E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2021-Q3

[Harris Lin, executive]

Ladies and gentlemen, Welcome to the E.SUN Investor Conference for the Third Quarter of 2021, and 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 and team 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]

Welcome, investors. Thank you for joining our investor conference. In the first 9 months of this year, E.SUN net profit grew by 14.0% to NT$ 15.9 billion. ROE was 11.4%, ROA 0.70% and EPS was NT$ 1.19. ROE on E.SUN deck was 10.3% and was the second highest among major banks. Net profit in net fee income was the best-performing business sector of E.SUN, driven by risk management and security blockage underwriting. Net fee income grew by 8.9% and set a record high of NT$ 15.9 billion. Taiwan's economic outlook maintain positive with full year GDP focus at 5.88%. Global economic recovery supported Taiwan exports. Supply chain expansion and investment continue to be strong in sectors such as green energy, telecommunications and semiconductor. Our total loan balance grew by 9.0%, including SME loans, which grew by 12.6% and foreign currency loans, which grew by 7.4%. Asset quality stayed benign with the NPL ratio at 0.17%.

In terms of the digital transformation, E.SUN mobile banking users has increased by over 40% since the beginning of the 2020. Online channels now processed more than 55% of the transaction volumes of the major banking services. With customer experience at the core, we continue to improve digital services. This quarter, we launched more innovative services, 24 hours online foreign currency exchange and a new solution of E.SUN mobile banking. We will keep incorporating fintech into our services and will realize inclusive finance, intelligent finance and the ecosystem finance.

As for ESG, we engaged our clients on climate change by developing responsibility, responsible lending and investments. This year, our newly drawn responsible lending amount was NT$ 17 billion, which was representative 30% of new corporate loans in 2021. Sustainability has been an important strategic focus of the bank for many years. We will aim to pursue sustainable development and create more value for our shareholders. Thank you.

[Harris Lin, executive]

Thanks, Magi. Now let's proceed to the presentation. Starting with the first slide, financial holding summary. As of the end of September, total assets of financial holding company reached NT$ 3.1 trillion. Key financial figures remain healthy. Book value per share NT$ 14.19, double leverage ratio 103.13%. And the capital adequacy ratio of 132.69%. The number of service channels was unchanged compared to last quarter.

Let's move on to Slide 2, business and financial review. E.SUN Financial Holding company's preliminary net revenue was NT$ 43.2 billion for the first 9 months. On the bottom line, net profit was NT$ 14.9 billion (sic) [ NT$ 15.9 billion ], up 14% year-over-year to a record high. EPS NT$ 1.19. ROE 11.4% and ROA 0.7%. Also, ROE of main subsidiary, E.SUN Bank was 10.3%, which ranked second highest among OpEx under financial holding company in Taiwan. And this quarter's highlight was net income for the first 9 months. Net fee income rose by 8.9% to a record high. The main driver came from wealth management and as well as security brokerage service. And the total loan balance was up 9% year-over-year with SME loans growing by 12.6% and foreign currency loans growing by 7.4%.

We also continue to develop responsible lending for the first 9 months, the newly drawn responsible loan was NT$ 17 billion, which represented 30% of this year's incremental corporate loans. At the same time, our asset quality was healthy with NPL ratio at 0.17%.

And next, I would like to highlight some information. Our application for Bangkok Representative Office has been approved by Taiwan FSC. And second, our active users of mobile banking were up 21% year-over-year, and our active digital users account for over 50% of our total customers, with deposit accounts. Lastly, our performance was recognized by internal institutions. We received Excellence in CSR Award from Commonwealth, Best Sustainability Financial Holding Company from Wealth Magazine, and also Future Enterprise of the Year from IDC Taiwan.

Moving on to Slide 3, financial performance. For the first 9 months, net profit was NT$ 15.9 billion, EPS NT$ 1.19, ROE 11.44%, ROA 0.7%.

Moving on to Slide 4, net income breakdown by legal entity. E.SUN is a bank-centric financial holding company. 86.4% of its net profit came from E.SUN Bank and followed by E.SUN Securities, 8.2%; and E.SUN Venture Capital, 5.4%.

Turning to Slide 5, net profit breakdown. E.SUN Financial Holding Company's revenue increased by 1.6% year-over-year. OpEx was down by 2%, and net profit grew by 14%.

Moving on to Slide 6, revenue breakdown. 44% of total revenue came from net interest income, followed by net fee income 36.8% and other income 19.2%. Compared with the previous year, net interest income was up 22.4% and net fee income increased by 8.9%.

Please move on to Slide 7. Net fee income breakup. The majority of fee income from wealth management, 46.8% and credit card, 25.8%. For the first 9 months, wealth management fee income grew by 7.4%. Security brokerage and underwriting delivered a strong fee income, up 74.7% year-over-year.

Moving on to Slide 8, overview of credit card business. E.SUN's credit card business ranked top 3 in terms of active cards and card consumption. As of the end of September, our active card has 13.5% market share. Total card consumption has a market share of 14.8%.

Turning to Slide 9, deposit and loan structure. Total deposits rose by 2.8% year-to-date, mainly driven by foreign currency deposits with 5.7% for total loan growth by 5.8% year-to-date, mainly driven by SME loans, up by 8.5%.

Please move down back to Slide 10, deposit structure. Overall LDR rose to 67.4%. New Taiwan dollar LDR was 88.7%. Foreign currency LDR was 28.6%, and NT dollar demand deposit increased by 13.3% year-over-year and foreign currency deposit was up by 11%.

Please turn to Slide 11, loan portfolio breakdown. We maintain balanced growth between corporate and consumer loans. SME loan accounts for 27.2% of loan book followed by large corporate, 21.2%. On consumer side, mortgage, 24.9%; secured personal loan, 18.2%; unsecured personal loan, 7.8%; and credit card revolving, 0.7%.

Moving on to Slide 12, NIM and spread. NIM was flat at 1.18% in the third quarter. Interest income was 1.31% and with average [indiscernible] ratio at 1.61% and average deposit rate at 0.3%.

Moving on to Slide 13, asset quality. And E.SUN maintained benign asset quality. NPL ratio was 0.17%, coverage ratio, 726.1%.

Please turn to Slide 14, asset quality for each product line. All product lines NPL ratio stayed at a low level; corporate NPL ratio, 0.2% mortgage, 0.07%; and the credit card NPL ratio of 0.15%.

Turning to Slide 15. The latest market average NPL ratio was 0.19%, and E.SUN's NPL ratio has been lower than the market average ratio level for a long time.

And moving on to Slide 16, cost/income ratio. For the first 9 months, CI ratio decreased to 56.1% from 58.1% in 2020.

Moving on to Slide 17. Capital ratio of financial holding company was 132.69% and E.SUN Bank's Tier 1 ratio, 12.38%; BIS ratio, 14.77%. And this is the end of the presentation.

So now let's proceed to the Q&A section.

[Operator Instructions]

[Harris Lin, executive]

Okay. Now we have the first question coming in. Can you provide guidance for fourth quarter and year 2022 loan growth, fee income target, CI ratio and so on?

The first question about the loan growth. For the first 3 quarters, E.SUN maintained a very good growth momentum for the loan growth. On a year-on-year basis, the loan growth was 9%. Heading into the fourth quarter, we think we will maintain this good momentum carrying into the fourth quarter. And we think we can maintain our original growth guidance at 8% to 10% loan growth for the year. And more likely, it will be 10% for the year.

Okay. And for the cost-to-income ratio, this year, we -- our operating expenses dropped by 2% as of September, which is quite good. This year, we have implemented a cost management program, which is going to be a 3-year project. And hopefully, we want to maintain our growth at the same time to maintain the operating expense at a reasonable level. For this year, we hope our target is still to keep CI ratio at 55%. And for the midterm future, we hope we can lower the CI ratio to -- and in 2022, we hope we can further lower the CI ratio.

[Magi Chen, executive]

Below 55%.

[Harris Lin, executive]

Below 55%.

[Magi Chen, executive]

We actually believe looking forward 2022 because the demand for the 5G automatic electronic HPC and IoT continue to surge and also with service [indiscernible] rates higher and the condition has eased, and the label on here has improved. So with some of the Taiwan economic outlook in 2022 [indiscernible] So I would believe 2022 and of Taiwan. And therefore, our banks still have -- I believe it's a reasonable loan growth because we cannot tell you it's how much because we're still in budgeting. And fee income, I think because due to this year, we have the organization restructuring and we were very focused on the fee income business. So I think we hope we can -- in 2022, our fee income have a very good growth.

[Harris Lin, executive]

Okay. Before we get into the next question, I would like to...

Okay. Now we have the next question. It's about the wealth management fee income. "I would like to know the breakdown between different products of the wealth management fee income and the growth of each of the product." In the wealth management fee income breakdown as of September this year, the mutual fund is still performing better than other products. Mutual fund accounts for 65% of the fee income. Bancassurance accounts for 25% of fee income. Sorry, sorry, I need to correct. The mutual fund accounts were 60%, banassurance is 25%, fixed income structure products and others account for 15%. And among the 3, the mutual fund is performing quite well. The growth rate is about 25% to 27%, while the fixed income and other products was growing even faster at nearly 40% growth rate. And of course, the bancassurance is the underperforming product because of the regulation change effect last year. So that caused the demand for insurance products to continue to be weak this year.

We have the next question. It is also about the fee income. "What are the reasons for credit card fee decline in this year in addition to the level 3 alert and the outlook for next -- for the fourth quarter?"

For the credit card, indeed, the performance is less than satisfactory this year. And it's mainly because of a few reasons. First is compared with year 2020, in the first 2 months of 2020, there -- the COVID was not that severe at that time. So people could still go abroad to travel and to make consumption abroad. But for this year, because of the border control, people cannot go abroad to travel and to make consumption in foreign countries, which is a quite important part of the credit card consumption. And secondly, as the domestic pandemic outbreak happened in May and June, and the impact was still quite significant into July and August. So that also -- that also had some impact to the domestic card consumption. Thirdly is the insurance. In the past, the insurance demand was higher and the insurance premium -- part of the insurance premium was paid by credit card. But with the decline of insurance demand, that also has some impact to our credit card business and consumption amount. And lastly, it's about the rebate to our customers, to the cardholders. And because this year, the COVID issue, we think it is not a good year to release the rebate because it might not be that effective for our business. And we want to have a better balance between the market acquisition and the profitability. So we reduced the rebate and that also caused some impact to the card consumption. Have all these factors combined, that contribute to the decline in credit card consumption and credit card fee income. But for next year, we still -- we are still quite positive about this credit card business, and we hope we can have a better performance in year 2022.

Okay. We have the next question and could be the last question coming in. "This quarter, the spread dropped by 2 basis points. Can you explain the reason for the drop of spread?"

Yes, indeed, spread for loan and deposits dropped by 2 basis points this quarter. And it's mainly because our strategy to -- for the loan growth and a lot of the growth is -- a large part of the growth is coming from the trade finance. And it is because the -- as what we mentioned earlier that the macroeconomic environment in Taiwan is very good and the exporting sector is performing very well this year, and that also brought a very strong demand for exporting and related trade finance.

And for the trade finance loan, typically, the loan yield is lower than the average loan yield. So that would drag the average loan yield to drop this year -- this quarter. However, I think it also goes very well with our strategy to develop the flow business with the large companies. And the trade finances can also bring us the fund flow from the large corporates. And then we have that fund flow and we can develop our business for treasury, for example, their demand for interest rate hedging or currency hedging. And so for a longer-term future, we think it will help us to develop our flow business, and it goes well with our long-term strategy.

Dear investor, we just finished all the questions from the message box. And thanks for your participation, and there will be a replay on our website after the event. If you have any further questions, please feel free to contact IR team for more information. Thank you, and have a nice day. Bye-bye.