First Financial Holding Co Ltd
TWSE:2892
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 |
26.1
29.5
|
| 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.
First Financial Holding Co Ltd
You don't have any saved screeners yet
Good afternoon, ladies and gentlemen. I'm K.C. Welcome to join us for First Financial Holdings Third Quarter 2018 Webcast Investor Conference.
Before we proceed the presentation, I'd like to disclose the following information. And starting from December 2015, in order to improve corporate governance code, First Financial Holding has set out ethical corporate management best practice principles and conducting procedures and guideline. For more information, please refer to our website. Thank you.
Okay. Let's start with our performance presentation. All materials can be downloaded from our website and 1-year replay will be available after today's conference. As usual, we will invite Ms. Annie Lee, our IR head, to proceed the QA session and talk about 2019 outlook as well. You can raise your questions by typing at the webcast window. And thank you for joining us, and I hope that you enjoy the webcast meeting.
Now I would like to turn over to Mr. Keith Ke to begin today's conference. Keith?
Thank you, K.C. Okay, let's start our presentation today. Please turn to Slide 5. Let's take a quick review of group's performance in first 3 quarters 2018.
Similar to previous quarters, non-interest income still bolstered the bank's top line revenue to 8.4% growth y-o-y, especially from the treasury gains. The interbank lending switching to swap issues still existed and it eroded bank's NIM to 1.2% at the end of third quarter, which we will discuss more in later part.
Loan growth remained solid and even better than our expectation with 6% growth y-o-y. FX lending had a 12% growth while mortgage also had 7.7% growth, both were still the main sectors to lead the total loan growth.
Ample liquidity was another situation we found this year, especially in recent months. By the end of September, total deposit had already grown by 9.3% y-o-y. This phenomena was kind of tricky given the widened gap between U.S. and NT dollar interest rates. And there are other issues, such as the tax reform from China and the U.S. as well as strong Taiwan stock market to attract capital inflow at Central. All these made the future situation not so clear.
As for the outlook of 2019, Annie would give you some estimations later. And we believe the higher deposit growth would bring in some Wealth Management business and also stabilize the real estate market. GDP would maintain its moderate growth pace.
As for the looming economic environment, it might make the loan demand uncertainty. We also believe the higher volatility, and capital market would narrow the treasury gains growth next year, too.
Okay. Please turn to Slide 7. Let's take a closer look of group's financial highlight. This slide shows group's key figures.
Net income decreased by 3.6% y-o-y. This result also reflected on EPS, ROE and ROA. Those figures all fell behind comparing with the same period last year. However, most of other figures stayed reliable so far. Please take it as a reference.
Slide 8 further shows the breakdown of group's net income. We separated the bank's credit charge and the insurance reserves into 2 parts this time, hoping it would be clearer for the structure. You may see the higher bank's credit charge this year was the main reason to cause the downward net income. However, we do need that market-built process to rebuild a healthier financial structure in the future.
Please turn to Slide 9. This slide shows the net income for our major subsidiaries. Bank's earnings decreased to 3.2% y-o-y, and it's the major reason to cause the 3.6% decrease of whole group's earnings. Other subsidiaries' performance remained similar.
Please turn to Slide 11. Let's move to operating results. On this slide, it shows the group's and the bank's net income and ROE. Group ROAE was 9.49% with TWD 14.3 billion net income and bank's ROAE was 9.39% with TWD 14.1 billion net income.
Please turn to Slide 12, the breakdown of bank's earnings structure. Net revenues grew by 8.4% y-o-y in first 3 quarter 2018. As we mentioned, noninterest income was the main driver to bolster the growth. However, incremental net income shrink to only 2.1% comparing with the 5.6% in first half. Among those fee revenues, Wealth Management still dominated to reach 5% growth and occupied almost 60% of total fee revenue. Mutual fund sales supported it with 6.5% growth y-o-y. Treasury gains continued its momentum with 33.2% growth y-o-y.
Our dollar transaction from interbank to swap was still one of the reasons to bolster this high growing ratio. However, according to the calculation, it still increased about 30% this year without the RevPAR. So the treasury gain is still in high-growing situation.
Please move on to Slide 13. Total loan book drove 6.6% growth y-o-y, and the total amount has reached to 1.2 -- TWD 1.66 trillion at the end of September. FX loan had 12% growth and mortgage also drove 7.7% growth, as we mentioned.
Among overseas branches, ASEAN countries combined over 30% growth. And the commercial loan increased by only 2% and the SME was cautiously with only 1.2% loan growth so far.
Please turn to Slide 14. This slide provides the quarterly trend of loan book breakdown. Large corp has over 10% increase comparing with last quarter while consumer loan also had 5.6% growth. FX loan was on its pace with 3.5% growth q-o-q, and mortgage was slowed down with only 1.1% growth. The q-o-q trend was kind of different from the y-o-y trend, and we would continue to track the trend in coming quarters.
Please turn to Slide 15 for bank's LDR, spread and NIM. LDR stayed at 76.6% at the end of third quarter. Although NT dollar deposit demand was strong, loan book also kept the pace to increase as well. NT dollar LDR slightly dropped to 79.1%. FX LDR kept improving to 68.6%.
Loan spread also rose up 1 bp to 1.64% while NIM dropped 1 bp to 1.2%. And if restoring the interbank lending back from swap transaction, NIM would be recalculated at 1.26%, which was the same comparing with the ratio of 1 year ago.
Please turn to Slide 16. This slide shows the breakdown of NT dollar spread and FX spread. NT dollar spread continued to drop to 1.44% and FX spread improved another 3 bps to 2.46%.
Slide 17 shows the deposit structure. As we mentioned, total deposit increased to 9.3% y-o-y. NT dollar deposit grew by 10% and FX deposit also had 7.5% solid growth. And the CASA rates mostly improved to 69.6% now.
Please turn to Slide 18. This slide shows the major exposures breakdown. Please take it as a reference.
Slide 19 displays the mortgage book. Mortgage yield dropped another 1 bp to 1.8%. Both new mortgage LTD ratio and the average mortgage LTD ratio were stably stayed at the same level comparing with last quarter. Since the mortgage business was one of our major focus this year and for the coming quarters, we would be very cautious to its risk control.
Please move to Slide 20. Net fee income grew by 2.1% y-o-y in first 3 quarter and Wealth Management increased by 5%, which we just mentioned.
Slide 21 shows the q-o-q trend of fee income breakdown. We can see when mutual fund sales stayed quiet, the bancasurance picked up the growth. So we can believe that funding itself would find some exits.
And please flip to Slide 22. Although the total operating expense increased 4.2% y-o-y, cost-to-income ratio still decreased to 41.9%, thanks to the solid net revenue performance this year.
Okay, let's move to asset quality. Please turn to Slide 23. Coverage ratio continued to improve to 343%, and NPL ratio was now down to 0.35%. Both figures reflected the efforts putting into extra provisions gradually get paid off.
Please turn to Slide 24. This slide further provides the breakdown of NPL ratios. Individual and mortgage NPL ratios were both at 0.22%. SME NPL ratio dropped to 0.57% and large corp NPL ratio was also down 1 bp to 0.36%. Domestic NPL ratio improved to 0.38%. As for the overseas NPL ratio, it increased to 0.22%, which was mainly caused by one single case from Singapore branch.
Okay, please turn to Slide 25. This slide shows the new NPL influx and the bad debt recovery. Domestic new influx was down to only TWD 0.7 billion this quarter, and over this new influx was the one case we just mentioned from Singapore branch.
Please turn to Slide 26, overseas profits. The pretax profits of overseas branches over total profits increased to 43.8%. Upper left, the pie chart shows the profit mix. OBU occupied about 40% of total profits, which was similar to last quarter. And the Hong Kong, North America and the ASEAN were all still a major profitable region.
Please turn to Slide 27. Group's CAR increased to 126.8%. Bank's CAR also improved to 13.7%. Tier 1 rose up to 11.7% at the end of third quarter.
Okay, that's the presentation. I'd like to turn back the microphone to K.C. for the Q&A session.
Thank you, Keith. Now I delight to invite our IR Head, Ms. Annie Lee, to proceed the QA session.
Now we have had some questions about this year's performance, and some questions are related to our next year guidance. So I'd like to start with this year's performance first. First question was raised by our guest. The guest hopes to know that, if we include the swap income, what's the adjusted NIM at the end of third quarter. Annie?
For the swap gain being, I mean, covered into our normal NIM calculation, it will represent an incremental value about 5 bps. So that will represent our NIM. It should read at 1.26%, which is similar with what we have last year. For the absolute numbers or figures that we can calculate here, it would be the swap gain for each quarter is equal to about TWD 400 million. So in that sense, 3 quarters, it would produce about TWD 1.2 billion swap gains. And when translate to our NIM calculation, it will further boost our NIM level from current to less than 1.21% to 1.26%, and this is similar level that we have last year, 1.26%.
Okay. Thank you. So if we compare it with prior year, so it should be maintained at same level, right?
Yes, yes.
Okay. What about if on q-o-q basis?
Q-o-q basis will be about 2 bps or something because this is ongoing calculation. So I...
On a calculated basis for NIM calculation?
Yes. So for the first 3 -- 9 months or first 3 quarters, it will translate to equivalent NIM level this year.
Okay. Thank you. And let's go to the following question. Another question is from China Life, Ms. Wang. Ms. Wang hopes to know that, how's the Wealth Management business on third quarter, especially the fee income related to bancassurance and mutual fund sales? Annie?
Third quarter still looks not so bad, even though we suffer from the falloff in
[Audio Gap]
The retail process sales is still not so bad, frankly speaking. But because the sentiment in the market is getting sour post the trade friction between 2 big countries, so some of this investment fund has been transferred to more safe haven area like bancassurance. So our bancassurance business actually grew by 41% on a q-o-q basis, and the mutual fund sales may get tarnished due to the sharp fall in the equity market around the globe. So we're still more optimistic about the bancassurance business. Actually, we've recorded a very good record this year. But for the mutual fund sales, we'll have to be pretty much market-driven anyway. For the whole Wealth Management, this is outlook this year. I must say that we may record a flattish performance based on our most updated projection, mainly addressed by the market sentiment. So even though the first 3 quarter did record good results, but for the last quarter this year, it may not be so optimistic due to the market sentiment has actually turned to another side. So for the whole year, Wealth Management may -- not so bright anyway, maybe just very low single-digit growth, yes.
Okay. So for the fourth quarter and the whole year, fee income revenue projection will be low single digit for this year, right?
Yes.
Okay. The next question related to this year is about our overseas NPL ratio. A question from Ms. Nora Hou from Daiwa hopes to know that why our overseas NPL rose in third quarter.
This is mainly just one-off case. This is syndication lending getting nonperformed. This is the one of the prominent water treatment firm. This company actually filed for bankruptcy, so that's why we filed it as NPL in the third quarter. But we are now getting into some core procedure, try to recover part of this...
Collateral.
Pending. Yes, yes, yes. But it takes time until next, next year. And the total exposure is up to nearly SGD 20 million.
SGD 20 million.
Dollars. Yes, yes. Just one, just one case.
Okay, and thank you. And another following question from JPMorgan, Mr. Jemmy Huang hopes to know that, do you think that our SME NPL ratio has peaked or something?
If we follow the, I mean, the economic cycle, we actually are very cautious about the downturn of the domestic economy. So if we look into the absolute figure of the SME NPL, it seems it improved a little bit. But as banks represent a likely of the whole economy sector, so I cannot say that this is the peak. But we actually has started to tighten our lending policies and require more collateral or guarantor to actually try to weather the risk ahead. And you can see that our SME lending actually decreased quite substantially starting from early this year, and we shipped part of the leading to some collateralized business-like mortgage. So to some extent, this may help to lower the impact of the SME lending's risk. But as long as this macro economy or local sentiment remain not so optimistic, the SMEs -- I mean, the date service may not be so bright or anyway, so we're still quite cautious about this. So -- but we try quite harder to improve our loan loss reserve to boost our coverage ratio. So this is how we can actually carry up this -- the SME credit qualities risk for us. So I'm not so sure whether this is the peak, but we will try to lower the impact anyway, yes.
Okay. A follow-up question from JP Morgan is, do we still maintain the credit cost guidance at 27 to 28 bps for this year or higher?
We -- I just mentioned that we try to boost our buffer for any potential loan loss ahead. So we strategically hiked our loan loss provision. So up to end of this year, we are targeting a coverage ratio up to 700 -- nearly -- sorry, 380%, 3-8-0 percent, to try to approach the 400%. So that means we will have to provide more provisions against our exposure. So the total credit cost for this year definitely would be higher than my original projection, from less than 30 bps to about 33, 3-3 bps. And for next year, it will be lower, but it's still pretty much have to -- subject to how this -- I mean, the major lending portfolio, how they perform when the economy really bottom out or would still have depending on how this macro would impact our local economy, particularly the SME sector or local, so-called the local wholesale, retail sectors, yes.
Okay. Let me summarize the answer. So our coverage ratio target by the end of this year will be 380%.
Yes. 3-8-0, yes.
380% for -- on the end of this year. And also the total year, credit cost will be 33 bps for this year.
Yes.
Okay. Let's move to second part, which is our guidance for 2019. Some of our investors are concerned about our guidance. Let's talk about the loan growth first, okay? So Annie, how do you project our loan growth for next year?
After we reached a quite surprising growth this year for the loan growth, up to 6% for the whole year at this moment. Next year, we've managed to maintain a more neutral target at around 4%, 4.5% something, 4% to 4.5%, but mainly driven by the overseas market, particularly the FX lending. We managed to grow by about 7% to 8%, and mostly sourcing from our target market like U.S., ASEAN. China market is one area, but we're not so aggressive anyway. For domestic lending, we would be more focused on -- still on the collateral lending like mortgage. So next year, we manage to record about 4% growth on our mortgage lending. As for SME business, we are still not so confident, I mean, comfort about the asset quality. So next year, we'll only set our goal to grow our SME lending about just 2% to 3% after we actually only booked less than 2% growth this year. And it's still the area that we have to put more efforts, try to monitor the asset quality. So this will be our projection for loan growth next year.
Okay. And in terms of the fee income and NIM growth, how do you look it will be look like, Annie, for next year?
For NIM expansion, it's still quite flattish after we have no very strong projection that our Central Bank will take action to hike rate, even the U.S. market has reason. They have hiked their rate for quite some time. So for NIM projection, we are not particularly aggressive that our NIM would improve, especially when we focus more on the collateral-based lending, that will depress some of our pricing. In terms of the fee income, this is the area that we are going to further put more strength on. Next year, we are more optimistic that we can grow our fee revenue by about 6% to 7%, and mainly from the Wealth Management business. Thanks to the very ample liquidity, and clients tend to locking more satisfactory terms under enhanced yield by selling more like bancassurance business or a target date fund, insurance products. And in terms of the loan-related fee revenue, we've managed to grow by about 17% based on that we would engage in more syndication lending in overseas market and domestic as well. For the FX-related fee, we were also targeting 8% growth. So as a whole, fee revenue would represent our major growth drivers next year apart from our traditional lending business.
Sure, sure. So what's the guidance for credit costs next year? How about this, Annie?
After we aggressively hiked our provision in this year, next year, the pressure on our -- I mean, the pressure for us to clean up the balance sheet will be eased a bit. So next year, we'd reckon that we may be able to recover back to the pre Ching Fu situation that our credit cost can reduce to less than 20 -- 24 bps, I mean net credit cost, which will be about 10 bps lower than what we have recorded this year, 23 bps next year credit cost.
Okay. So the net credit cost guidance is 23 bps for next year. And talking about the Wealth Management, can Annie talk about more about the Wealth Management fee growth target for next year? And what kind of products will you focus on?
The 2 pillar set supports our Wealth Management sales. One will be bancassurance, which is one of the most popular products in the channel. For us, the very popular investment-linked products like target date fund is the products that can generate quite attractive commission rate, which is very good to our fee revenue. For next year, this will be a stellar product for us. And for the savings product, we're also -- we'll promote more annuity products that will help our insurance unit to accumulate its funding. So these 2 products would represent the major source of our bancassurance fee revenue. In terms of the mutual fund sales, so the multilayer fund may be another product that channel with a lot. So we would see like some the so-called fixed income, ETF for fund will be targeted for some -- the institutional investor or for retail clients. They would like to have some more principal guaranteed fund, and so on. So all of this would help to contribute to our Wealth Management business. And I also would like to highlight that the -- after we recorded a very low base period this year for our loan-related fee revenue, next year, we would further get involved with some loan businesses, so that would help us to attract more loan-related fee revenue next year, yes. So these were the 2 major pillars that will constitute the source of our fee revenue growth at around 6% to 7% next year.
6% to 7% for the whole fee revenue growth. As for the Wealth Management fee revenue, growth will be the same, right, yes?
Around 5% to 6%. The loan growth is about 17%.
Okay. And talking about the macro, we have a question from Goldman, Mr. Gurpreet. Gurpreet hopes to know that, how is our corporate clients responding to the trade war? And do you see any meaningful change or talk about change in the supply chain? If there is any supply chain change, how is First Bank preparing for this on the risk side? Thank you.
Actually, a lot of Taiwan corporates, they are quite cautious for the trade friction between China and U.S. But fortunately, a lot of this Taiwan business, they have already diversified their production sites around the Pacific Asian region. So there may not be so many so-called repatriated Taiwan business from China back to Taiwan to set up their production. But to some extent, the capital would be retrieved and then be reallocated again. So for us, the supply chain may see some -- I mean, relocated in the future. But for banks like us, we would try to help our clients, particularly the SME clients to reallocate their production site, not just in Taiwan, but also in other production site in the ASEAN region, and that would help to boost our overseas lending. And this may be the major source of our overseas or FX lending growth driver next year. So that's why we set up overseas lending target at around 9% to 10% to reflect or to attract this repatriated or reallocated fund or capital from China to elsewhere.
Okay. Thank you, Annie. And in terms of the syndication, Gurpreet hopes to know that, will First Bank start to tighten our criteria on taking more syndication loan exposure like some SME sectors?
We have already tightened our lending policies starting from end of last year, so we have started. But I must say that when we say we're tightening our lending standards, it's not particularly to any specific customer or any sector or whatever. This is pretty much a macro-driven part. And frankly speaking, in the beginning of this year, we're not in the sense that the trade friction between 2 -- the big countries would happen in the middle of this year. So I mean, whenever there's I mean risk, there will be chances there. So we would have to actually, I mean, lower the risk that we confronted, but at the same time, try to explore new opportunities that we can make money out of it. So the tightening strategy for banks is quite huge whenever it is credit cycle. But for us, we have already projected the slower economy after we have this Ching Fu and the east cross trade relations. So we will -- already tried to prepare ahead. That's why we've been quite aggressive, aggressively hiked our provisioning this year, yes. And that actually reflected in our bottom line that we actually produced not so attractive earnings this year, yes. But this is mainly for -- where we can have sufficient buffer for the potential downside ahead.
Yes, yes. Right. And since that Taiwan just have experienced local election last weekend, can Annie talk about the postelection macro projection for Taiwan? Annie?
I guess there's always so many surprise in the market. So even for politics, there is still some impact no matter it is positive or negative to the whole local market. For us, the newly electoral mayor all expressed their -- a more accommodative attitude to welcome or to warm their relation with China and try to invite some more China tourism back to Taiwan again. So this is a friendly gesture that -- to help to ease the not so good the relation across the straits. So I suppose that this does help to boost the sentiment for the whole markets, particularly for the business and Taiwan business, which they have a portfolio across the 2 sites. And I guess, this is a good sign for the investor for them to have more investment in this local markets and would help to boost their loan demand in the future. But I suppose this is not so -- it is not imminent because it takes time to get back to the confidence and also the orders as well, yes. It takes time. But definitely, the tension is getting us so high and it will help to improve the sentiment in the markets, yes.
Okay. Talking about the expense side, the cost side, okay? Annie talked about our targeted expense ratio for the next year? And how about the targeted salary increase in general?
For our cost structure, it's always quite flattish. This year, we would manage to book around 43% CI ratio. Next year, after we incorporate a regular 3 -- about 3% headcount cost, which is the payroll hike, we would record a 45% CI ratio, which would include some service fee and other investment or appreciation from our investment in the core system, the IT system. So next year's cost will be a little bit higher than this year, from 43% to 45%.
43% to 45%.
45%.
Okay, 43% to 45%. Okay. Since some of the investors are hoping us to summarize again our 2019 guidance, so I'd like to wrap up some guidance for next year. First of all, the total loan growth target for next year is 4% to 4.5%. And as for the FX loan growth, it's 7% to 8% growth for next year. As for mortgage lending, it's 4% growth. As for SME lending, we will be more conservative for 2% to 3% growth. And as for the fee income revenue, which is more optimistic since our base here is lower and also the ample liquidity help us to boost the revenue from Wealth Management, so we project a 6% to 7% growth for the fee income. And for the credit cost projection, we summarized that it will be lower than this year, so the net credit cost will be 23 bps for next year. Comparing this year, it will be our 33 bps, it will be 10 bps lower. And also as for the postelection macro projection, Annie just talked about -- talked something about a more optimistic side, but still the policies need cooking, need time to cooking. And also, I'd like to ask Annie about the rate hike projection since the -- that we just heard that the new express thinks that -- they just announced that they seem to pause the rate hike ever since this time. So is it a good sign for First Bank or another impact for First Bank?
For rate hike projection next year, if U.S. rate hike paused, then the so-called the swap gain will not be evident. So that's why we project our NIM expansion will not be so exciting. For domestic, sorry.
The other side, I think that due to the LIBOR rate has start -- if LIBOR start increasing, that will help our FX loan demand to recover. Ever since that our FX client has experienced some, they have felt that the FX loan, -- FX rate is fairly too high for them to stand for, right?
Yes. We can see that the loan demand from U.S. dollars has declined quite dramatically. We were actually flogged to NT dollars borrowing instead of U.S. dollars. So if U.S. rate hike paused a bit, then maybe the loan demand for U.S. dollars may surface. This may not be that negative anyway. But for NT dollars, rate hike is still not so imminent.
Yes. So 2 sites for the -- 2 sites, they track for the rate hike for the U.S. paused the rate hike. And also, the next question is about our -- what's the APG impact and everything that we know Taiwan has experienced, the APG evaluation. So how's that impact for Taiwan?
We are quite happy that we actually complete the APG review in the middle of this month. But this is just the beginning, and it will reflect further costs that will be incorporated into the APG, required some implementation of the anti-money laundering or the counterterrorism project. So I just mentioned that our cost next year incorporate some service fee from the implementation of some projects that will help to further fulfill our commitment to APG. So hopefully, this would help us to lower the risk for this part. But in the other areas will be -- this would drag down our service fee from our channel service commission and the -- our business in the OBU area definitely will be less. So this will be 2 areas that will impact our fee revenue source. But if we do not comply with the APG's requirements, maybe significant file will be ahead. So to be compliant, become more compliant is more crucial than the service fee or the other revenue. So in that sense, this is just the beginning and there will be more cost ahead for us to -- while we try to implement this relevant related projects ahead for the AML and the counterterrorism business.
Right. And also, I forgot to mention that our cost-to-income ratio for next year projection is 43% to 45%. And I think that we already summarized all the projections for next year. And so far, there is no more questions for this year and for next year, and we hope that you enjoyed today's conference. And should you have any questions, please do not hesitate to contact us and by e-mail. And our 1-year replay of the conference will be available on the website soon. And we hope that you have a warm and pleasant year -- new year, and wish you all the happy Christmas. And Annie?
Thank you, guys. See you next time, maybe next year.
Okay. Bye-bye.