E.SUN Financial Holding Co Ltd

TWSE:2884

Earnings Call Transcript 2021-Q4

[Unknown Executive]

Dear investor, welcome to E.SUN's Investor Conference for the fourth quarter of 2021. This conference will be moderated by me. I'm Harris from Investor Relations. Alongside President of E.SUN Financial Company, Ms. Magi Chen and IR team members, Chiwei and team and Alex are also here.

Today's event will be 2 parts. First is a presentation on 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 2021, E.SUN net profit grew by 14.1% to TWD 20.6 billion. ROE was 10.96%, ROA 0.66% and EPS was TWD 1.54 ROE of E.SUN Bank was 9.61%, the second highest among major banks.

Net fee income grew by 7.5% and set a record high of TWD 21.3 billion, mainly driven by wealth management and brokerage business. Both bottom line fee income also reached new highs.

Taiwan economy delivered the highest annual growth in the past 11 years. GDP growth outlook for 2022 is 4.15%. Customer high capital is [indiscernible] and the increased investment in green energy boosted E.SUN loan business. Our total loan balance grew by 8.7%, including SME loans, which rose by 9.5% and foreign currency loans, which were up 8.4%. Asset quality remained in line with NPL ratio at 0.16%.

In terms of ESG, we engage our clients on the usual climate change by developing responsible lending and investment.

This year, our new lease drove responsible lending amount towards TWD 20 billion, which represented 30% of new corporate loans in 2021.

Substantial abilities have 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.

This year marks the 30th anniversary of E.SUN Bank. E.SUN is the highest [ among banks ] and the most beautiful banker in Taiwan. [indiscernible] , E.SUN is committed to the vision to be the best bank and the most respected company. [indiscernible] its fourth decade, E.SUN will continue to focus on our strategies.

First, to have a strong cross-border banking platform. Second, to invest in fintech. And the third, prudent investment in the ESG. I'm very hopeful and very certain the future of E.SUN will be even more wonderful. Thank you.

[Harris Lin, executive]

Now let's proceed to the presentation. Starting with the first slide. This year, E.SUN celebrate its 30th anniversary. Here are some E.SUN's achievement in the past 3 decades. E.SUN is the only company in Taiwan to receive National Quality Award for four times. This year, E.SUN's market cap reached TWD 400 billion and is ranked Top 20 companies in Taiwan Stock Exchange. In addition, E.SUN is leading in ESG management. For example, E.SUN has been listed in DJSI for eighth consecutive year, the best performance in Taiwan's financial industry.

Turning to Slide 2, summary information. As of the end of December 2021, total asset was TWD 3.2 trillion. Key financial figures remain healthy. Book value per share, TWD 14.54, and financial holding company's capital adequacy ratio, 122.89%. The number of security branches increased to 17.

Moving on to Slide 3, business and financial review, in 2021, E.SUN Financial Holding Company's preliminary net profit was TWD 20.6 billion, up by 14.1% year-over-year. Net income grew by 7.5% to a new high, which was mainly driven by wealth management and brokerage business.

On loan business, total loan balance grew by 8.7% with SME loan growing by 9.5% and foreign currency loan growing by 8.4%. Meanwhile, our asset quality was in line with NPL ratio at 0.16%.

Next, I would like to highlight some information. Our applications for Bangkok and Ho Chi Minh City Representative Offices have been approved by Taiwan's FSC. And on the other hand, our performance was recognized by international media and ESG institutions. We were named the Best Bank in Taiwan by The Asset Magazine and received Best CEO Award from Corporate Governance Asia and The Asset. In the aspect of ESG, we continue to lead Taiwan's financial industry in DJSI, and we are also listed in Top 10 Sustainable Companies in Taiwan by TCSA.

Moving on to Slide 4, financial performance. For the year 2021, E.SUN's Financial Holding Company's net profit was TWD 20.6 billion, EPS TWD 1.54, ROE 10.96%, ROA 0.6%.

Moving on to Slide 5 for the net income breakdown by legal entity. E.SUN is a bank-centric financial holding company. 85% of its net profit came from the subsidiary E.SUN Bank. Followed by E.SUN Security 8.2% and E.SUN Venture Capital 6.8%.

Turn to slide 6. Net profit breakdown. E.SUN Financial Holdings revenue increased by 2.9% year-over-year OpEx declined by 2.1%. Net profit grew by 14.1%.

Move on to Slide 7, revenue breakdown. 44.9% of total net revenue came from net interest income; followed by net fee income, 36.8%; and the other income, 18.3%. Compared to the previous year, net interest income grew by 21.7% and net income increased by 7.5%.

Please turn to Slide 8 for net fee income breakdown. Total net fee income set a new high of TWD 21.3 billion, 46.4% of that came from wealth management; followed by credit card, 26.8%. In 2021, wealth management fee income grew by 7.2%, and brokerage and other fee income grew by 54.5%.

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 card and card consumption. As of 2021, our market share of active card and card consumption were 13.4% and 15.6%, respectively.

Turning to Slide 10, deposit and loan structure. Total deposits grew by 8.6%, mainly driven by foreign currency deposits with a 13.8% growth. Total loans grew by 8.7%, mainly driven by SME loans, which was up by 9.5%.

Moving on to Slide 11, deposit structure. As of 2021, although LDR 65.5%, NT dollar 87.6%. Foreign currency LDR, 27.3%.

Turn to Slide 12, loan portfolio breakdown. We maintained balanced growth between corporate and consumer loans. SME loans represented 26.8% on loan book followed by large corporate loans, 21.2%. On consumer side, mortgage was 25.2%. Secured personal loan, 18.3%. Unsecured personal loans, 7.8% and credit card revolving balance, 0.7%.

Move on to Slide 13, NIM and spread. NIM was flat at 1.18% in fourth quarter of 2021. Interest rate was 1.3% with the average lending ratio at 1.6% and the average deposit rate at 0.3%.

Moving on to Slide 14. Asset quality. E.SUN maintained benign asset quality, NPL ratio was 0.16%. Coverage ratio 783.8%.

Please turn to Slide 15, asset quality of product line. Our product line NP ratio stand at low levels. Corporate NPL ratio of 0.18%; mortgage, 0.06%; and credit card, 0.09%.

Turning to Slide 16. The market average NPL ratio was 0.17%. E.SUN's asset quality continued to outperform the market average.

Moving on to Slide 17. In 2021, cost/income ratio improved to 56.8%.

Moving on to Slide 18. I capital ratio of E.SUN Financial Holding Company was 122.89%. E.SUN's Bank Tier 1 ratio, 11.69%. BIS ratio, 13.9%.

This end of the presentation. Now let's proceed to the Q&A section. [Operator Instructions]

[Unknown Executive]

Investors. We have the first question coming in. It is a question about the capital ratio. Why did Tier 1 ratio decline half year versus half year and year-over-year?

The decline of Tier 1 ratio is mainly due to the increase in assets. The total asset of E.SUN Bank grew by 8.7% year-on-year, which includes the increase in loans, which is more than 9% and the increase in investment of bonds. And most of these investments will increase the risk-weighted assets of E.SUN. Therefore, the Tier 1 ratio declined year-on-year. This year, we hope we will increase our profitability because of the higher -- because of the wage hike and also we want to support our capital ratio by the elevated profitability this year. So we are hoping the Tier 1 ratio will increase this year. Thank you.

We have the second question. It is a question about the sensitivity of NIM. What is the sensitivity of NIM to U.S. dollar and NT dollar rate hikes?

We have made a simulation under the circumstance when Fed raised the interest rate by 25 basis points as well as the Central Bank of Taiwan raised interest rate by 25 basis point. At the same time, the imposition would be 7 to 8 basis point increase in NIM. What I mentioned was the full year impact on the NIM.

The following question is what loan growth is target next year? And which sector are in focus?

[Magi Chen, executive]

The loan growth should be around 8.10%. And as we think the corporate loan will have the growth rate were higher than consumer loan and corporate loans probably around 9.5% something like that. And consumer is around 6%. And mostly driven by the foreign loan growth, foreign currency loan growth and also for ESG loan growth, and also the capital -- the CapEx growth, yes, for these 3. 3 [indiscernible] of corporate.

[Unknown Executive]

Thank you. We have the next question. Could you please give an indication of market share for mortgage market lending, either secured and unsecured lending?

We have a market share in secured mortgage, and our market share is roughly 5% to 6%.

[Magi Chen, executive]

5.6%.

[Unknown Executive]

And please keep in mind that the banking environment in Taiwan is quite competitive. So yes, so we have a 5% to 6% market share with which could already put us into top 10 of all the banks in Taiwan. And there is no ranking by the regulator for unsecured lending. We only have the ranking of mortgage market lending.

[Magi Chen, executive]

And there's a question about the [indiscernible] to raise equity given the low Tier 1 ratio. According to our deposit team for 2022, we believe we still have enough capital on -- and if there is no M&A case and there -- we don't need to raise capital.

[Unknown Executive]

Thank you.

[Magi Chen, executive]

Another question is about the...

[Unknown Executive]

Current average yield on fixed income investment portfolio? And what is the -- okay, the first question, the current average yield of fixed income.

[Magi Chen, executive]

For the average foreign currency fixed income yield is around 2.06% Yes.

[Unknown Executive]

And the new money...

[Magi Chen, executive]

Because it's most especially for the U.S. dollar, 80%, 8-0 percent is floating. Yes. So based on 3 or 6 months LIBOR or [indiscernible], so that's why I think it's fair to increase the interest rate and then our portfolio will have a benefit from the interest hike.

[Unknown Executive]

Yes. And there's the following question, the investment yield of new money investments.

[Magi Chen, executive]

Okay. Yes, it's for the last year. Of course, if you see for 3 years, the previous 3 years, of course, it dropped from the 3% to -- last year is 2.2% of net less for the foreign currency. But from the -- generally and also this -- the coming months, I think it will be gradually going up. So the new investment, especially for this year, of course, should be increased.

[Unknown Executive]

And the next question is the ROE target for 2022 and the future.

[Magi Chen, executive]

This year, we said our E.SUN Bank, our revenue -- the profit growth we set high target. So we believe the ROE will be above -- is around 11.5% for this year and depends, of course, if Central Bank, our Central Bank increased interest rates more than, more than 1.5% or our central bank increased more than 12.5 [ bps ] and then should be better.

And so yes, we're actually started. I think next year, we -- this year -- next year, we should be over 12% because we already had a 10-year target for our next decade, our strategy and the financial target yes. So I think ROE, more than 10% is our target. And I think actually in near term we can [ revisit ].

[Unknown Executive]

Okay. And there is another question. It's about the growth outlook. The growth outlook for different business segments, loans, fee income, including wealth management and credit card. I think we have pointed out the growth guidance this afternoon in the earnings call. Also, Magi just mentioned for the loan growth, guidance, we expect the loan will grow by 8% to 10%, which includes corporate loans will be the outgrowing sector than the consumer loan. And for the fee income, we are quite positive about the fee income growth this year, especially for credit card, we had not so exciting year back in 2021 because of the domestic pandemic and also the international border control so people could not go abroad to travel and to reduce their expenses with credit card.

And also for wealth management, we implemented the organizational restructuring back in 2021. And after 1 year of integration, we believe our wealth management private banking for individual banking and corporate banking can work together better than 1 year ago. So we are quite faithful about the fee income this year. And we hope -- and the fee income growth guidance is double-digit for this year.

[Magi Chen, executive]

Yes. I think the net fee income growth, we hope that we can have double digit. And for the wealth management, we also set the target, yes, around 10% and the credit card business last year is negative. And this is -- this year should be mid digit.

[Unknown Executive]

Mid-single digit.

[Magi Chen, executive]

Yes, yes, something like that.

[Unknown Executive]

Mid-single digit.

[Magi Chen, executive]

Yes. so we can have 6% to 7% for the credit card business. The net fee income growth, yes.

[Unknown Executive]

And there's a following question from this investor. What is E.SUN's CASA ratio for 2021 and expected ratio for 2022?

The CASA ratio for last year was 64.6% And for this coming year, the expected CASA ratio will be somewhere around the same level.

For the cost of funds, it was about 30 basis points. That is the cost of fund for E.SUN.

The following question is where is the stores of bond from, the main stores of our funds come from deposits, either from including individual and corporate deposits. So in terms of the cost of funds and our liquidity, E.SUN is one of the best-performing banks in Taiwan.

[Magi Chen, executive]

The cost of funding, we'll be driving higher than last year yes. And for NT dollar, it's [2 basis points] and for the foreign currency probably is around 3 basis point increase, something like that -- sorry, it's 4 basis points, something like that. Yes. So I think that we still can control our cost of funding.

[Unknown Executive]

Thank you. Okay. We have the next question. How much of the NIM impact would be for the first year versus following year, regarding the 7 basis point NIM impact on 25 basis point rate hike.

[Magi Chen, executive]

Okay. I think this is based on our -- this year, our asset side. This means our loan side and our foreign currency investment. Yes, it's something based on -- we see already including in this year's -- in our loan portfolio and investment portfolio. Yes, it's based on this.

And so -- but I mean we say the whole year, that means if, for example, it's 25 bps, it's from July, and then we'll -- the outcome should be 1 year after. Yes. And so this has to depend on when the [indiscernible] increase the interest rate and when is the Central -- our Central Bank increased the interest rates. So for next year, and we have to face on [indiscernible] itself. So I cannot give you at current stage -- next year, does mean something like that.

[Unknown Executive]

The trend for the following year is not clear at this point. Thank you.

We have the next question about the green finance initiatives and how competitive are other banks in this area.

E.SUN is one of the most active bank in green finance and responsible financing. Right now, we're quite active in renewable energy financing, mostly our project financing and also the ESG-linked loan, which means the loan agreement with the corporate with the covenant of ESG process and also another product of green finance at the project financing. E.SUN is one of the first bank in Taiwan to be a signatory of Equator Principles, and we incorporate the guidelines provided by Equator Principles to mitigate the risk associated with ESG.

So yes, so E.SUN -- I can also give you a number of the responsible financing or green financing that we did in the past year.

Out of the entire corporate banking loan, the newly drawn corporate banking loan, about 30% is classified as responsible financing. 30% of our new loans in corporate banking.

And the second question is how does the loan rate compare to non-green loan?

The loan rate comparison to the non-green loan can vary. For example, if the loan is the project financing for renewable energy, it can usually give the bank a higher yield than average loan with the similar tenor. However, if the loan is ESG-linked loan, the loan rate would be quite similar to average non-green loan. So the green financing does not give -- actually, it gives us a better yield than the average green loan. Thank you.

Yes. There is some more information that I would like to add on the green loan. What we just discussed is about the yield of the loan. However, what we're looking at is not only the loan by itself. We have engaged many corporates in Taiwan. And because many companies are highly interested in ESG, and they also want to have more understanding in ESG. So what -- how, the way how E.SUN with our clients in ESG is not only through loan. Loan is just an anchor to help us to establish better and deeper relationship with the companies who are also interested in exploring more opportunities ESG, and we can exchange a lot of ideas and share our experience in implementation of ESG within E.SUN, and they can also learn the way how we do ESG. And by doing that, we have added more value to our clients. And then also -- and with the better relationship, we want to explore more business opportunity with these clients.

So the way how we look at ESG or Green Finance is not, it's not only focusing on the loan on other opportunity with the clients.

A question about the rate sensitivity. Can we have a split of the U.S. dollar and NT dollar sensitivity when set hike 25%, Central Bank of Taiwan hike only 12.5 basis points. And what is the implication on NIM?

[Magi Chen, executive]

I think it's around 4 basis points.

[Unknown Executive]

4 basis points.

[Magi Chen, executive]

Yes.

[Unknown Executive]

Thank you, and the next question is the outlook for cost income ratio over the next few years.

[Magi Chen, executive]

The cost-income ratio for this year, we are targeting around 53% -- 51%, 53% and therefore, we actually set a target for 5 years, we hope that we can -- around 50% or below 50%.

[Unknown Executive]

Okay. Thank you. We have the last question. It is about the pace of CD. Why did E.SUN not buy CDs Taiwan assets, the investors think it gives an opportunity to gain market share, both in loan and wealth management and credit card?

[Magi Chen, executive]

Okay. The first one, this year, the CD is this case, they only sell the consumer [indiscernible] business. So not only for the wealth management and also credit management. And also, you have to receive all the 45 branches and all the employees. Yes. And this is the first thought. And [indiscernible], we already have enough branches. And then for our government there are actually -- most people, [go to the bank] they want to file the CDs assets only in wealth management and credit card business, but they don't -- in this part, they actually -- yes. So for E.SUN Bank, the first one is the credit card business, they actually have -- yes, I [indiscernible] also so many. years, they are #1 and the first bank to provide credit card business, and they have [indiscernible] credit card loan, actually installment loan actually and we have very high yield. But because they don't provide the online assets, they don't provide the [indiscernible] no added support. Yes, so that's an issue. And we believe in the -- so this is the first part.

And yes, second, [indiscernible] the other are very specific goal, but the private international private bank because they have [indiscernible] foreign branches, so the high-end customer, actually they can move to the overseas Hong Kong, Singapore business., so of course, we evaluate something that we believe we had to [indiscernible] for us the same [indiscernible] and system, I don't think probably there are short-term benefits. For the long term, yes, E.SUN has different [indiscernible] with that. Yes.

[Unknown Executive]

Yes. Okay. Thank you very much, Magi. Yes. It seems like we have answered all the questions for this evening. And thank you all for participation. If you have more questions, please feel free to contact IR of E.SUN. Thank you for your participation. Have a good evening. Bye-bye.