E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2022-Q3

[Chiwei Hsiao, executive]

Hello, investors everywhere in the world. Welcome to the E.SUN Financial Holdings earnings call third quarter 2022. The time of day [indiscernible] will shall start now. I'm Chiwei, I'll be the moderator of the conference call today. And at the beginning, I would like to invite President and CEO of E.SUN Financial Holding, Ms. Magi Chen, to give an opening note.

[Magi Chen, executive]

Welcome. Thank you for joining our investment conference. For the first 9 months, E.SUN's net revenue reported TWD 40 billion. And the net profit was TWD 11.6 billion, ROE, 8.18% and the EPS was TWD 0.82. The recent global economic headwinds caused short-term impact to Taiwan's exporting sector. We expect that the companies have capability to adjust their strategy and [indiscernible]. However, Taiwan government forecast that the [indiscernible] be at around 3.5%, which drives E.SUN's loan growth at 11.3% Y-o-Y.

E.SUN continues to incorporate ESG into business. Sustainability relative loan accounts for 34% of corporate loan balance. In August, E.SUN held ESG initiative conference and invited 101 high-quality companies to reach the goal of carbon reduction. The participating companies collectively commit to reduce 1.57 million tons CO2. And 46 companies commit to Net Zero by 2050. This will strengthen the leadership in ESG and be the best partner for Taiwanese companies.

Net income was TWD 14.6 billion, increased credit card fee income was TWD 4.6 billion, a 12.1% growth. We expect credit card consumption to recover with more international travel.

For Wealth Management, fee income was TWD 6 billion. Customer AUM continued to grow at double digit, and E.SUN well safeguard the customers' wish in a volatile market. E.SUN recently obtained a Wealth Management 2.0 license, which allows us to provide in-house financial products to our customers. We will improve across business line integration and deliver the best service to our VIP customers.

These efforts in ESG have been widely recognized as the specified DJSI, MSCI and Sustainalytics. In addition, FSC also nominated E.SUN as the founding member of the “Coalition of Movers and Shakers for Sustainable Finance. We appreciated the recognition and we'll continue to integrate ESG into our business and create more value for shareholders and stakeholders. Thank you.

[Chiwei Hsiao, executive]

Thank you, Magi. And now I will walk you through the presentation of the third quarter. On Page 2 is the E.SUN Financial summary. Both the financial holding company and the bank asset was at TWD 3.5 trillion, that's 8% growth year-to-date. On the key financial ratios, both the double leverage ratio and the capital ratio are both at adequate level. And there is no change in the operating side for E.SUN no matter domestic in Taiwan or overseas branches.

On the next page is the business and financial review. For the first 9 months, E.SUN Financial Holding reported net revenue at TWD 40 billion. The net profit was TWD 11.6 billion, which was a 26.7% decline. The EPS was TWD 0.82 and ROE was at 8.18%. As of October, the net profit was TWD 12.8 billion.

For the business operation, despite all the uncertainties in the world, however, Taiwan still managed moderate growth for its GDP, which helped E.SUN's loans to grow at 11.3% year-over-year, in which foreign currency loan growth was 23.9%. And on the deposit, we also have a moderate growth. The growth rate was 11.8% year-on-year and the foreign currency loan growth was 24%. Especially in the sustainability-related loans account for 34% of corporate loan balance, which shows our ambition and determination and sustainability.

On the net fee income, we reported TWD 14.6 billion, which was an 8.5% decline, out of which Wealth Management was impacted by the volatility in the financial market and reported a 19.3% decline. However, on credit card, helped by the recovery of tourism and consumption, the credit card fee income for the first 9 months was TWD 4.6 billion, which was a 12% growth.

On asset quality, E.SUN still maintained a very benign level at NPL, only 0.16% and coverage ratio at 740%. On the honors and recognition that E.SUN received in the quarter, we once again awarded by the Commonwealth CSR Award. And this is the first time for E.SUN to be a winner of the first place award in the large corporate category.

Also, E.SUN won several awards from Taiwan Academy of Banking and Finance Best Practice Award in categories, including corporate banking, overseas development and ESG. Also, our efforts in ESG is highly recognized by FSC and E.SUN was selected as the founding member of “Coalition of Movers and Shakers on sustainable finance.

Nevertheless, E.SUN in ESG once again for the second year in a row, that E.SUN held the ESG initiative. And this year, we invited more than 100 companies to join the initiative. And collectively, we committed to reduce total of 1.57 million tons carbon emission by 2025. We will continue to be the best partner of corporate in ESG.

On next page is the 5-year financial performance of E.SUN, for your information. Next page is the net income. Net income of FHC and subsidiaries. The bank contributed 91% of the net income and security health contributed 6.9% and venture capital was 2.1%. As you can see on the right-hand side, the bank, the profit declined by 22.8%. Both security and VC were also increased because of the bear market.

Next page is the net profit breakdown. The net revenue dropped by 7.4%. On operating expenses, we managed to contain the operating expense very well, and the growth rate was only 0.5%. On net provision, the -- for the -- as of now, the provision level was TWD 1.5 billion and out of which more than 70% is from the general provision associated with the loan increase.

Our next page is the revenue breakdown. The total net revenue was TWD 40 billion, including NII accounts for 57.5%, fee income accounts for 36% and 6% from other income. The NII grew by 21.2% year-on-year. Next page is the net fee income. We reported a TWD 14.6 billion for the net income, including Wealth Management accounts for 41% followed by credit card 31.6%, brokerage and others 15.1% and Corporate Banking, 10.4%. All of which the credit card and the corporate banking both demonstrated a very strong growth for the year.

On the next page, I would like to illustrate our market position on credit card with the 4 graphs. On active cards, we grew by 3% year-on-year. The market share was 13.2%. On car consumption, the consumption amount grew by 6.8% year-on-year. The market share was 14.2%. In both categories, E.SUN was ranked, #3 in the market. And on the per card spending, the growth rate was 3.7% year-on-year.

On next page is the deposit and loan structure for E.SUN. For total deposits, in September, the amount was TWD 2.85 trillion, which was a 5.8% growth year-to-date, especially the foreign currency deposits, the year-to-date growth rate was 15.6%. On total loan in September, the balance was TWD 1.94 trillion.

The growth rate was 8.4% year-to-date, out of which foreign currency loans, the growth rate was 21.3%. But allow me to remind you that due to the currency translation, there is 15 -- roughly 15% growth was due to the appreciation of U.S. dollar.

On next page is the deposit structure. The LDR ratio for Taiwanese dollar was 92%, for foreign currency, it was 32.6%. The foreign currency deposit accounts for about 36% of our total deposits and the growth rate was quite strong.

Next page was the loan portfolio breakdown. As of September, the balance was TWD 1.9 trillion, which was very evenly distributed across individual and corporate. The SME accounts for 26%, Large Corporate accounts for 22.6%. Mortgage was 25.3% and Secured Personal Loan was 18.2%. If you look at the right-hand side, as you can see across all the sectors, our loan growth was quite healthy for the last year.

Our next page is the NIM and spread. In this quarter, there is no change in our NIM, still remains at 1.23%. On the interest spread, both our loan yield and the funding cost rise in the quarter. However, our spreads still managed to grow at 1 basis point in the quarter.

Next page is the asset quality. The overall NPL ratio was 0.16%, coverage at 740%. Next page, we break down the asset quality by product categories. For the corporate NPL, it was 18 basis points, for mortgage NPL was 5 basis points, which was a very healthy level.

And next page is asset quality graph over the past 3 years, as you can see. We still -- the asset quality is the strength of E.SUN. We will continue to keep it.

On the next page is the cost-income ratio. The CI ratio rose in the third quarter because of the weak revenue, and we will continue to try to recover our revenue and to manage our CI ratio at our target level.

Next page is the capital adequacy ratio. And there is no update in capital adequacy ratio because it is the third quarter, and we will report CAR ratio and BIS ratio in next quarter.

Next page is from our recap for E.SUN in sustainable finance. Both in ESG-linked loan, or sustainability bonds, E.SUN had a very good result. And also, we are -- we have, in most cases,compliant with credit principle in Taiwan, and we will continue to put more efforts into sustainability.

On next page is the ESG initiative. And this year, we invited more than 100 companies for 2 years in a row. There are 133 companies participate in the ESG initiative held E.SUN. And the total revenue of these 133 companies is TWD 6 trillion, which is equivalent to 23% of the annual GDP of Taiwan, and we hope to collaborate with all the companies and to make more positive impact through ESG advisory engagement and product and services.

And this is all for the presentation of the third quarter. Now we will proceed into the Q&A. Thank you.

[Unknown Executive]

We have the first question regarding the outlook for wealth management fee income. As you may know that in the third quarter due to the volatile global economy and the market. So we keep [ cushions ] on customer's health and wealth. So that that's why the mutual fund sales was weak. But however, we have seen the [indiscernible] fee income has been growing quite strongly.

So regarding the fourth quarter and onwards, as the markets -- equity markets are more stabilized, and we see the higher yield has represent a higher opportunity investment for fixed income, so we expect the -- and also the -- we get the wealth management 2.0 license, we can provide more tailor-made product for the high-growth customers. So we think that will be the growth driver for the coming years with wealth management fee income. Thank you.

Yes we have another question regarding what will be the expectation of a Fed rate hike as the Central Bank in Taiwan?

As we -- we think, according to our expectation -- internal expectation, we think the Fed will have -- will 2 quarters by the end of this year and another 2 quarters in the first quarter next year. And for Central Bank in Taiwan, as we see the economy are still stable and the inflation rate in Taiwan is not as high as the U.S. So we think the pressure from the Central Bank in Taiwan is less. And therefore, we expect this year and next year, we expect that there will be a 12.5 basis point rate hike each by Central Bank in Taiwan. Thank you.

[Chiwei Hsiao, executive]

Okay. We have a third question coming in about the driver and for the foreign currency loan. I think for the next year, some of the momentum will still carry on. For example, like green finance and renewable energy and the need for infrastructure. And many companies responded to government's policy, the so-called new Southbound policy to invest in Southeast Asia, or some companies even choose to respond to Made in American policy in terms of the U.S.

So the overseas investments still continue and will be an important source of our loan growth. At the same time, many countries in Asia are in the process of energy transition. So there is a large amount of CapEx in solar power or wind power. Also, the digital transformation also drives the need to build data centers in Asia. And for example, like in Australia, the Olympic games is going to be held in 2024, which would bring some needs or infrastructure investments.

So overall, I think for E.SUN, the loan growth in overseas market will be higher than in domestic market. However, in the overseas market, the main growth driver will be coming from the Taiwanese corporate. If we look at the growth by different countries, the main growth will -- the growth will be mainly from Australian market and Vietnam market. And these [indiscernible] driver for overseas loan and foreign currency loans for E.SUN. Thank you. Yes.

We have the next question coming in. In shareholder equity, the undistributed profit cannot fully offset the negative number in other equity items. Can you still pay dividend out of your capital premium line?

Yes. As of now, we still have undistributed profit. We think the undistributed profit will be sufficient to offset the negative number of other equity items, and we hope we can continue for the full year, and we will.

There's one more point added to the answers that we just said. I think the dividend policy's at discretion of the Board of Directors. We will find every possible way to distribute profits to our shareholders.

[Magi Chen, executive]

Based upon the Board.

[Chiwei Hsiao, executive]

Yes. But the decision is still based on the direct decision of the Board. Thank you.

Thank you, investors. Now we have answered all the questions. Hope to see you again soon in our next earnings call. Thank you. Bye-bye.