million. So yes, the asset quality is very well, and we expect the credit cost to be better than what it was last year. And last year, the credit cost was 19 basis points. And this year, the performance could be better than that number.

We have the second question about the fee breakdown in wealth management business. What is the proportion between mutual fund sales and insurance?

In this year, the mutual fund sales is still performing very well, and mainly because of the good stock market performance. So in the first half, the breakdown between [ business ] by product, mutual fund accounts for 65% of the fee income, and the insurance fee income accounts for 20% and rest 15% fee income comes from sales of structured notes or foreign fixed income investment. That is the wealth management fee income breakdown.

Okay. It seems that we have answered all the questions. So if you still have any questions, don't hesitate to reach out to us, the IR team of E.SUN. Thank you for your support, and thank you for your time.

Thank you. Bye-bye.