E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2018-Q4

[Chiwei Hsiao, executive]

Okay, dear investors, welcome to the web conference of E.SUN Financial Holding and today we're going to disclose the our Full Year Result of 2018, and the meeting today will be moderated by the IR, including me, my name Chiwei, and my colleague Mr. Matt Tsai.

And at the beginning, I will invite CEO and President of E.SUN Financial Holding, Mr. Joseph Huang, for a brief opening note.

[N. Huang, executive]

Dear investors, thank you for joining the web conference for the year of 2018. E.SUN continued to deliver consistent profit growth from the seventh consecutive year. Net profit was TWD 17.1 billion and the gross rate was 15.9%. Return on equity was 11.06% and EPS was $1.58. Normally, ROI of E.SUN Bank was 11.23%, which was the highest emerged bank under financial holding companies. It is our vision to create long-term value for shareholders, and we will keep delivering the value through our strong management discipline.

In January, we set up a new organization, the Intelligent Banking Division, led by Chief Technology Officer, Dr. Chen, Sheng-Wei, who he is an expert in machine learning and data technology. The division will be responsible for development of AI and data technology, helping E.SUN build up more payments scenarios as well as inclusive and intelligent financial services. We will try to implement AI in many aspects of our operation, making E.SUN AI inside, human outside, which means that we want to improve and operate our services through power of technology while keeping the human touch. Technology has always been and will still be the most powerful accelerator for E.SUN. I'm also very happy to announce that we will extend overseas wealth management to Singapore, the financial hub of Asia. Initially, we will target on local Taiwanese businessman, who needs advices for their family wealth position or solution for business sustainability, along with our wealth management platform in Taiwan and Hong Kong. The Singapore office were aimed to benchmark our service level to international private bank in a short period of time.

2018 was a great year for E.SUN. We were awarded Bank of the Year in Taiwan by the banker, Asiamoney and the FA. Moreover, E.SUN was once again recognized by DJSI World and evidence of our efforts in social responsibility.

We will keep creating more valuable customers, shareholders and the community, making E.SUN the best and the most respected bank in Taiwan. Thank you.

[Chiwei Hsiao, executive]

Thank you, Mr. Huang. And as Joseph just pointed out that we will setup a new division called Intelligent Banking Division and also our wealth management center in Singapore and cross border and technology will still remain the 2 center piece of our strategy in the coming year. So we still expect to see much improved -- much improvement in these 2 fronts.

And please turn to the first page of our presentation, Page 1, the summary of E.SUN Financial Holding. And for the past year, now that both financial holding company and the bank the asset has reaches TWD 2.3 trillion and has a more than 10% growth for the past year. On book-value per share it’s 14.78 and on channels, in domestic channels in Taiwan, we have 139 branches. We added 1 branch, which is the private banking branch located in Nanshan Plaza in Taipei. And also, we added 2 overseas branch, 1 in Brisbane in Australia and 1 in Guangzhou, and under our China subsidiary. So now we have 28 branches in 9 countries and regions, across China and Asia-Pacific.

Please turn to the next page for the business and financial review. For 2018, our net profit was TWD 17.1 billion, it's a 15.9% growth and it is also the seventh year in a row that we delivered profit growth. So it's our vision to deliver long-term value to our shareholders, and we hope we can continue to do that. Our EPS was TWD 1.58 and ROE for the financial holding was 11.06%, but especially I want to mention that our ROE for the bank was 11.23%, which is the highest among banks under financial holding companies in Taiwan. So yes -- so E.SUN did a pretty good job in the past year.

On our business highlight. Our FX flow business still remains a center piece of our strategic focus and by improving flow services for our corporate clients and by providing digital foreign exchange through personal online banking platform, it gives us a very strong edge in managing our liquidity, and also give us a very stable revenue stream.

If you look at the growth in foreign currency deposits, the absolute amount of foreign deposit growth was more than TWD 100 billion, and which was the highest in Taiwan. Also the growth rate was 20.1%, which was also the #1 in the market. At the same time, our loan growth of foreign currency was 21.9%. So foreign currency loan growth and deposit growth was -- will still be the main driver of E.SUN's growth for 2019.

On net fee income, the wealth management and credit card are still the 2 main drivers with 4.5% growth from wealth management and credit card was 6.8%. Even though the market was very challenging, especially in the second half of 2018, but E.SUN still managed to deliver a positive growth in wealth management, and we hope that this year, we can do better in fee income business. Our asset quality is still very stable. The NPL ratio was 0.23%. The coverage ratio was 524%.

Also the Intelligent Banking division will be a very important driver to lead our development in AI and data technology. Especially, you will -- we will continue to build up more payments net scenarios, which was -- which is a focus of our digital banking division for the past few years, and we'll continue to do that, and also we will try to deliver more inclusive financial services, which means we want to deliver many financial services through digital channel that includes our e-click loans, the personal lending platform, and also foreign currency exchange through our online banking platform. And now, only in the last year, nearly TWD 3 million foreign currency exchange transactions took place through our online banking platform and more than 95% of the foreign exchange was done digitally.

So financial inclusion will give E.SUN a very strong advantage. And the -- and also, intelligent financial services that will include our chatbot, we call it E.SUN I and also we want -- we will try to smooth our service processes and to give our customers a better user experience. Our important milestones of 2018, E.SUN was once again named by DJSI in their -- in the DJSI Index for the fifth straight year and once again, E.SUN was listed in DJSI World. And also E.SUN was -- what was named the best bank in Taiwan by The Banker, Asiamoney and the FA, the 3 very important international media.

And also Moody's, a credit rating agency, upgraded both, E.SUN Financial Holding and E.SUN Bank, which made E.SUN the only A-rated private sector financial holding company in Taiwan, and we think this is a very important step for E.SUN. And also in the poll organized by institutional investors, E.SUN was voted as the most honest company in Taiwan, and we will appreciate your continued support in the year to come.

On the next page is the 5 years financial performance. As you can see on net profit, it's a very stable upward growth trend and our EPS is 1.53%. Please turn to next page, which is the net income of financial holding companies and subsidiaries. On the pie chart, as you can see, the banks still contribute nearly 99% of the net income of financial holding company. On the next page is the Net Profit Break Down. The -- for the net revenue, the growth rate was 6.7%. While we implemented a few management measures in operating expenses so it made our operating expense growth, only 1.9% and also compared to 2017, the OpEx was at high pace. So because in that, that year we started the core-system rebuilding program and also in 2018, there was some costs associated with the right issuing.

So in 2018, the OpEx growth rate was only 1.9%, however, in this year, we will still try to maintain our guiding principle is that to have the revenue growth higher than the expense growth and also our profit growth higher than revenue growth. Please turn to next page, on the Revenue Breakdown. For the full year, the net revenue was TWD 49.2 billion. The NII accounts for 40.7%, fee income accounts for 33.2%, fixed income foreign exchange and others is 26.1%. And still, I want to have your attention on note 1, 55.9% of fixed income FX and others has the interest income from stable growing fixed income investments, so it's actually a stable and recurring source of revenue.

Please turn to the next page for a net fee income breakdown. The total net fee income was TWD 16.3 billion. Wealth management still accounts for nearly 50% of fee income and credit card was 31.4% and year-on-year comparison, as you can see on the right hand side, wealth management growth rate was 4.5% and credit card was 6.85%.

Please turn to the next page for the Credit Card Business and the competitive landscape of credit card. In last year, our credit card consumption was -- growth rate was 6.6%, which made our credit card consumption amount to TWD 340 billion and the market share in 11.7%. Also on per-card spending, in the last year, our per-card spending continued to grow. So this is still a good sign. And also I want to remind you that aside from credit card, there's also another very important component of our payment product, which is the electronic payment. According to the statistics of the banking bureau, our electronic payment market share was 55%. So E.SUN is still temporarily #1 in electronic payments in Taiwan.

Please turn to next page for Deposit and Loan Structure. On total deposit growth rate was 9.7%. Officially, the foreign currency deposit growth rate was 21% -- 20.1%., and I want to remind you that our foreign currency deposit growth volume and growth rate were both #1 in Taiwan, and also, the total deposit growth volume for E.SUN was also #1 in 2018.

On loan side, the total loan growth was 10.1%. I specially want to highlight, foreign currency loan was 21.9%. On consumer loan, on the growth rate was 10.4%. The mortgage loan growth rate was 14%. And according to the statistics of banking bureau, the consumer lending of E.SUN, which mainly include mortgage and unsecured personal loan, consumer lending, the growth volume was ranked #2 in Taiwan and the growth rate was #1. So E.SUN was performing pretty well in both deposit and loan growth in 2018.

Please turn to next page for the loan-to-deposit ratio. The overall LDR was 70.1% and the LDR for NT dollar was 88.5%. And I also want to remind you that for NT dollar, we feel still comfortable as long as the LDR is below 90% and our foreign currency loan-to-deposit ratio was about 38% and for the excesses deposit, we can make it for our investment in foreign currency fixed income -- bond, yes.

And on the right hand side the deposit structure, our foreign deposit growth by 20% and now foreign currency accounts for about 33% of the total deposit.

On next page is the loan portfolio breakdown. Until 2018, the loan balance was TWD 1.3 trillion. And the leading segment is SME 25.9% followed by large corporate 23.9%, and also on mortgage and secured personal loans was 20.4% and 21%. On the right hand side, the year-over-year comparison. As you can see the large corporate growth rate was the highest. The growth rate was 14.5%. So it actually reflects our strategy to expand our business in cross-border Taiwanese corporate and also our expansion in overseas branches, both these 2 type of customer, the overseas large corporate and cross-border Taiwanese companies, their loan demand well -- were in foreign currency and they both fall into large corporate category.

Please enter next page for NIM and spread, and we managed our NIM pretty well. So our NIM still stayed flat at 1.36%. On loans and deposits spread, it dropped by 5 basis points, but you may know that the lending yield was actually -- went actually up by 2 basis points compared to the third quarter. However, the lend -- the funding cost went up by 7 basis points. So it --which caused our -- the blended spread to come down by 5 basis points. And also there's another reason that caused the blended spread to come down, which is the low LDR of our foreign currency. So yes. I think we have explained that point many times.

On the next page is the asset quality. The NPL ratio was 0.23% and the coverage ratio was 524%. If we separate the NPL by different product, for the -- on the corporate side, the NPL ratio was 15 basis points and on mortgage was 21 basis point, and we expect our mortgage NPL to be very stable and even -- and can even improve this year and also, the NPL for corporate will possibly improve this year. And for next page is the 3-year -- 3-years asset quality chart. As you can see, we can maintain our asset quality better than the market average. On the next page is cost-to-income ratio. We -- it was 51%, which was at a relatively lower level compared with the past 3-year. On capital equity ratio, for the financial holding company was 137%, and for the bank BIS ratio, the tier-1 ratio was 12% and the overall BIS was 15.16%. So this is for the presentation, and we will head to the Q&A session.

[Chiwei Hsiao, executive]

Hi. We have the first question coming in. It's about cost-to-income ratio. Can CI ratio be improved substantially over medium-term with the use of the intelligent banking division?

And of course, I think this is the very important mission of why we set up the intelligent banking division is that we want to implement AI in many operations of the bank. That includes the cost saving, that includes the detection of fraudulent account, which means the AML or financial crime. Also it will help us to improve the efficiency of marketing and sales. Just to stream line the processes and to make salespeople more efficient. However, in the short run, there will still be a few -- a project going on especially in the tech front. In 2017, we started our project to rebuild the core banking system. And so till 2020, the CI ratio will not likely to fall below than the current level. So that means for at least 1 to 2 years in the future, the CI ratio will still remain at somewhere around 51%. And the implication of cost saving from use of AI for the new core-system will started to show up in the cost improvement maybe in 2022.

At that time, it is likely that the our CI ratio will stop -- start to drop in 2000 maybe '22. Yes.

Okay. We have 2 question came in, and I will answer both of the question at the same time. And this question about the guidance for loan growth and deposit growth in 2019.

I think the target that we set for both will be high single-digits. So somewhere around 8%, plus or minus, 1% and -- but the most importantly, is the composition of loan and deposit, and we will still focus on foreign currency loan and foreign currency deposit, which we think, both will grow at more -- at double-digit this year, and yes. Thank you.

Okay. We have the next question coming in. It is about the growth guidance of our fees, and I will separate the answer by 2 part in wealth management and credit card. On wealth management, this year the -- for the past year, the wealth management fee income was 4.5% in 2019. We hope the fee income growth will be better than what we had in 2018. And even though this year, will still remain to be quite challenging, however, we will have a few strategy that includes to setup our private banking division and also our cross-border wealth management platform in Hong Kong and Singapore and how we connect these cross-borders services, altogether with our corporate banking services. So and -- on the other hand, for the wealth management customer, who's AUM is lower than TWD 3 million, which is USD 100,000, we will release some of our sales force in consumer banking and to serve these segment of customers and in our consumer banking AO, account officers, now we have about 800 people of them. About 70% of the consumer banking account officers have acquired license that's needed to sell bancassurance products. So for the 8 -- for the customers with AUM lower than TWD 3 million, their wealth management needs will be less complex, be more simple. So it is not very efficient for us to serve them with our financial consultants. However, we have 800 account officers and already, 70% of them have already acquired the licenses that's needed to do wealth management services. So this year, we hope our wealth management fee income will be better than that this year to achieve somewhere around high single-digit growth. On Credit card. In the first 2 months, the credit card consumption amount growth rate was 15%. So we had a pretty good start for this year. And for the full year, we expect our credit card consumption amount to grow at double-digit. And also the fee income growth from credit card will be double-digit. So overall, we hope our fee income growth in this year will be high single-digit. Thank you.

Okay. We have the next question. It is about the number of RMs that we have in our Singapore for wealth management business. And I think, I will answer the question by an overall view of our overseas wealth management. And right now in Singapore, of course, it is that we just launch the service like 2 weeks ago, and we just acquired the license. So the RMs that -- who are located in Singapore is still very, very few. However, in Hong Kong our wealth management has been growing at a very fast pace for the past few years and right now we have 7 RMs in Hong Kong, and we expect to expand the number to 20 RMs in a very short period of time.

So I think the key for our Singapore operation will be how our RMs can connect the services from -- to connect the services and deliver what our customers need for their wealth management needs. So yes. Thank you.

Okay. We have the next question about the NIM and spread. Especially, the investor want to know the split between NT dollar and foreign currency, and the outlook for 2019. And as the CEO disclosed in the analyst meeting this afternoon. The -- in 2018, the spread for NT dollar was 1.48 for the full year in 2018 and for U.S. dollar, it was 1.98. And going forward, I think the interest rate environment is still quite challenging for our bank. However, there is also a good side is that the Fed has slowed down its pace on hiking interest rates. So as you can see, the spread of 40-something has been going down and it was mainly due to the increasing funding costs. So if the Fed has slowed down hiking interest rate and it will help us to better control the funding cost. So that -- so for 2019, we hope to maintain our spread and NIM at current level. Thank you.

Okay. I think we have answered most of the question. All of the questions. So I think we will call an end for -- to the conference today. Thank you for your participation, and there will be a rerun within 1 hour. Thank You. Bye-bye.