CTBC Financial Holding Co Ltd
TWSE:2891
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
26.7
40.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TWD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
CTBC Financial Holding Co Ltd
You don't have any saved screeners yet
Welcome, everyone, to CTBC Financial Holding Company's 2022 First Quarter Earnings Conference Call. [Operator Instructions] And today's host will be Ms. Ya-Ling Chiu, CFO and Spokesperson of CTBC Financial Holding Company; and Mr. Pai-Hung Yeh, Executive Vice President of Taiwan Life Insurance Company. And the presentation will begin now.
Thank you, everyone, for joining CTBC's first quarter 2022 earnings call. Please turn to Page 4 on financial highlights.
CTBC Holding continues to deliver solid financial results with ROE and ROA at 16.5% and 0.93%, respectively. EPS was $0.34. After-tax profit was down 17% Y-o-Y, reflecting fluctuations in the capital markets, while underlying core business remained resilient.
Holding remained well capitalized with CAR at 136.2% and double leverage ratio at 116.2%. CTBC Bank observed growth momentum in its core business with net interest income up 16% Y-o-Y, supported by strong lending growth and widened net interest margin. Growth in credit cards, retail, corporate and lottery fees offset lower wealth management fees. Credit costs remained benign at 15 basis points.
Capitalization remains sound with CAR at 14.7% and CET1 ratio at 11.6%. Taiwan Life's after-tax profit was down 11% Y-o-Y due to moderated investment gains but benefited from hedging gains. Taiwan Life continues to focus on protection-type and foreign currency policies and was ranked #5 in the industry by first year premium. RBC ratio remains down at 335%.
Page 5 on profitability. Holdings first quarter net income was $16.3 billion. EPS was $0.84. Group ROE was 16.5%. And ROA was 0.93%.
Page 6 on capital ratio. We remain well capitalized with group CAR at 136.2%. Life RBC ratio at 335%, same CAR at 14.7% and CET1 ratio at 11.6%.
Page 7 on profit breakdown by entity. In 1Q, Bank net profit reached $7.4 billion, down 7% Y-o-Y, but increased net interest income was offset by higher provisions and tax expense. Life net profit was down 11% due to moderated investment gains on base effect. Holding's consolidated net profit was $16.3 billion, down 17% Y-o-Y.
In terms of profit breakdown, Life and Bank contributed 57% and 46% to 1Q earnings, respectively.
Page 8 on net profit movements. In the chart above, operating revenue was down 3% Q-o-Q but growth in net interest income and fee income was offset by lower trading gains at securities and investment trust subsidiaries. In addition, the Bank book disposal gains on collaterals and bargain purchase gains in 4Q last year and higher lottery rebates to MOF in 1Q this year.
Provisions decreased mostly due to lower specific provisions. Credit costs for 1Q was 15 basis points, down 31 basis points Q-o-Q. Expense was down 4% Q-o-Q. But for Life, 1Q pretax profit increased mostly due to increased investment gains and hedging gains.
On the bottom, operating revenue was flat Y-o-Y as loan growth and widened net interest margin underpinned increase in net interest income, but trading income decreased amid volatile capital markets. Provisions were up 21% Y-o-Y due to higher specific provisions overseas and impact from LH. Expense was up 3% Y-o-Y. Life pretax profit was down 6% Y-o-Y on moderated investment gains. Holdings pretax profit reached $21 billion, down 7% Y-o-Y. Holding adopted alternative minimum tax in 1Q, resulting in higher taxable income and tax expense. Overall, Holding's net income reached $16.3 billion, down 17% Y-o-Y.
Page 9 on revenue breakdown excluding Life. Total revenue was down 3% Q-o-Q and flat Y-o-Y. Net interest income was up 4% Q-o-Q as loans and marketable securities grew and net interest margin improved due to favorable NT dollar loan mix and higher yields on marketable securities benefiting from rate hikes. Net interest income was up 16% Y-o-Y, driven by loan growth and favorable changes in loan and deposit mix. Fee income was up 9% Q-o-Q, driven by better corporate and lottery fees. Fee income was down 4% Y-o-Y as volatility in capital markets led wealth management fees lower, while corporate credit card, lottery and investment trust fees increased. Combined derivatives, FX and trading gains was down 22% Q-o-Q. The higher trading income from FX and interest rate-related products was offset by lower trading income at securities and venture capital subsidiaries. Combined derivative, FX and trading gains was down 51% Y-o-Y due to lower trading income from bond and equity investment. Long-term investment and other income declined Q-o-Q due to recognition of disposal gains on collaterals and bargain purchase gains in 1Q -- in 4Q last year and higher lottery rebates to MOF in 1Q this year. Long-term investment and other income was down 16% Y-o-Y. Also, the Bank no longer booked long-term investment income from LH after consolidating the entity.
Page 11 on Bank's loan breakdown. Total lending with credit card revolving was up 3% Q-o-Q and 11% Y-o-Y. NT dollar corporate loan was up 3% Q-o-Q, driven by higher investment demand from corporate and growth in government-related loans. NT dollar corporate loan was up 7% Y-o-Y, driven by higher investment demand from corporate and growth in government-related commerce and services and construction and real estate sectors. Foreign currency loan was up 4% Q-o-Q and 15% Y-o-Y. Excluding FX, foreign currency loan was up 19% Y-o-Y.
Mortgage was up 3% Q-o-Q and 10% Y-o-Y as transaction volumes in property market continued to grow. Other loans were up 1% Q-o-Q and 13% Y-o-Y, mostly on growth in unsecured customer loans as we continue to expand our customer base and participated in labor-relief programs led by the government last year.
Page 12 on foreign currency loan breakdown. Foreign currency loan accounted for 38% of total lending. Overseas subsidiaries accounted for 59% of foreign currency loans with TSB and LH being 2 larger subsidiaries. Overseas branches accounted for 30%. OBU plus DBU was 12%.
Looking at the foreign currency loan breakdown by region. Japan accounted for 34% of foreign currency loans; Southeast Asia, 27%; Greater China, 15%; and North America, 13%. Overseas subsidiaries loan was up 21% Y-o-Y, driven by the consolidation of LH and rising business momentum at U.S., Indonesia and Philippine subsidiaries reporting double-digit loan growth. Excluding FX, overseas subsidiaries loan was up 27%. Excluding the impact from FX and LH, overseas subsidiaries loan was down 2%, mostly due to the adjustment of lending policy at TSB. Excluding FX, overseas branch loan was up 9% as most overseas branches observed loan growth momentum to pick up, except Singapore and Vietnam branch. Hong Kong, New York and India branches reported double-digit growth. OBU plus DBU was up 7% Y-o-Y, driven by growth in trade finance and syndicated loans.
Page 13 on Bank deposit mix. Total deposits reached $4.1 trillion, flat Q-o-Q and up 9% Y-o-Y. On the right, total NT dollar deposits were up 1% Q-o-Q and 8% Y-o-Y. NT dollar savings accounted for 64%. Total foreign currency deposits were down 1% Q-o-Q and up 9% Y-o-Y. Foreign currency savings accounted for 59%.
Page 14 on loan-to-deposit ratio. Overall, LDR was 70.7%. NT dollar LDR was 76.6%. Foreign currency LDR was 62.6%.
Page 15 on NIM and spread. In 1Q, foreign currency spread was 2.41%, up 7 basis points Q-o-Q due to the consolidation of LH and foreign currency loan growth. NT dollar spread was 1.57%, up 4 basis points Q-o-Q, driven by loan growth and favorable loan mix. Overall spread was 1.89%, up 6 basis points Q-o-Q. In addition, rate hikes had higher yields for marketable securities, 1Q NIM was up 4 basis points Q-on-Q at 1.47%. Excluding impact from LH, NIM was 1.43%, up 3 basis points Q-o-Q.
Page 16 on fee breakdown. Total fees were up 10% Q-o-Q and down 4% Y-o-Y. Wealth management fee was down 14% Q-o-Q and 18% Y-o-Y, as fluctuations in capital markets impacted customer demand and caused sales of bancassurance and mutual funds to weaken. Credit card fee was up 1% Q-o-Q and 4% Y-o-Y due to recovered consumptions supported by higher spending on gas, online shopping, restaurant and department stores. Retail business was up 1% Q-o-Q and 4% Y-o-Y as retail business growth trigger increase in fees. Corporate business was up 13% Q-o-Q and 35% Y-o-Y, driven by syndicated loan and trust fees. Overseas subsidiary fee was down 1% Q-o-Q as corporate and retail-related fees decreased at TSB, and up 5% Y-o-Y, mostly due to the consolidation of LH. Lottery fee was up Q-o-Q and Y-o-Y due to seasonal Chinese New Year effect.
Page 17 on wealth management fee. For wealth management fee breakdown, bancassurance contributed 65%; mutual fund, 24%; custodian and trust, 3%; and others, 8% to total wealth management fees.
Page 18 on cost-to-income ratio. Bank operating revenue was flat Q-o-Q, while operating expense was up 2% Q-o-Q, mostly due to higher ESOP valuations, leading to cost-to-income ratio at 61% in 1Q. Cost-to-income ratio was relatively stable compared to the same period last year.
Page 19 on asset quality. NPL ratio was 0.55% and NPL coverage ratio was 300%. Excluding impact from LH, NPL ratio was 0.41% and NPL coverage ratio was 353%. 1Q credit cost was 15 basis points, down 31 basis points Q-o-Q on higher specific provisions and consolidation of LH in 4Q last year. Compared to the same period last year, 1Q credit cost was up 1 basis point Y-o-Y due to higher specific provisions overseas and impact from LH. Excluding impact from LH, 1Q credit cost would be 10 basis points.
Moving on to Life business, Page 21, on total premium and first year premium. Total premiums were $42.6 billion in 1Q, down 15% Q-o-Q and 22% Y-o-Y. FYPs were $22.4 billion, up 1% Q-o-Q and down 28% Y-o-Y as volatile capital markets affected sales of investment-linked products and customers turn to interest-sensitive policies that capture rate hike trend.
Page 22 on FYP breakdown by products and channels. On the left is the product breakdown. Investment-linked products accounted for 22%; interest-sensitive policies, 74%; health and PA, 3%; and traditional, 1% of FYPs. On the right, in terms of channels, 53% of FYPs came from CTBC Bank; 33% from external banks; 8% from tied agents; and 6% from insurance brokers and others.
Page 23 on FYP breakdown by type of payment and currency. On the left, single-pay products accounted for 48% and regular paid products accounted for 30% of FYPs. On the right, interest investment-linked products accounted for 22%; foreign currency policy, 71%; and NT dollar policy, 7% of FYPs.
Page 24 on FYPE. 1Q FYPE was $5.1 billion. On the right is the FYPE mix for your reference.
Page 25 on investment asset mix. Total investment assets reached $2 trillion. Taiwan Life took suitable opportunities to realize gains in 1Q and increases cash holding and equities position.
In terms of portfolio breakdown, cash accounted for 6.8%; domestic fixed income, 9.9%; overseas fixed income, 58.4%; equities, 9.7%; mortgage, 1.7%; policy loans, 1.2%; real estate, 4.4%; and mutual fund, 7.9%.
Pre-hedge returns for each type of investment assets are as follows: cash, 0.18%; domestic fixed income, 1.75%; overseas fixed income, 4.77%; equity, 6.24%; mortgage, 2.08%; policy loans, 4.71%; real estate, 0.64% as part of the real estate project construction work is underway; and the return for mutual fund is 10.55%.
Page 26 on investment yield, cost of liability and breakeven point. In 1Q, Taiwan Life still maintains positive investment spread. Overall investment yield after hedge was 4.94%. Recurring yield before hedge was 2.94%. Cost of liability marginally increased 1 basis point Y-o-Y to 3.06%, reflecting [indiscernible] policies. Breakeven point continued to improve at 2.68%.
Page 27 on hedging mix. On the left, 42% of overseas investment assets for foreign currency policies. 35% were fully hedged, 9% were OCI position and 14% were unhedged.
On the right, FX reserve amounted to $7 billion as of 1Q. NT dollar depreciation resulted in hedging gains of 49 basis points in 1Q. Overall, hedging costs declined 180 basis points Y-o-Y from the same period last year.
Next, we move on to Taiwan Life and 2021 EV report. Page 29 on EV. EV reached $257.7 billion, of which adjusted net worth was $123.4 billion. Value of in-force business before cost of capital was $146.2 billion. And the cost of capital was $44.2 billion. EV is $41.4 per Taiwan Life share and $13.2 per CTBC Holding share.
Page 30 on EV assumptions. Investment yield for NT dollar policies starts from 3.64% in 2022 and will gradually rise to 4.07% in 2041. Investment yield for U.S. dollar policies starts from 4.1% in 2022 and will gradually rise to 5.14% in 2041. Discount rate applied was 10%. RBC capital requirement remained at 200%. PwC has provided an independent review on EV assumptions.
Page 31 is EV sensitivity for your reference.
Page 32 on EV comparison. EV increased by $32.3 billion Y-o-Y as the adjusted net worth increased by $40.9 billion and VIF increased by $9.7 billion.
Page 33 on adjusted net worth movement. Adjusted net worth increased to $164.3 billion, mainly due to profit of $23.1 billion, changes in unrealized gains on financial assets of $14 billion and changes in unrealized gains from property of $4 billion.
Page 34 on VIF movement. The increase in VIF was mainly driven by business growth. The VIF movement was due to VNB of $8.4 billion plus release of 2021 expected profits and interest rolling forward of $1.8 billion. And investment yield assumption change of $3.3 billion, and offset by other changes of $3.9 billion.
Page 35 on VNB movement. The decline in VNB was driven by sales volume change of $1.9 billion and offset by product mix change of $3.6 billion and investment yield and other assumption changes of $0.8 billion.
Next section is the ESG highlights for your reference. That concludes the presentation.
Good afternoon, everybody. This is Ya-Ling speaking. I would like to brief you the outlook guidance for 2022.
So for loan growth, we remained the same guidance as last time. Loan growth will have a double-digit growth both on NTD loans and foreign currency loans. As for NIM, we revised NIM's outlook guidance to 1.53% to 1.55% under the assumption of U.S. rate hike at 175 basis points and Taiwan's rate hike at 62.5 basis points. And we revised up -- the reason of we revised up the NIM's guidance is that the loan mix -- the product mix of loan in first quarter has changed and the spread. The loan yield and the cost of deposit has widened by 3 basis points. So we add this 3 basis points to our original guidance to 1.53% to 1.55%.
And for fee income, we revised our outlook guidance for wealth management fee to mid-single-digit growth because the Ukraine war has lasted longer than expected. And also, the U.S. rate hike are faster and higher than expected. And plus, the Taiwan government has changed the policy from zero COVID to live with COVID. All the reasons have impact our momentum of wealth management fee in second quarter. So that's why we revised our [ current ] fee to mid-single-digit growth.
However, we revised up our guidance for credit card fee because we believe after the recent surge of positive cases in Taiwan, the relief of COVID prevention measures will stimulate domestic consumptions and also overseas traveling. That's why we expect the spending will grow dramatically in second half of the year. So we revised credit card fee growth to double-digit growth.
So all in all, total fee growth will be mid- to high single-digit growth for total fee income. For credit cost, we remain the same guidance at around 20 to 22 basis points. And for cost/income ratio, we still remain at the same guidance at 57%.
And for the outlook guidance for Life, we remained most of our guidance for recurring yield -- recurring yield is at 3.27% and cost of liability at 3.13%, and hedging cost at 58 basis points.
So that's all I have to brief you about the outlook guidance. Now we open for Q&A section.
[Operator Instructions] And our first question is coming from Gurpreet Sahi of Goldman Sachs Hong Kong.
It's regarding margins. So net interest margin, we get the guidance for this year. Can you tell us the impact of higher interest rates into 2023? In other words, if interest rates are raised by the central banks as you expect for this year and then kept at that level, how much of a positive impact because loans can be repriced then into next year also?
Yes, you're right. The rate hike only reflect partial in this year. For next year, our estimation, the NIM will be 1.64% for 2023, 1.64%. It fully reflects the rate hikes this year.
And then regarding growth in general, I see that the double-digit loan growth guidance is -- part of it is because of the LH Group consolidation. So question is more basic. Underlying in the economy, do you see any sign of slowing down, especially in the real estate side, the demand for mortgage, et cetera?
Actually, except for LH consolidation, the loan growth -- the momentum of the loan growth was still good. If we compare the first quarter loan balance to the loan balance at the year-end of 2022, the growth was 3% for both NTD loans and foreign currency loans, except for LH. So one quarter, 3%, then the full year is very possible to be double-digit growth. So -- plus for the Southeast Asia, the economic outlook is better than the rest of the world. So we believe our loan growth will still have a good estimation and expectation for our loan growth for the whole year.
Okay. And then finally, regarding the Life insurance business, can you -- can I ask a very basic question? Like why can the negative -- hedging costs be negative for this quarter? And if you -- is there any one-off like gain from something? And on a sustainable basis, where is hedging cost running at?
The positive hedging cost is due to the U.S. dollar depreciation.
I think the positive hedging -- I call it hedging revenue is because weaker NT dollars, and for the sustainable basis, it's like I just mentioned that we expect the whole year, hedging cost will be 58 basis point, that is cost, not a revenue, 58 basis point of cost because we don't expect NT dollar will continue to depreciate for the rest of the year and plus swap cost and the NDF cost is increasing now.
Next question is coming from Jemmy Huang of JPMorgan.
Just two questions from me on the Life insurance side. I think on the EV investment return assumption, if I look at Taiwan dollar and U.S. dollar, I think U.S. dollar, you actually revised down the starting point. So just trying to figure out, so for the branded investment return upgrade, is my understanding correct that it's actually based around the Taiwan dollar side? And then on the U.S. dollar side, you didn't really have much positive impact as a result?
And then the second question is for your Life investment portfolio, just trying to understand whether you have any investment into the China property-related sector, the high-yield bonds in that kind of [indiscernible]? And any potential risks from this [ one ], if any?
For EV calculation, the NT dollars -- the -- for 2020, the investment -- the equivalent rate is -- for NT dollar is -- was 3.56%. And for 2021, it's 3.81%. And for USD policy, the equivalent rate was 4.49% for 2020 and 4.59% for 2021.
Got it. And regarding the investment portfolio related to China property sector, if any?
Yes. Jemmy, just give us a second. We are checking on the information.
No. According to my information, we don't have mainland real estate portfolio. You mean bond portfolio or real estate?
Bond investment in the property, yes, sector in China.
No. But we can check it for you and provide the information to you after the meeting.
Yes, sure.
The next question is coming from [ Alex Yu ], UBS.
A few questions from me. Number one is on Japan's outlook. So I remember in your previous briefing, you mentioned you expect there's some loan recovery on Japan and you probably expect a low single-digit growth. But now in Q1, we are seeing a minus 4% Q-on-Q at the time. So I'm wondering, is there any change in your outlook for the Japan loan growth? And then how about your expectation about the monetary policy outlook for Japan? And then...
Excuse me, Alex, just hold on a moment. Thank you.
I guess you can hear me now. So the second question is on consolidation of LH Group. So it has helped to improve your NIM, but they also lead to a higher credit cost, right? So I'm wondering what is the net of [ negative ] impact? So does it contribute to a higher ROA to the group -- to the bank overall?
And then my last question is about your dividend policy on the Life side. So last year was a good year in terms of capital gains from equity. So I'm from wondering, what does it take in order for Taiwan Life to continue to pay out policy in the future? And assuming your operating results turn out to be the same as what you're planning, so is that possible? And is it possible for Taiwan Life to continue to pay out dividend in the future?
And also a bit on your bank capital adequacy ratio. So are you comfortable with your current CET1 and CAR ratio?
For Japan, we expect the loan growth in Japan, just very mild, maybe low single digit because of the market and the GDP growth expectation is not as strong as other countries. And for LH, the spread or the NIM for LH stand-alone is about 2%. So the NIM is better than in Taiwan. But for the higher provisions because the relief program for COVID implemented in last year by the government, so right now, LH actually is still communicating with Thai Central Bank about the methodology to estimate the provision for the relief program. So it's not because the underlying loan is high risk. It's because the onetime impact about -- because of COVID.
And for the dividend policy on Life side, we already got the approval from Insurance Bureau that we can upstream about TWD 3.7 to the holding company -- sorry, TWD 3.7 billion to the holding company.
About the CAR ratio or BIS ratio on the bank side. For this year, it's still quite strong. Although there is new rules implemented starting from this year. And so for CET1 ratio on Bank side is 11.6% for the first quarter. So we believe the capital adequacy ratio is quite strong.
[Operator Instructions] And there appears to be no further questions at this point. And we thank you for all your questions. That will be the end of the conference. We thank you for your participation in CTBC Financial Holding Company's Conference Call.
One moment, we're going to take the question from Eric. The next question is coming from Eric Shih, KGI Securities.
This is Eric from KGI. Can you give me more detail about the anti-pandemic policy, such as how many you saw? And how many are trying already applying for claims? And then the total amount of the claim? And how -- can you give more how much potential [ issued ] amount for the P&C?
COVID policy, we received 400,000 policies. Until now, around 130,000 cases were underwritten. And then total premium, 8 million. As of [ May 13 ], [ 2,773 ] claim cases and the total claim amount, $52.4 million. We calculate many scenarios for the COVID policies. But due to the pandemic, policy change quite often and the impact was -- is varied much. So we cannot confirm -- we have not confirmed number to tell you. And according to our calculation, we use the worst scenario to calculate the impact for Life because the P&C is a 100% subsidiary for Life. The impact for Life is around 9 -- around single digit -- is a single-digit percentage for Life RBC.
And I also would like to get back to Jemmy's question about the Taiwan Life's exposure to the real estate sector in China. For Taiwan Life, they -- currently, they have invested in the bond, but their bond investment has an exposure of $8.8 billion in China, but they are all rated an investment grade and the payments are all making on schedule, and they don't have exposure to Evergrande. So, so far, the asset quality still remained in check.
Okay. Thank you. Then there appears to be no further questions at this point. We thank you very much for all your questions, and that will be the end of the conference.
Ladies and gentlemen, we thank you for your participation in CTBC Financial Holding Company's conference call. You may now disconnect. Goodbye.