First Financial Holding Co Ltd

TWSE:2892

Earnings Call Transcript 2021-Q1

[K. C. Lee, executive]

Good afternoon, ladies and gentlemen. Hello, everyone. Welcome to join us for First Financial Holding First Quarter 2021 Webcast Investor Conference. Instead of live webcast, we recorded today's content just in case. As usual, we will start with our presentation, including a snapshot, highlights and operating results. Also, we will have a conclusion by our IR head, Ms. Annie Lee. Due to -- this is a pre-recording conference, so there is no live Q&A this time. However, we will still be answer the questions via e-mail, so you can raise your questions after today's conference or e-mail us. Our e-mail address is on our website. And today's presentation will also have a replay 1-year service after, for your convenience.

Now I'd like to turn over to Mr. Keith Ke to begin today's presentation. Keith?

[Keith Ke, executive]

Okay, let's start our presentation. Please turn to Slide 5. Let's wrap up the conclusion of first quarter 2021. Capital market in Taiwan was still booming in first quarter, which helped to boost the earnings of the group, especially for 3 major subsidiaries, bank securities and insurance. Group posted a good result with TWD 5 billion earnings in first quarter. Non-bank subsidiaries combined a total 10% plus earnings, efficiently diversify the contributions from bank unit only. This was very good for our group.

As of the bank subsidiary, total deposits showed 16.9% growth Y-o-Y, which was huge comparing with the growth rate in recent years. The ample liquidity stimulated both wealth management and the capital markets. On the other hand, corporate lending also accelerated under low interest rate environment. And broad an over 8% loan growth Y-o-Y.

The group proposed a TWD 0.9 cash dividend and TWD 0.1 stock dividend, which was subject to AGM approval. Since FSC has announced that the postponement of all AGM from public companies due to the pandemic, so we think the dividend payment date would also be delayed as well.

Okay, let's move to financial highlights. Please turn to Slide 7. This slide shows group's key figures. The results of first quarter 2021 has turned the contracted situation into growing model. Most of our figures show the increasing trend comparing with the numbers of first quarter 2020, such as consolidated net income, EPS, ROA and ROE. Those figures all showed a good trend.

Please turn to Slide 8. This slide provides a breakdown of group's net income. Net revenue improved 17.1% Y-o-Y. Combined with less credit charge and insurance reserves, total net income had an impressive 71% growth Y-o-Y.

Slide 9 shows the major subsidiaries earnings. Bank reported TWD 4.4 billion net income with 32.8% growth Y-o-Y. Securities and insurance both showed positive results, comparing with the negative results of first quarter 2020. As we mentioned, non-bank subsidiaries combined 10% plus earnings out of group's total earnings.

Okay. Let's move to operating results. Please turn to Slide 11. Here shows the group and bank's net income and ROAE. Group net income was over TWD 5 billion, and ROAE was also back to normal level with 9.04%. Bank's net income was TWD 4.4 billion with 7.96% ROAE.

Please turn to Slide 12. This slide provides a breakdown of bank's earnings structure. Cumulative net revenue of first quarter 2021 was TWD 11.3 billion, which was 15.5% growth Y-o-Y, and it was contributed by all sectors. Net interest income increased 7.9%, mainly thanks to the strong loan demand. Net fee income improved 3% Y-o-Y. And the gains on investment was also started with 76% growth.

Please turn to Slide 13. This slide shows the loan book mix. Total loan reached TWD 1.95 trillion with 8.1% growth Y-o-Y. SME loan was fantastic with 11.4% growth which was the key to support the loan demand. Mortgage improved 2.9% Y-o-Y, while FX loan dropped 4.5% Y-o-Y.

Please turn to Slide 14. This slide shows a Q-o-Q trend of loan book. Please take it as reference.

And Slide 15 displays the trend of LDR, spread and NIM. LDR continued to slide to 70.8%, among which NT dollar LDR dipped to 76.4% and FX LDR dropped to 53.8%. This was mainly because of the rapid growth from the market part. Loan-to-deposit spread slid another 1 bps to 1.39%, while NIM dropped another 2 bps to 0.98%.

Please turn to Slide 16. This slide shows the breakdown of Q-o-Q trend of NT dollar spread and FX spread. NT dollar spread stayed at 1.25%, while FX spread trended up to 1.98%.

Please turn to Slide 17 for a deposit structure. As we mentioned earlier, total deposit increased 16.9% Y-o-Y, and the ample liquidity was a key to drag down the LDR. NT dollar deposit had a 17% growth, while FX deposit also had a 16.6% growth. And the right-hand graph shows the NT dollar CASA rate. And you can see this already reached 70.1%.

Now let's move to Slide 18. Here shows the loan book concentration of major exposures to specific industries. And you can take it as a reference.

Please turn to Slide 19. This slide shows the mortgage book yield and LTV ratios. Mortgage yield stayed firmly at 1.46%, the same with last quarter. Both new mortgage and the average mortgage LTV ratio dipped a little bit to 64.8% and 45.7%, respectively. Bottom bar chart displays the monthly new mortgage lending. First quarter of 2021 new mortgage lending dropped another 24.4% Q-o-Q. And you can see the latter 2 quarters mortgage momentum has shrunk quite a bit.

Please turn to Slide 20, the fee revenue. Total net fee income was TWD 1.81 billion in first quarter 2021, which increased 3% Y-o-Y. Wealth management fee income improved 5.1%, mainly supported by mutual fund sales. As of the non-wealth management part, both loan-related and FX fee income debt present the same period last year.

Okay, please turn to Slide 21. This slide shows the Q-o-Q trend of fee income. Please take it as reference.

Let's move to Slide 22 for the cost part. Total operating expense was TWD 5.1 billion, with 5.6% increase Y-o-Y. However, cost-to-income ratio now dropped to 45.1%.

Please turn to Slide 23. Let's take a look at the asset quality. Top chart shows the coverage ratio and NPL ratio. Coverage ratio stayed the same at 527.3%. NPL ratio was slightly down 1 bps to 0.23%. Bottom chart further shows the breakdown of NPL ratios. Both individual and the mortgage NPL rate -- NPL was trending down. While SME NPL ratio also dropped 1 bp to 0.27%.

Okay, let's move to Slide 24, the overseas profit. Overseas was impacted a lot by this pandemic. The pretax profits of overseas franchises over total profits crashed to only 26.8%. Some extra provisioning's from New York and Hong Kong branches were key to these better results. Top left pie chart shows the profit breakdown. North America shrank to only 4.8% of total overseas profit now, while ASEAN further improved to 30.4%. You can see the earnings structure has changed somewhat during the past year because of the pandemic.

Please turn to Slide 25 for our capital ratios. Group's CAR increased to 127.2%. Bank's CAR and the Tier 1 both improved a little bit to 13.7% and 11.9%, respectively.

Please turn to Slide 26 for the trend of dividend payout. As we mentioned at the very beginning, the group posted TWD 0.9 cash dividend and TWD 0.1 stock dividend, which was a 68.7% cash payout ratio under TWD 1.31 EPS, which would be subject to AGM approval.

Okay. That's the presentation today. I will turn the microphone to Annie for the conclusion and the QA.

[Annie Lee, executive]

Thank you, K. C. (sic) [ Keith Ke ]. Now I'd like to move to our outlook for the following quarters of this year. We managed to book a strong loan growth up to 8% of the first quarter this year. However, due to the outbreak of pandemic in recent weeks, we will see the momentum shift slow at least for 1 to 2 months. Therefore, even though the loan demand from corporate sector and for mortgage sector remains strong, we would see some post for this corporate sector's loan demand due to the so-called soft crackdown in the Twin City in northern part of Taiwan. In that sense, we would see our loan growth slower to 6.5% to 7% for the whole year due to the outbreak of this round of pandemic.

However, the loan demand for SME sector should still remain decent to maintain a growth rate around 7% to 8%, and domestic mortgage book would gradually recover from just 2.9% in the first quarter to 4% to 5% toward the end of this year, thanks to the still low rate environment. And fortunately, we have witnessed the demand in the overseas market, particularly in the ASEAN and the North America countries gradually recovered. Therefore, we would see the loan book would expand and reach 9% to 10% growth for the whole year for FX loan book.

If we come to see the NIM projection this year, in the first quarter, the NIM stabilized around 0.98%. And as the loan rates in the market has already rebounded for a while, so, we would see our NIM should bottom here. And then hopefully, it will gradually recovered back to above 1%. So, the whole year projection for our NIM would stay around at this level of 98 bps.

If we move on to take a look at our fee momentum, in the first quarter, our fee growth remained not so strong, but we should see the momentum will gradually rebound. Therefore, the wealth management fee revenue and loan-related fee income, both should reach 10% growth due to a relatively low base period last year. As a whole, the fee income should be able to reach a 10% growth for the whole year. Of course, we have factored in the slower growth maybe in the second half of the second quarter due to the pandemic because the crack down and the impact of the confidence of the investors.

Last year, our treasury income slowed a bit due to a shrinkage of the interest spread between U.S. and Taiwan. However, thanks to a relatively robust equity market worldwide. We managed to book growth on our treasury gains. Therefore, we would see our treasury gain the fall or the decrease of the treasury income should be much more minimal, and we will manage to maintain a slightly slower treasury gain, just minus 5% contraction for this year.

When we talked about our cost, for the credit cost this year, good things is said. We have almost a charge of much of the delinquent portfolio in the overseas market. And in domestic markets, the bear out program from last year's government sponsors lending, the ratios remain quite minimal. Therefore, we would much more optimistic to see that the net credit cost should stay around 15 bps to 16 bps for this year.

In terms of our operating expenses, due to the rising net revenue and will contain the cost, so we should see our efficiency ratio can stay at around 47%, which is pretty much in line with our original projection.

In the first quarter of this year, as we continue to charge-off some NPL in the overseas market, mainly in the Greater China and in the New York branch office, so the overseas profit contribution pretax contracted to below 30%. But post the pandemic era, we should see this -- the expansion of the loan book in the overseas office should gradually rebound. Therefore, we would still continue to project pretax profits in the foreign offices. We should see some events. Therefore, we still project our overseas profits with rebound to 40% toward the end of the year.

Last year, we -- our bank subsidiary, was destinated as one of the [indiscernible] banks. Therefore, we adopted a more conservative dividend policy for this year, we actually pay out less than 7% of the cash dividend for this year. Going forward, as long as our profits continue to rebound, we should see this payout ratio at around 40 -- sorry, around 68% to 70% can maintain. Therefore, we would, at the same time, check and balance between the capital management and the dividend policy that we may actually comply with the [indiscernible] requirements going forward.

That actually concluded my projection for the following quarters of this year. If I do not cover any parts of the questions, do not hesitate to contact our IRO by e-mail. We will be more than happy to answer by reply e-mail to you.

I hope everyone remains safe and sound. So, we should meet you in next quarter's meeting. Bye.

[Unknown Executive]

[Foreign Language]