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
Hi, I am K.C. Good afternoon, everyone. Welcome to join us for First Financial Holding 2017 Full Year Earnings Result Webcast with Investor Conference. As usual, we will start with our presentation, including 2017 performance summary, financial highlights and operating results. After the presentation, we will invite Ms. Annie Lee, our IR Head, to proceed with QA session.
You can raise your questions by typing at the right side of the webcast window either in English or Chinese, is fine with us or you can email us your questions after today's conference.
Now, I would like to turn over to my colleague Mr. Keith Ke to begin today's presentation. Keith, back to you.
Thank you K.C. Okay, please turn to Slide 5. Let's take a look at what happened to First Financial Holding in 2017. First of all, Group's net revenue was bolstered mainly by bank's net interest income and the treasury gains. How did the income fell behind? Among those net interest income, FX contributed a lot, thanks to the widened spread from FX yields. As for 2018, we still believe FX loan will benefit more under U.S. rate hike trend.
First Bank made little house cleaning in fourth quarter, setting aside TWD 4.8 billion credit charge against Ching Fu Shipbuilding. After taking these one-off provisionings, we think Bank to return the focus back to core business in 2018. First Bank opened another sub-branch in Cambodia in fourth quarter 2017, which was their 7th sub-branch in Cambodia, and we got totally 8 operating spots in this single country now.
Last but not least, even with all these obstacles happened in 2017, First Bank was still honored as Bank of the Year in Taiwan by the Banker Journal.
Okay, please move to Slide 6. This slide provides more details about the performance of year 2017. Group for year net revenue improved 12.7%, and as we mentioned, it was mainly underpinned by bank's net interest income and treasury gains. Net interest income grew by 3.8%, while treasury gains jumped over 20% Y-o-Y. Bank's loan book only grew by 2.3%, which was impacted by wiping out certain cases in fourth quarter. Loan growth will eventually go back to its normal pace in coming quarters.
Let's move to next part, financial highlights. Please turn to Slide 8. This slide presents some of our key figures. Hurting by the Ching Fu case, most of the figures declined comparing to the numbers in 2016. Group's consolidated net income decreased 10.7% and the EPS also dropped from [ TWD 1.45 to TWD 1.27 ] in 2017, and the both ROAE and ROAA declined double digit as well.
Please turn to Slide 9. This slide shows the breakdown of Group's net income. Even though net revenue improved 12.7% Y-o-Y, the bottom line still decreased 10.7%, eroded by higher provisioning.
Slide 10 shows the net income for our major subsidiaries. Bank's earnings decreased 14.5%, ended at TWD 15.1 billion. However, First Securities contributed TWD 272 million net income in 2017, which was a tremendous improvement comparing with the net losses in 2016.
Please turn to Slide 12 for the operating results. Both Group and the Bank's ROAE dropped due to Ching Fu case we just mentioned. Group's ROAE dropped to 8.04%, while Bank's ROAE down to 7.91%.
Please flip to Slide 13. This slide shows the breakdown of Bank's earnings structure. The net revenues grew by 3.3% in 2017, mainly driven by net interest income and treasury gains. Net income dropped 7.2% last year and we anticipated it would bounce back this year due to the lower base.
If deducting the total reservation of Ching Fu case's TWD 4.8 billion, the growth provisionings would be only TWD 4.8 billion and it's not too much different comparing with the TWD 4.4 billion gross provisionings prior year and the net provisionings would be almost the same.
Please move to Slide 14 for the loan book overview. Total loan book was TWD 1.58 trillion, growing by 2.3% Y-o-Y. FX loan drove the most with 7.1% growth, especially for overseas branches, which had 8.6% growth Y-o-Y. Actually, exchange losses do cut some of the growth ratio. Otherwise, including greater China, North America and ASEAN, all had double digits loan growth last year. Among other parts, mortgage increased 2.2% and SME had a 1.5% growth Y-o-Y.
Please turn to Slide 15. This slide provides the quarterly trend of loan book breakdown, and it shows that mortgage grew strongly with 2.4% Q-on-Q. We would address more details about the mortgage later.
Please turn to Slide 16. This slide presents the Bank's LDR, spread and NIM. LDR improved to 79.3% at the end of 2017. NT dollar LDR increased to 83.9% and the FX LDR dropped a little bit to 65.3%. Both figures didn't change much. The bottom graph shows the spread and NIM. Spread increased another 1 bp to 1.65%, while NIM kept at -- staying at 1.26%.
Please turn to Slide 17. It's very clearly that -- on this slide, you find that FX spread widened quickly, reaching 2.5% already and have [ propelled ] the NT dollars spread by over 1% and that it is also why we are more aggressive on expending the FX loan book.
Slide 18 shows the deposit structure. The CASA rate continued to rise to 68.3% at the end of 2017 and the total deposit also grew by 4.1% Y-o-Y.
Okay, please flip to Slide 19. This slide shows the major exposures breakdown. There is not much different comparing with last quarter, and like soldiers, well it's still pretty scattered. Please take it as a reference.
Now, please turn to Slide 20. This slide presents the mortgage book. We put this slide back mainly considering it might be the good timing to talk more about the mortgage market after a long period with just a flattish growth, even though the mortgage yield was still low. Bottom bar chart shows clearly that the new mortgage lending in fourth quarter increased a lot, totaling about 37% growth Q-on-Q.
Please turn to next slide. Let's move to fee income. Net fee income decreased 7.2% Y-o-Y, mainly caused by the 9% drop from wealth management. Both loan-related fee income and FX fee income declined at 1% to 2%, not too much.
And next slide shows the Q-on-Q trend of the income breakdown. You can see the bancassurance was still a major issue to level the fee income decrease. However, mutual fund gradually picked up.
Please turn to Slide 23, operating cost. The total operating expense decreased 2.8% Y-o-Y and the CI ratio down to 43%.
Okay, let's move to asset quality. Please turn to Slide 24. The coverage ratio dropped to 359% due to massively new influx in fourth quarter, and also [ capped ] the NPL ratio up to 0.38%. LLR ratio increased to 1.38% as well.
Slide 25 further provides the breakdown of NPL ratios. Individual and mortgage NPL ratio each down to 0.29% and 0.32%, respectively. The Ching Fu Shipbuilding and its subsidiary attributed the large corp and the SME NPL ratios each up to 0.75% and 0.56%. Domestic NPL ratio rose to 0.46% and overseas NPL ratio kept at 0.05%.
Please turn to Slide 26. This slide shows the new NPL influx and the bad debt recovery. Again, Ching Fu case made the fourth quarter a distorted month of new influx. You may take this slide as a reference.
Please turn to Slide 27, overseas profits. Although the pretax profit of overseas branches reached to 48% over total profits, the percentage was kind of distorted by the losses of Ching Fu exposures, which was listed in domestic profits. So if we adjust the ratio, the ratio should be down to about 38% something, but still on a growing trend. Upper left pie chart shows profit mix. OBU occupied 47.5% of total profits while Hong Kong, North America, ASEAN and other regions well-distributed the rest part.
Please turn to Slide 28. Group's CAR increased to 131% and the Bank's CAR also up to 13.4%. Tier 1 reached 11.3% at the end of 2017.
Okay. That's the presentation today. I'd like to turn back to K.C. for a QA session.
Thank you, Keith. Now, I would like to proceed the QA session. And we'll invite our IR Head, Ms. Annie Lee, to be today's major end-speaker for the QA session.
Well, the first question is about our macro environment. Before we start with the other dividend-related questions, I'd like to note that 2018 actually is a very special year. Our investor is asking about both U.S. and Taiwan have tax change plan. How would -- first of all, I'd like to know how would U.S. tax change plan will impact First Financial? How would that -- how would First benefit from the tax change, I mean, from the U.S. tax change plan, Annie?
Well, based on our statistics, we can have a reduced tax cost, around [ TWD 250 million ] tax benefit. So it's not that huge, but it's still minimal. So we suppose going forward that if we continue to expand our operation or our portfolio in the North America market, hopefully this tax benefit will become a more carry-forward outlook. So for -- up to the end of last year, the tax benefit is only around this TWD 250 million.
Okay. Thank you. And the second part is the Taiwan's tax change plan. Well, first benefit from the tax change plan in Taiwan of the -- I know that it's still under processing, legislative [indiscernible], but how would that be -- become after when it becomes valid, Annie?
We also can benefit from the hike of the corporate income tax from the current 70% to 20% due to the -- being recognized -- SG&A expenses occurred -- incurred in the past fiscal years. Now when we calculate it, we can recognize up to TWD 300 million tax benefit, but that will be booked into first quarter of this year's tax benefit, not for last year. So that would be for this year's P&L contribution for up to TWD 300 million. This is for Taiwan's tax benefit.
Okay. The next question is, I know that many investors are concerning about our dividend plan. So I have -- today, I have Jemmy Huang from JPMorgan and an anonymous guest and some other investors, both from institutional and from individual, and they hope to know that what's our dividend payout plan for this year, Annie?
Based on our earnings result last year that we generate [ TWD 1.27 ] per share as earnings, we still managed to maintain a more long-term reward to our shareholders. So supposedly, we -- the management team hasn't officially proposed to the Board yet, but we would plan to maintain a more stabilized payout ratio, which will be up to 60% above, because prior to last year's high payout ratio up to 82%; this year, we may not be able to maintain such a high payout ratio due to a quite optimistic loan growth projection. So I suppose that management team would try to propose a sustainable, but not that aggressive dividend payout ratio up to more than 80%, but I suppose above 60% would be achievable for this year. But it's still subject to the final approval from our Board, which would be confirmed after our Board meeting in April this year. So above 60% for this year.
Okay. So above 60% for cash dividend this year will be achievable level so far, and we still leave some room for the management to propose to the Board. Okay. The next question is from Goldman, Mr. Gurpreet Sahi. He hopes to know what's the guidance for cost growth this year and for cost-to-income ratio this year, Annie?
For our cost, we will maintain our original projection that we still have to implement certain, let's say, the compliance in other infrastructure investment. So the SG&A, I mean, growth rate still maintain around 7% to 8%, which has already incorporated our 3% pay hike effective early this year. Supposedly, our CI ratio would maintain stable at around 46% this year. So it's still similar to what we projected in our last quarter's meeting.
Okay. Thank you, Annie. And another question is about the Ching Fu case. For this troubled borrower and a question from JPMorgan, Mr. Jemmy Huang hopes to know that have we already recognized all the [ TWD 28 billion] exposure in NPL for already.
Let me put that into 2 parts. One part is the total exposure and potential loss that we -- we'll have to set aside provision that we provided TWD 4.8 billion total provision against this exposure end of last year, which was completely being booked into our credit charge in the final quarter -- I mean, in the fourth quarter 2017. In terms of the impairment assets, now we have recognized the main part of the Ching Fu exposure. So up to end of last year, we have already -- I mean, turned this Ching Fu exposure into the so-called impaired assets into the so-called doubtful or loss category. But the final legacy pool from one of its subsidiary, which is fully collateralized by the collateral that we seized right until the court procedure before we can recover from the disposal of this collateral, which is the way for maybe later this year because it takes more longer time to, I mean, clear up this legacy. So provisioning has already been completely set aside, but the NPL would gradually migrate into our NPL pool. But up to the first half of this year, we would be clearly pulling up the Ching Fu exposure and legacy. But still wait for some time before we can recover from the disposition of the collateral that we have from this exposure. So provisioning is already completed, but NPL is still wait for time to clear.
Okay. So the follow-up question about Ching Fu is, so the actual provisions related to Ching Fu was, how much in the third quarter and how much in fourth quarter?
Our total provision was 4.8 --.
In first quarter -- in third quarter last year.
Okay. The total provisioning for Ching Fu of TWD 4.8 billion was totally set aside in fourth quarter.
Okay, thank you, third quarter.
But as you would [ congratulate ] my point or put into our legacy tool this year.
Thank you. And any possibility of recovery from Ching Fu's collateral this year? What is the most likely condition amount in your view?
Due to the very complicated contract obligation in this government-related particular national defense structure, we don't expect the recovery of this exposure will be in the very -- I mean, in the near future. It's -- one solution would be possibly government will invite new, I mean, contractor to takeover Ching Fu's contractor, but it takes time to complete this government contract. So we don't see it would happen, I mean, very quickly this year, but we still have to charge off the -- these losses, I mean, in our book. So this year, so the recovery -- I mean, the recovery timetable, it takes quite a few years. We are not that optimistic, but feels that if we can recover from the disposal of the collateral that we seized from the Ching Fu company, then possibly the loses can be recovered, I mean not this year, and supposedly it should take quite a few time. So they are the 2 approaches. One is someone take over Ching Fu's contract and refinance this contract and the other would be completely wait until we dispose the whole collateral that we have, but it takes, I mean, quite some time to complete the whole procedure before we can really recover the loses or we have to charge off the, I mean, impairment loss.
All right. And next question is about the treasury gains. From HSBC, [indiscernible]. In terms of the treasury gains, you just mentioned about that. The treasury gains is one of the key driver to our 2017 financial result. Can Annie talk about our bond portfolio or other portfolios like portfolio size, country allocation or credit rating and the duration, et cetera, Annie?
Well, in terms of our treasury gains, it'd be separated into 2 parts -- 2 major parts. One thing would be, what we call as the commercial base trading, which originate from the hedging purpose or the volatility in the market that we serve our customers to help them hedge their FX or interest rate volatility transaction. For instance, we have seen the NT dollars against U.S. dollars market volatile quite a bit last year and that will boost or spur the demand for some institutional investors like the life insurance company to hedge their overseas portfolio, so that would actually boost the demand of this FX transaction, particularly FX swap transaction, the demand for this, and they help to create the margin that we can gain from this market volatility, including FX. And in fact, last year, the FX swap cost last year surged from less than 100 bps to nearly 200 bps, when this insurance company would have to hedge their overseas portfolio. So that creates the margin that the banks can get from the FX market. And the other side would be portfolio trading, what we call the proprietary trading, and this may refer to what you mentioned about our trading -- our investment portfolio. In fact, we do not own a very huge, I mean, fixed income investment portfolio. So that part is mainly driven by some reserve requirements for our overseas branches, which is -- which are required by the local government to maintain their reserves, so liquidity or for other compliance issue. The proprietary trading -- proprietary investment portfolio should be quite minimal when compared to our total trading portfolio. So I would like to highlight and particularly explain that what -- the gains that we have from our last year's treasury gains was mainly driven by the market volatility, particularly for the demand for this FX and interest rate market movements.
Okay, thank you Annie. And the next question is from Chung, Credit Suisse. He hopes to clarify 2 questions. First of all, Ching Fu's total exposure is how much and I think the answer is TWD 8.1 billion. Okay. And how much is booked as NPL by end of '17? I think just a minor...
Yes, I can give you the figures. For first quarter last year, I mean, end of 2017, we booked TWD 1.62 billion Ching Fu's losses into our NPL [Audio Gap] TWD 1.62 billion only as end of '17. And another is its affiliate, which is fully collateralized is Ching Yang TWD 1.4 billion. So you can see from our NPL influx in our Slide 26 that -- sorry, sorry, let me clarify again, there were 2 [ full costs ]. It is TWD 1.62 billion and the other is another full energy company. So that is only TWD 1.62 billion.
TWD 1.62 billion.
And the other part of TWD 1.50 billion would be booked in the first quarter this year.
Okay. [TWD 5.6 billion ]. Okay. So the conclusion is TWD 1.6 billion will be booked as NPL by the end of '17 and the remaining parts will be booked as NPL this year. Is that correct?
TWD 1.62 billion end of last year and TWD 1.59 billion for first quarter this year for Ching Fu.
Okay. So anyways this year.
Yes.
Alright, and the second question is about tax benefit for Taiwan tax change plan. It's about -- you just mentioned TWD 300 million. Is this already factoring the higher corporate tax rate for profits in 2018, I mean, the 17% to 20% already?
Yes.
Okay. So the conclusion is the TWD 300 million tax benefit for Taiwan tax change already factoring in higher corporate rate?
Yes. So -- actually, the corporate income tax for our January results this year has been lower to only 8.5% effective tax rate, which reflected the tax benefit for this year but not last year.
Okay. So we'll just -- or just an adjustment for prior years. Is that correct?
Yes. For Taiwan's corporate tax hike, the benefit would be this year; no 2017, but 2018.
All right. Okay. Thank you, Annie. Our next question is from Daiwa, Ms. Nora Hou. Nora mentioned about our life insurance subsidiary since we already booked under our full subsidiary. How would we position it? I mean, like if there is a confirmed rate hike cycle given that the subsidiary appears to be another earnings drag?
As this life insurance arm still remain -- I mean, it's operation still remain not so substantial, it actually incur minor losses, which would be less than TWD 100 million per year. So our target for this new affiliate company would be -- we try to booster their sales in order to lower its cost because its nature -- [ drag ] of the scale of the company is not -- it should be economy of scale. So, we would first, in large, it's a first day of premium starting from this year and in the coming years and help them to lower its fixed cost and then gradually accumulate its portfolio, which can be invested more in some higher yield returns. Now we are hoping to create underwriting return in other investments. And hopefully, we can turn this company from current losses into profitable next year. And based on our projection, when this company's premium revenue can be as high as more than 50 -- around TWD 50 billion, then it will become breakeven and then start to generate profits for the Group. So we would be targeting a higher sales and then lower cost and then breakeven first next year and then generate positive results 2 years [ down ].
Okay, Annie. In terms of rate hike impact, can you give us some guidance for the rate hike just in case given that the U.S. will have another rate hike possibility? And how about Taiwan, what's your guidance for, if Taiwan has rate hike in the second half of this year, Annie?
For the projection of NIM expansion from the rate hike from U.S. and Taiwan, our projection for U.S. rate hike are per 25 bps, it will help to boost our NIM by 1.2 bps per year. So, for a one-time U.S. hike, I mean one yard. We're pretty much in our progressive status. If there is a hike rate sooner than our expectations then that definitely help to boost our NIM more aggressively.
Okay, how about Taiwan?
For Taiwan dollars, As Taiwan dollars still account for more than 78% of our total loan portfolio, so the expansion would be more significant. For Taiwan's Central Bank, if it only hike 12.5 bps every time, then we can produce 1.5 bps greater than U.S. dollars.
So you mean full year or half year? Full year. So in Taiwan, if Central Bank announces rate hike for 12.5 bps and we will have a 1.5 bps benefit.
Yes for 1 year.
Okay, for 1 year, for a full year. Okay. Thank you, Annie. The final question that we have so far is about our Greater China business. How did the Greater China business look like in 2017? We knew that actually China is experiencing a low growth for the past 2 years and how it would look like -- how did it look like actually in 2017 and how would it look like in 2018, Annie?
From our portfolio, we actually enjoy without profits from our Greater China business operation. It terms of the so-called the OBU account, actually the OBU profit surged nearly 27% Y-o-Y last year and the composition of the OBU also increased quite substantially based on its very aggressive loan book expansion by 14%. Another part would be the Honk Kong offices. Its profit also increased. And the third portion would be the once-loss-making China branches. The 3 China branches have already turned positive last year in total. So that helped to give a booster for our Greater China operation and up to end of last year, our Greater China profit has already recovered to the so-called pre-renminbi depreciation crisis level up to 60 -- more than 60%. This was in line with our prior cycle level. So we maintain a very optimistic outlook for our Greater China business, even though we don't have a new expansion plan for our presence there. But asset build or our margin expansion would be quite optimistic for now.
Okay. And we have another follow-up question from Goldman, Mr. Gurpreet Sahi. He mentioned that actually U.S. hiked rates 3 times last year, and why didn't the company benefit from it? Well, I think the last time, rate hike was in December -- the end of December. So the third time should be benefit in this year. And I believe prior 2 times is in -- was in September and the other one is in June. So how would our company from benefit from that will be some lag or any [indiscernible].
Well the thing is that, because the -- even though the U.S. how has rate hike, but the rate in Taiwan market actually flipped a bit.
You mean the U.S. rate hike...
The Taiwan's actually...
NT dollar rate or FX rate?
NT dollars rate actually flipped a bit. If you take a look at our Slide 17, so the Taiwan dollars market rate actually dropped.
Okay. So you mean that offset?
Because last year, we noticed that the hot money enter into Taiwan market that actually dampen the market rate quite substantially. So one -- at the one end, even though the U.S. dollars rate moved higher, NT dollars rate actually dropped a bit. So they offset some of the upside.
So how would the year look like in this year? I mean, it'd be also an offsetting effect as well?
If the NT dollars stabilize here, this offsetting or drag would no longer happen again. We suppose the appreciating trend of NT dollars is top tier, then we would not see this drag, I mean, recur again. But some analysts still expect the Asian dollars -- Asian currency may appreciate again. So it cannot be ruled out. If NT dollars continue to appreciate this to some extent, it will offset this new expansion effect. But the good things is that we still manage to grow our FX lending and the demand for this part would be quite strong. So hopefully the drag would be not so substantial.
Okay. The next question is from Daiwa's Nora Hou. Nora hopes to know what the guidance are for total fee income growth for this year and for -- especially the wealth management fee income forecast, Annie?
For this year, we maintain optimistic outlook for our fee income, particularly due to the low base effect. Last year, the bancassurance fee income dropped quite significantly, so we managed to grow our fee income by 6% to 7% and mainly driven by our wealth management fee, which we're targeting 8% to 9% growth. So that will be the major source of our fee income growth this year. So 6% to 7% for fee income, mainly driven by wealth management, which we are targeting at 8% to 9%,
Okay, so 6% to 7% growth for total fee income growth and 8% to 9% growth for the wealth management business fee income growth. Okay. Thank you, Annie. And so far we don't have any questions coming up, and we will wait for another one minute to see if there is any follow-up question. And we'd like to ask if Annie wants to elaborate more about -- okay. Annie?
Well, I suppose some investor may like to know what would be any change in our credit policy after that we suffered from the huge losses from our Ching Fu lending last year, which can be -- I mean, seeing from our slower growth in our syndication loan in the first quarter last year. Actually, our syndication portfolio dropped a bit in the first quarter. Our strategy to further reallocate our sources to different segments from this year would be starting from our once declined mortgage book. As we know that the regulators have eased the risk-weighted factor for the mortgage lending starting from this year and also we have seen the property sector has already, I mean, stabilized, particularly from the price correction part. So our strategy now would be try to shift some of our resources from the once very focused corporate lending to the mortgage markets because we actually -- I mean little less behind our rivals, our peers that our market share dropped from above 5% to 6% to lower than that and the market position also being dropped to at the rank #8 places for the mortgage lending. So starting from the second half of last year, we managed to recapture our mortgage customers. And so this position would help to further diversify our risk and allocate more resources to this segment due to its fully collateralized and risk factor concern. So you can see that our -- closing our mortgage lending book expanded quite dramatically, and we suppose this would be our key initiative for this year's portfolio of allocation or diversified risk strategy.
Okay. So the conclusion is that we will try to come back to mortgage lending and try to regain our customer's trust and regain the market share and regain loan balance. In terms of that, we have had quite low-profile mortgage lending for the past 2 years. Does that mean that first half recognized the real estate market started to rebound this year?
Unless they're stabilized here.
Okay, thank you. So in our view that, at least, the real estate market has become quite stabilized right now, and...
And I will also address to the new tech being implemented to this business that we had introduced sort of the big data mechanism and try to [ sling ] out the quality mortgage borrowers and offer the loan facility to this existing customer base. This not only try to retain the existing customer base and also can further penetrate into their, let's say, fee related business like mortgage insurance or other wealth management investment. So this would be the key initiative and major source that our growth driver going forward. So I suppose this would be the major strategy that we would try to implement starting from this year after quite a year's, I mean, silent in the mortgage markets here.
Okay. Thank you, Annie. And I think we would like to wrap up for today's conference. And thank you for your listening and participation. We wish you a happy Lantern festival and prosperous year of the Dog. Thank you.
Thank you. See you next quarter. Bye-bye.