E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Analysis

E.SUN Financial's Robust Q2 2024 Performance

E.SUN Financial reported a record high net profit in Q2 2024, with a 30% growth in net fee income and an impressive increase in credit card transactions, hitting TWD 100 billion monthly. Net profit for the first seven months grew by 26%. Cost control measures were effective, with operating expenses growth decelerating to 77.5% year-on-year, and a cost-to-income ratio of 53.1%. The company is expanding internationally with new offices in Colombo, Malaysia, and plans for Kumamoto, Japan, and Toronto, Canada. E.SUN remains optimistic about its revenue growth and credit card consumption, expected to grow 12-13% for the year.

Introduction and Key Highlights

E.SUN Financial Holding had an outstanding performance in the first half of 2024, achieving a record high net profit and net fee income. The company’s credit card transactions reached all-time highs, with monthly consumption hitting TWD 100 billion. E.SUN also executed effective cost control measures, reducing their year-on-year expense growth rate to a modest 7.5%, which led to a decline in their cost-to-income ratio to 53.1%.

Financial Performance

The company’s total assets grew by 7.6% year-to-date, reaching TWD 3.9 trillion, while the bank's total assets increased by 7.4%, totaling TWD 3.87 trillion. E.SUN recorded a net revenue of TWD 36.1 billion for the first half, reflecting a 15.4% increase. Net profit surged by 20.6% to TWD 12.7 billion. The company maintained a book value per share of TWD 15.1. Their efficient cost control initiatives reduced the cost-to-income ratio from previous periods.

Overseas Expansion

E.SUN has been aggressively expanding its footprint overseas. Recently, they opened a representative office in Colombo, Malaysia, and plan to inaugurate a third branch in Kumamoto, Japan, by the fourth quarter to serve TSMC and its supply chain. Additionally, E.SUN is in the process of applying for a branch in Toronto, Canada, enhancing its presence across the Asia Pacific and North America.

Guidance and Future Expectations

E.SUN revised its loan and deposit growth targets for the year, setting new targets of TWD 250 billion and TWD 320 billion, corresponding to growth rates of 12% and 10%, respectively. The company is also optimistic about its fee income growth, initially expected to reach near 20%, now likely to surpass 20%, with potential to fall within the 20%-30% range. They anticipate a robust performance in wealth management fee income, with a growth rate possibly exceeding 30%.

Key Financial Metrics

Key financial indicators reflect strong growth. E.SUN's net fee income saw substantial contributions from wealth management and credit card services, which grew 41.6% and 8.7% respectively. Overall, the net interest income contributed 44.7% to the total revenue. The company's provision for loan losses increased due to strong loan demand, resulting in a higher general provision against performing loans.

Credit Card Performance

E.SUN’s credit card segment exhibited strong performance with a 13% year-on-year growth in consumption and single-month consumption peaking at TWD 100 billion in June. This was driven by high international travel demand and a successful campaign to pay income taxes using E.SUN credit cards. The government’s push for non-cash payments will further fuel the growth in credit card usage.

Net Interest Margin (NIM)

Despite a slight quarter-over-quarter drop in NIM by 2 basis points to 1.28%, largely due to rounding effects, E.SUN maintains a positive outlook. Given expected interest rate cuts by the US Fed, the company anticipates a stable NIM around 1.3% by the year-end. E.SUN remains committed to controlling funding costs while benefitting from strong loan demand.

ESG and Recognition

E.SUN’s commitment to Environmental, Social, and Governance (ESG) principles continues to be recognized as the company has been selected for the Dow Jones Sustainability Index for ten consecutive years. This recognition underscores E.SUN's ongoing dedication to delivering value to its shareholders and society.

Earnings Call Transcript 2024-Q2

[Chiwei Hsiao, executive]

Dear investors, welcome to join this earnings call for the second quarter of 2024. My name is Chiwei. I'll be the moderator of the discussion today. And alongside with me, my colleagues, Alex Chiu and Martin Lin are also in the meeting.

First of all, I would like to invite David [ Tsai ], the Vice CFO of E.SUN Financial Holding for opening note.

[Unknown Executive]

Welcome, everyone. This is David. In the first half of year 2024, E.SUN achieved a remarkable performance with a record high net profit. Net fee income also set a new record high, growing at a rate of around 30% compared to previous year. The net fee income from wealth management also reached a record high. We have seen significant growth in fee income from major products such as mutual funds, insurance and fixed income due to the active investment market this year.

Moreover, our credit card transactions have reached the highest record for the first half in history with monthly consumption reaching TWD 100 billion. Yesterday, we announced the financial performance for July. Net profit for the first 7 months grew at around 26%, while net fee income continued to grow, reaching 29.9%. The fee income from wealth management in July was the best monthly result in recent years. We are optimistic about our fee income performance for this year and expect to achieve good results. We have also achieved positive results in cost control. Operating expenses in the second quarter were slightly lower with year-on-year growth decreasing to 77.5%. Our cost-to-income ratio dropped to 53.1%. We will continue to strictly control the growth rate of expenses for the entire year.

Regarding our overseas expansion, E.SUN recently opened a rep office in Colombo, Malaysia, further expanding our presence in the Asia Pacific. We plan to open a third branch in Kumamoto, Japan, in the fourth quarter, where TSMC fab is located. This will allow us to serve TSMC and its supply chain. Additionally, we are currently applying to open a branch in Toronto, Canada. Over the next few years, we aim to strengthen our overseas presence.

Lastly, E.SUN has consistently received recognition for our commitment to ESG. We have been selected into the Dow Jones Sustainability Index for 10 consecutive years. We will continue to deliver value to our shareholders. Thank you.

[Chiwei Hsiao, executive]

Thank you, David. And next, my colleague, Alex, he will walk through the presentation. Then we will start to take questions for this evening.

[Alex Chiu, executive]

Hello, everyone. We'll start from Page 1. On Page 1, the financial summary for the E.SUN Financial Holding Company. For total assets for the holding company, it was TWD 3.9 trillion. The growth rate year-to-date was 7.6%. And for our subsidiaries, total assets on bank side was TWD 3.87 trillion. And the growth rate was 7.4%. And Securities and Venture Capital were all with very decent growth.

For key financial indicators, our book value per share is TWD 15.1. The drop compared to the first quarter is mainly because of the distribution of our dividend. For double leverage ratio was 108.74%, and the CAR ratio for the financial holding company was 127.89%, both at a very decent level.

For our operating side in Taiwan, all remain unchanged. And for our overseas presence, we newly opened a rep office in Kuala Lumpur, and we're scheduled to open in Kumamoto third branch in the fourth quarter.

On Page 2 is the business and financial review for the first half. For the holding company, our net revenue was TWD 36.1 billion, grew by 15.4%. And for net profit was TWD 12.7 billion. The growth rate was 20.6%. Both figures were highest in the same period. And for the EPS for the holding company was TWD 0.81 and for ROE 10.76%, ROA 0.67%.

For our subsidiaries, E.SUN Bank, our net profit was TWD 11.6 billion. The growth rate was 21.8%. And for Securities, the growth rate is even higher to 72.9%. And net profit for the both entities are all at all-time highs in the same period.

And for the business development, our loan balance grew by 13%. And it was mainly driven by the corporate loans grew by 12.3% and also our very strong retail loan demand, the growth rate of 14%. And out of the corporate loan, the SME loan balance grew by 13.6%, reflecting a very strong economic condition in Taiwan. And also for our foreign currency loan, the growth rate was 12.3%, also reflects a very strong loan demand in our overseas market.

On fee income side, in the first half, the net income was TWD 13.2 billion and the growth rate was 30.2%, which is another record high, and mainly contributed by the very strong growth management business in the first half and also the second quarter as well. For single quarter, in the second quarter, it was TWD 3.3 billion, and the first half, it was TWD 6.3 billion. The growth rate for the first half is 41.6%. Both single quarter and the first half are all record high.

And for credit card, the fee income was TWD 3.7 billion, the growth rate was 8.7%. And the consumption in June has gone high to TWD 100 billion for the single month, which is another record high. Meanwhile, we keep our asset quality at a very benign level, for NPL ratio at 16 basis points and coverage ratio at 775.7%.

At the lower part of the slide, you can see the business highlight of this quarter. First is our new presence in Malaysia and also we're going to have our third presence in Japan. And we expect to have 33 operating sites in 11 countries and regions by the end of this year. And also, our overall performance and ESG performance has been widely recognized by international media and international institutions. And going ahead, we're going to work harder and deliver more value to the shareholders and also the society.

On Slide 3 or Page 3, we use 4 graphs to illustrate our financial performance in the last past 5 years. One thing I would like to highlight for our ROE and ROA performance. Those 2 indicators were the best performing across the past 3 years. And for ROA even are the best performing across the past 5 years.

On Page 4 will be profit contribution by subsidiary. E.SUN Bank remains to be the main contributor for our profit. It contributed 90% of the profit. And on the other hand, our E.SUN Securities also delivered a very strong performance in the first half, which leads its profit contribution go as high as to 8.2%, now as a very significant portion of our profit.

And on next page, Page 5, is the net profit breakdown. For the financial holding company, the net revenue grew by 15.4%, and our operating expense, the growth rate was 7.5%, which shows a very good result after we very actively manage our cost control program.

And for net provision, the increment compared to the same period last year was TWD 1.2 billion. And increase was mainly driven by the strong loan demand, which I requested to make 1% to 1.5% general provision against all the performing loans. And for the net profit, it was a 20% growth. And one thing I would like to mention in this page is that we have shown very good growth strategy, follow the positive and healthy correlation for profit, revenue, and expense. That is our growth rate for the net profit is greater than the net revenue growth rate, and also of which the growth rate is higher than the growth rate of operating expense, and we're happy to follow this path for our further growth.

On Page 6, which shows the revenue breakdown by net interest income and net fee income, which contributed 44.7% and 36.5%, respectively, and the fixed income and other products are 18.8%. And on the right hand side, you can see the graph to show that we had a very strong growth in both net interest income and net income. Especially, we're going to dig into the detail of net income, which has a 30% growth this year.

On next page, Page 7, you can see the breakdown of our net fee income. The 2 main contributors are the wealth management and credit card, which contributed 47.7% and 27.9%, respectively. On the right-hand side, you can see the growth rate for credit card business in the first half was 8.7%. And for wealth management was 41.6%, also a record high in the first half.

And in Page 8, you can see the breakdown of our wealth management fee. Bancassurance and mutual funds also contributed 37.3% and 40% of the wealth management sales, and other products were 23%. On the right-hand side, you can see that across all the product lines, including mutual funds, bancassurance and other products are all positive growth. Not to mention the mutual fund was nearly doubled, reflecting a very strong investment sentiment in Taiwan in the first half.

And one thing we also would like to highlight about our strong growth in bancassurance. You can see the growth rate is 15.3%, especially on a relatively high base. And I want to give a very balanced product breakdown between the investment products and the bancassurance. It will make E.SUN a very resilient product breakdown in a very volatile market.

On Page 9, you can see the graph, the 4 indicators we use to evaluate our performance in credit card. And one thing I would like to highlight is the CAR consumption, which has a 13% growth and led our market share to go higher to 13.5% in the first 6 months this year. It was mainly because of the very strong international traveling demand and also a very successful paying your income tax with E.SUN credit card campaign this year.

On Page 10 is the overview of our overseas business development. In the first half, including our subsidiaries and overseas branches, as it contributed 33.6% of the bank's total net profit, and the profitability grew 12% compared to the same period last year. And currently, we had a very comprehensive deployment in Asia Pacific. And looking forward, the overseas markets continue to be a very important strategy and market for E.SUN.

On Page 11 is the deposit and loan structure. You can see the total deposit grew by 9% year-on-year, and we're happy to see that our demand deposits for NT dollars is a nearly double-digit growth. It's 9.9%, reflecting our strategy to collect more lower cost of deposits from our customers, which is a very good result. And also for total loan, the growth rate was 13%, and was driven by the strong sectors, especially in SME loans. It was 13.6% in consumer loan, including mortgage, another 13% growth.

On Page 12 is loan portfolio breakdown. E.SUN still keeps a very balanced loan portfolio in corporate and retail. For corporate, 26.1% were SME, and large corporate was 21%. And on retail side, mortgage is 24.8%, secured person loan was 20%, and unsecured personal loans was nearly 6%. On the right hand side, you can see across all different loan sectors or the customer segment, where all delivered a positive and strong growth in our loan balance.

On next page, you can see the loan-to-deposit ratio. The total loan-to-deposit ratio is 69.8%, and especially our foreign currency loan-to-deposit ratio was 37.6%, which has been improving in the past quarters. And we're looking forward to a very good and also a very strong momentum in the foreign currency loan.

On Slide 14, you can see the NIM and spread. In the second quarter, we reported our NIM to be 1.28%, 2 basis point decrease compared to last quarter. And also for our spread, we reported 1.22% spread, also a 2 basis point reduction compared to the first quarter.

And in the next slide, on Page 15, is our asset quality. Both the NPL ratio and cost ratio was at a very benign level. For NPL only 16 basis points, and cost ratio was above 700%.

And on Page 16 is our NPL ratio by product. For corporate, the NPL ratio was only 17 basis points, and for mortgage, it's 6 basis points. And compared to the market, we're in line with the market standard.

On Page 17, we have the cost-income ratio. Until the end of June this year, our cost-income ratio was 53.1%. It was largely improved compared to what we had in the past 3 years. And it was mainly improved in 2 ways, in both cost side and income side. So we're happy to see a stronger profitability and also we had a very good result in our cost control program.

Page 18 is the capital adequacy ratio. For the financial holding company, the CAR ratio was 127.89%. And for the bank, Tier 1 ratio was 12.47%, and the BIS ratio is 14.93%.

And this is the end of the presentation, and we can head into the Q&A section. So please feel free to put in your questions in the dialogue box.

[Chiwei Hsiao, executive]

Okay, investors. We have the first question which is regarding our growth target for this year. What is the target for loan growth, deposit growth in percent for this year? And also the total fee income growth target for this year?

Yes. The loan growth and deposit growth is even more robust than we expected in the beginning of the year. So at the beginning, the guidance that we gave for loan growth, it was 8% to 10%. Deposit growth, it was also 6% to 8%. However, it is only the first half of this year. However, the loan growth is already approaching our guidance, which is 8%. So we will revise our growth guidance for loan and also for deposits.

The net increase amount for loans as of the first half is TWD 187 billion. And the revised growth target for loan, net increase amount is TWD 250 billion. In percentage terms, it will be 12% for the loan growth -- sorry, the number that I was talking about was for deposits, sorry. So for the deposit target, it's TWD 320 billion for the net increase amount. And in percentage terms, it's about 10% growth for the full year.

And for loan, the net increase amount as of first half is TWD 156 billion. The revised target for loan, net increase amount is TWD 250 billion. In percentage terms, it's 12% for the loan growth. And also about the fee income growth target. The original fee income growth guidance that we provided in the beginning is double digit, nearly 20%, but it seems more positive than the guidance that we provided. So it's very likely that the net fee income growth will surpass 20% for the full year.

However, there is still some uncertainty for the second half, but we are quite confident that the fee income growth for the full year will fall somewhere between 20% and 30%.

And also one more thing that I want to highlight is the wealth management fee income, which is the main reason and the main driver for the fee income growth for this year. As of the first half, the fee income growth is more than 40%. And for the full year, we are still quite positive about the full year growth rate for the fee income of wealth management.

However, the second half for 2023, it was a high base. So percentage-wise, it's not easy for us to maintain a 40% growth rate for the full year. However, we will try to maintain the momentum of the wealth management still. And hopefully, we can also have a wealth management fee income growth rate of more than 30%. Thank you.

Yes, we have the second question about the mortgage loan. The investor is curious about the loan growth for mortgage. You are cautious on mortgage loan. Why? Is there still any growth -- should the growth accelerate into the second quarter? If caution, can loan be flat half year over half year?

So in the first half, the mortgage loan growth rate, year-on-year, it was 13%. Year-to-date, it was already 7.4%. And 7.4% actually, it is already within the range that we provided in the guidance that we gave in the beginning of the year.

So take last year, for example, the full year mortgage loan increase, the amount was TWD 600 billion. But so far, as of the first half, the net increase amount for the mortgage is already around TWD 500 billion. In Taiwan, the first half, actually, the housing market is a little bit overheated. So for E.SUN, we see the market in a prudent manner. Therefore, we do not try to accelerate the mortgage loan growth in the second half, even though there is still strong demand from the market. However, we will try to be more selective in the selection of our customers.

And also, of course, the asset quality is the #1 priority that we care about. And secondly, we will also be more selective in terms of the customer and try to choose the high-quality customer, who we can also have a decent pricing for the mortgage loan. So for the full year of the mortgage loan growth rate, it will be mid- to high-single digits. Thank you.

Okay. Now we have the next question regarding NIM. Can you tell us the reason for the NIM drop quarter-over-quarter?

By the way, the NIM on the chart, it dropped by 2 basis points quarter-over-quarter. However, it is mainly because of the rounding. In fact, the NIM only dropped by 1.1 basis points in this quarter. However, in the previous quarter, the number rounded up. So the number for the previous quarter was 1.3%. However, for this quarter, the number did not get to ramp up. So it is only 1.28%.

So I'll finish the question. And it is expected that the Fed will accelerate to lower the interest rate. And what is your outlook for the NIM for the full year and for the second half? And I would like to invite David to answer this question.

[Unknown Executive]

This is David. Regarding our NIM, just like Chiwei said, in the first half of this year, the Central Bank of Taiwan [indiscernible] the interest rate [indiscernible] 5 basis points in this March. Therefore, they have a little bit of the effect of our NIM for the first half. And for the second half, our hope is that the Central Bank of Taiwan may not hike rate this year. And as for Fed decision, we expect there may be 2 rate cuts this year around 50 basis points to 75 basis points.

And for our loan portfolio, we see the growth momentum is still very strong, and we will keep control of our cost of funding. Therefore, for the loan spread, we expect it will be 2 basis points higher in the end of this year. However, on the investment side, because fed cut interest rate, we will suffer a little for the reinvestment yield. So for the whole year, we expect our NIM will remain stable around 1.3% at the end of this year. Thank you.

[Chiwei Hsiao, executive]

Okay. We have the next question about the credit card. Can you tell us more about the outlook for the credit card and the consumption? Also, the fee income associated with the credit card outlook in second half?

In the first half, as we just mentioned in the slide, the consumption amount growth rate, it was 13% year-on-year. And also in June, for the single month, the consumption amount was even more than TWD 100 billion and that also set the record high for the first half. So there is a very strong momentum for the credit card consumption. And we are still quite positive about the credit card spending in the second half, especially the overseas consumption and traveling continuing to be a very important driver for the credit card consumption.

On top of that, the Taiwanese government is promoting the noncash payment locally. It is a government policy guidance that by 2026, the noncash payment will reach TWD 10 trillion. So within 2 years, the noncash payment will reach TWD 10 trillion. It will continue to fuel the credit card consumption going forward. So we expect the credit card consumption for the full year, it will be similar to what we have, 12% to 13% for the full year. And also the credit card fee income will remain at the similar level as what we have in the first half. Thank you.

Okay. Thank you, investors. It seems like we have answered all the questions, and I hope you enjoyed the discussion that we had this evening. If you still have any questions, please contact the IR of E.SUN. We hope to see you soon in the earnings call for the third quarter. Thank you. Goodbye.

[Unknown Executive]

Thank you.