Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to this Chailease First Quarter 2018 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. For your information, a webcast replay will be available within an hour after the conference is finished.
I would now like to turn the call over to Vic Wang, Manager of Investor Relations. Please, go ahead.
Thank you. Hi, everyone. This is Vic. I would like to welcome you to Chailease Holding First Quarter 2018 Results Conference Call. I'm joining here this afternoon by Miss Sharon Fan, Senior Vice President of Investor Relations, and she will open to your questions in Q&A section. I will walk you through this quarter earnings presentation, which was available for download on our corporate website under IR section. As a reminder, please refer to the disclaimer regarding forward-looking statements at the front of the presentation. The agenda we are going to cover for today, on Slide 3, includes management highlights, first quarter 2018 consolidated performance review followed by the segment review for our Taiwan, China and ASEAN operation.
Starting from Slide 4. A few highlights for overview of our first quarter 2018 operating results. First, the summary table here shows you the loan portfolio growth for the first quarter 2018. On a year-over-year basis, Taiwan, China and ASEAN loan portfolio grew by 11%, 32% and 22%, respectively. China grew by 27% in local currency. On the consolidated level, we achieved 19% year-over-year portfolio growth. As for the first quarter portfolio growth, Taiwan increased by 1%, China increased by 7%, ASEAN increased by 4%, and 4% growth on the consolidated basis, which is slightly ahead of our internal plan. Since it's only first quarter, we maintained our full year portfolio growth guidance at current stage. Second, in the following performance review section, you will see maintained profitability in ROE, mainly due to solid business momentum and decreased impairment loan for this quarter.
Let's move to the next section, first quarter 2018 consolidated performance review. Moving to Slide 6, consolidated loan portfolio reached TWD 295 million for the first quarter 2018, with 19% year-over-year growth and 4% quarter-to-quarter increase. The main growth driver for this quarter came from China operation.
Next slide, Slide 7, shows you the trend of consolidated loan yield and cost of funds for the past 3 years. As you can see, we maintained stable interest rates as loan yield and cost of funds slightly adjust up, we will talk about changes of each operation region in the next section.
Next slide, Slide 8. This page shows you the change of consolidated fee income. The trend of the income shows the new business momentum during the quarter. On a year-over-year comparison, consolidated fee income continue to grow.
Next slide, Slide 9. On the left-hand side, the consolidated revenue for the first quarter 2018 reached TWD 11.5 million, representing 23% growth, compared to the same period last year. The better growth of consolidated revenue compared to the portfolio growth was driven by more fee income was put in 2018. On the right-hand side, first quarter consolidated revenue was down 1% from the previous quarter, but China originate more trade finance business for the prior quarter.
Moving to Slide 10. On the left-hand side, the consolidated net profit for the first quarter 2018 totaled TWD 3 million , and earnings per share for the quarter was $2.40. The increase of net profit was mainly driven by top line growth and less impairment losses recognized. On the right-hand side, consolidated net profit was up by 16% due to less impairment losses and operating expenses booked for the quarter.
Moving to Slide 11. On the left-hand side, cost-to-income ratio slightly decreased to 32% in first quarter 2018, due to less operating expenses recognized for the quarter. We expect this ratio maintained at 33% to 34% for the coming quarter. On the right-hand side, asset to equity is slightly decreased to 5.8x for the quarter.
Slide 12. The consolidated ROA on an annualized basis increased to 3.8% for the first quarter 2018 from 3.3% in fourth quarter last year, reflecting higher growth of net profit for the quarter. The consolidated ROE on the right-hand side was 22%. We expect ROE should maintain at 20% range for the full year.
Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at first quarter end 2018 decreased to 3.4% plus asset quality for Taiwan and China both improved. Moving to the right-hand side, allowance to portfolio ratio is slightly increased to -- increased 0.1 percentage point to 3.3% from 3.2% in prior quarter.
Moving on to the segment review. Let's look at our operation performance region by region. On slide 16, our Taiwan loan portfolio reached TWD 157 million at the first quarter in 2018, representing 11% year-over-year increase and quarter-over-quarter growth rate was 1%. Year-over-year growth rate was in line with our full year portfolio guidance for Taiwan.
Next slide, Slide 16. This page presents trend of our Taiwan loan yield and funding cost. But -- you can see we maintained savings, loan yield of around 8% for the past 3 years. The gradually lower of funding cost in recent quarter with rather improved financing cost.
Turning to Slide 17. This slide shows you the change of our Taiwan fee income. Fee income in Taiwan includes fees from alliance with commercial banks and the general fee income. Compared to the same period of last year, general fee income increased for the quarter, but new loan disbursement continue to increase.
Moving to Slide 18. Revenue from our Taiwan operations for the first quarter reached TWD 5.1 million, representing 9% year-over-year growth. The slower revenue growth compared to portfolio growth was driven by less sales revenue were recognized same period this year. For the quarter-over-quarter comparison on the right-hand side, first quarter revenue was down 1% quarter-over-quarter, because of less sales revenue and fee income.
Turning to the next slide, Slide 19. Taiwan's profit for the first quarter 2018 grew by 21%, compared with the same period last year. Better bottom line growth reflects improved operational efficiency and better asset quality. The first quarter net profit was about TWD 1.6 million and grew by 3% quarter-over-quarter, but less impairment loss booked for the quarter.
On Slide 20, the left-hand side, Taiwan delinquency ratio at first quarter 2018 was 3.3%, down by 0.2 percentage point from the previous quarter. On the right-hand side, we can see the trend of recovery and write offs. If we calculate the new delinquent amount for the quarter, the amount was decreased from the prior quarter.
Next slide, Slide 21. Allowance to loan portfolio in Taiwan remained at 4.4% this quarter.
Let's cover China operations now on Slide 22. China total loan and receivable reached TWD 92 billion at the first quarter 2018, which grew by 32% year-over-year and 7% increase quarter-over-quarter, but we observed the pickup in trade financing demand for the first quarter. We will continue to monitor this better-than-expected demand continue in coming quarter.
Turning to Slide 23. This page shows the loan yield and cost of fund trend for our China operation. The funding cost slightly trends up into first quarter 2018. We still managed to maintain the stable interest rate. We will gradually increase the loan yield for the new loans to reflect the gradual increase of funding cost.
Next slide, Slide 24. This slide shows you the trend of fee income in China. Compared with the same period last year, fee income increased for the quarter, but new loan disbursement continue to grow.
Next slide, Slide 25. China revenue for the first quarter 2018 totaled TWD 5.4 billion, increased by 38% year-over-year, and 2% decrease sequentially. The sequential decrease of top line was driven by decrease of trade finance business and fee income for the quarter.
Let's look at China revenue breakdown on Slide 26. Trade finance revenue was totaled TWD 2.2 billion in first quarter 2018, which was up 51% year-over-year and decreased 11% quarter-over-quarter for the same period last year. Revenue from sales revenue might fluctuate quarterly depending on the client demand. However, if you look at the sales revenue on yearly basis, it remains stable.
Moving to Slide 27. China first quarter 2018 net profit was TWD 1.4 billion, increased by 71%, mainly driven by top line growth and less impairment loss booked. On the right-hand side, China first quarter net profit was up 19% sequentially, but lower impairment loss and operating expense was booked for the quarter.
Turning to next slide, Slide 28. On the left-hand side, China delinquency ratio at the first quarter was continuing to decrease to 2.9% from 3.2% in prior quarter, driven by stable new delinquent amount and higher portfolio growth for the quarter. On the right-hand side, recovery and write-off amount remains stable for the quarter, compared to the prior 2 quarters.
Next slide, Slide 29. China's allowance to portfolio ratio for the first quarter was maintained at 4.6%. The increase of allowance among this quarter reflects the IFRS 9 implementation. We expect this ratio will slightly decrease, as we continue to maintain stable asset quality.
Moving to ASEAN on Slide 30. The ASEAN total loan and receivable at first quarter and 2018 was TWD 42 billion, was up 22% year-over-year and 4% quarter-over-quarter growth. Vietnam and Malaysia operation continue to deliver high loan portfolio growth this quarter.
Let's turn to next slide, Slide 31. ASEAN revenue for 2018 first quarter totaled TWD 979 million, increased 25% year-over-year, but loan portfolio continue to accumulate it and the solid new loan disbursement. On the right-hand side first quarter revenue was flat sequentially due to less sales revenue booked in Vietnam .
Moving on to Slide 32. ASEAN net profit for first quarter 2018 was about TWD 266 million, increased 41% year-over-year due to revenue growth and less impairment loan recognized in Thailand. On the right-hand side, ASEAN fourth quarter net profit was up 32% sequentially and this also points us to the end of my presentation for today. Thank you for your time.
And now I would like to turn the call to operator to start Q&A. Thank you.
[Operator Instructions] Our first question comes from Anthony Lam from HSBC.
I think I've a few questions from my side. Just firstly on loan growth, very impressive thing in first quarter. Just wondering if you you're a little bit concerned about the pace of growth, is it little bit too fast to -- I mean, to monitor? That's the first one. And on asset quality, you've mentioned something related to IFRS 9-related improvement in -- mainland China. Could you elaborate a little bit more on that? And also the second bit on asset quality-- as I -- I noticed on a bit of pickup in delinquency ratio outside Taiwan and mainly in China. Could you give us a little bit more colors on these?
Regarding the portfolio growth for the first quarter, actually, as Vic just mentioned in the presentation, for the first quarter result, it's actually a little bit ahead of our full year plan target. But because we still want to continue to monitor, because in terms of macro economy situation of China or our major operation area, we still think it's -- consider stable, so that's a reason why we want to continue to monitor whether this kind of faster -- I mean, better momentum can continue to the next few quarters. So yes, we do stay positive to probably be ahead of our full year growth guidance, but actually at this stage, we wanted to keep more monitoring for the next quarter. We will keep you updated when we do the next quarter results update. And the second question about the asset quality, I think if you continue to follow our all source major performance KPIs, especially for the delinquency ratio, I think this delinquency ratio has a little bit time left about asset quality. Actually, you can see the China delinquency ratio that, although it's continuing to decrease, about this ratio, but it's already -- the scale is not as big as previous -- last year previous quarters. So if you look at the new formation of the delinquency, actually it starts to stabilize. So I think -- we think this year our asset quality for the China portfolio should be at the quite stable level and although this delinquency ratio will continue to probably decrease a little bit going forward for the next few quarters, but I think the asset quality should remain the same. That's our current observation. And for the other area delinquency, you can see our Taiwan delinquency ratio also decreased a little bit and for the ASEAN area, I think majority is still in Thailand. The Thailand delinquency ratio already decreased to below 5% around -- below 6% -- is around 5.6% current level. So across the board, all the major operations, the asset quality continue to show a good improving trend.
Our next question comes from Jemmy Huang from JPMorgan, Taipei.
I have two questions here. First one is, I think to just follow-up on the IFRS 9 question, I didn't think I hear the comments on this. So if we look at China and Taiwan with the implementation of the IFRS 9, how that step will affect your credit cost over your per region policies compared to previous company standard? Second question is in terms of the funding cost in China, what's -- could you tell us what's the new borrowing cost or the funding cost for the new money now, compared to, let's say, first quarter over first half 2017?
Okay. Regarding -- because of -- in Taiwan, we start to comply with IFRS, starting from this year. So for all the consolidated financial report, we need to accept the IFRS standard. Regarding this provision, there's a onetime adjustment for both China and Taiwan about this provision. Because we need to extend the estimated like a credit cost for the performing loans for the 9 months is then to 12 months. So the impact number for Taiwan is about TWD 7 million. For China it's about RMB 15 million. So this part will directly increase our provision per month starting from this quarter, but it will impact our P&L.
And so is that -- sorry, so one follow-up question, is that one-time earnings impact?
There's no earning impact, because it will do the adjustment right away from the equity when we open the book in the beginning of the year.
Yes, right. Then how about ongoing provision policies?
There's no -- we didn't -- I think, yes, extend from like 9 months to 12 months, the impact number is not significant for the following quarters. And the second question about the funding cost for our China operation. Actually, we do see continuously there's some liquidity tightening situation in China market, but, of course, some new credit lines to increase some of the borrowing rate. But actually, it only accounts for small portion for every month, every quarter. It's only impact to the new credit line. So on the blended basis, actually, the increase is not that big, but for the -- if this trend continues, I think for the full year, probably it will increase by like 15% to 20% basis point till the end of the year. But at the same time, as you know, we also start to adjust our pricing starting from May, so it also will readily bring up our yield.
Yes, right. May I know like for the fund cost of the new syndication or new lending, is that somewhere around 5.5% nowadays or even higher?
As I -- there's some new credit lines we just signed up. I think the rate is increased by like 10 basis point.
Compared to what...
It's just a small portion of the total credit line we are having now.
Next question comes from [ Mark Smith ] [indiscernible] Capital, London.
Just continuing with this discussion on spreads. Over time, spreads have been remarkably stable. Now we appear to be in a higher rate title liquidity rising rate environment. Do you expect broadly over time to maintain spreads through being able to pass on the higher prices? And also, should we be prepared for the fact that sometimes, quarter by quarter, there we will be a lag?
Yes. I think -- but overall, in the long term, we -- management is still confident that we can maintain a stable spread, and I think -- because right now, probably China, we need some time to gradually factor in our pricing -- increased pricing, so probably it will take like 1 to 2 quarters to bring up the spread to the normal level. But at the same time, as you can see our China -- our Taiwan funding cost also gets some improvements. So I think all in all, we still can maintain quite good overall spread level.
And what is the stickiness in passing on pricing in China? Is it because it is -- is it a competitive market?
I think because this is overall interest-rate environment for that market, so if our clients, they need to -- borrowing at higher rate from us, they also need to borrow at high rates from others banks. So I think we can also pass this to our customers. Our Taiwan experience also confirms this kind of pricing capability.
Our next question comes from Gurpreet Sahi from Goldman Sachs, Hong Kong.
My question is really regarding in this quarter, I mean, first quarter was very good on the macroeconomic backdrop also. Do you see in the second quarter any change in your customer behavior, especially around that tech-related supply chain around the demand for financing? Or any such other behavior that you are seeing from customers who exposed to the global trade that they want to have less demand for credit?
Actually, if you relate to like [indiscernible] China and U.S. the trade war concerned, actually because our customer is very diversified customer base and also right now more than 90% of our customer base are more local market reason, not that as for all [ ranges ], so I think the impact should be manageable.
Okay. And a quick follow-up on IFRS 9. So one-off impact is starting to go through the -- directly to the equity. But then regarding the how new provisioning needs to be done on the P&L, all the Stage 1 and Stage 2, all those thinking as to how the customer can be potentially downgraded if the economic scenario is not good. Should we expect that to lead to higher ongoing provisions on the P&L? First quarter was very low, should we expect that to go up? And then secondly, will that impact the -- some of the credit decisions you're taking and slow down the lending?
Actually, this IFRS number 9 did an impact -- change our provision policy significantly, internally, we already try to set aside some general provisions to just extend estimated period a little bit longer from 9 months to 12 months to be compliant with the IFRS rules. So actually, I think the major factors that we consider for this going forward, provision ratio will be the asset quality. If our asset quality continue to be improved and delinquency ratio becomes stable or slightly decrease then there's still a chance that we will review the general provision ratio. So yes. So it's not necessary that we will increase this provision expense going forward if we can continue to maintain this good asset quality.
Okay. So you are saying just because of the accounting change, not necessarily provisions can be higher than the P&L?
Yes, yes.
[Operator Instructions] The next question is from Anthony Lam from HSBC, Hong Kong.
A very quick clarification on the previous question I have asked related to provisions. Just to clarify, you previously have 2x expected loss in your provisions, now it's basically 2x 12-month expected loss versus the previous case up to 2x 9-month expected loss, is that the case? As you're thinking?
Yes.
There are currently no more questions. Currently, there are no more questions.
Operator, we can end the call.
Thank you for your participation in Chailease's conference. You may now disconnect. Goodbye