Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome, everyone, to Chailease First Quarter 2021 Earnings Release Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. For your information, a webcast replay will be available within an hour after the conference ends.
Now I would like to turn the call over to Mr. Vic Wang, Senior Manager of Investor Relations. Mr. Wang, please go ahead.
Thank you. Hi, good evening, everyone. I would like to welcome everyone to Chailease Holding's First Quarter 2021 Earnings Conference Call. With me this evening is Ms. Sharon Fan, Head of IR, and she will open to your question in Q&A period. I will walk you through this quarter earnings presentation, which is available for download on our corporate website under the 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 2021 consolidated performance review, followed by the segment review for our Taiwan, China and ASEAN operation.
Without further ado, I would like to start the presentation from Slide 4. Highlights for overview of our first quarter 2021 operation results. First, the summary table here shows the loan portfolio growth for the quarter. On a year-over-year basis, Taiwan, China and ASEAN loan portfolio grew 17%, 23% and 11%, respectively. On a consolidated level, we achieved 18% year-over-year loan portfolio increase. As for the sequential portfolio growth, Taiwan increased 5%, China decreased 2%, ASEAN increased 2%, and 2% growth on a consolidated basis. We expect the consolidated loan portfolio continue to grow in line with the yearly guidance.
Second, in the previous Board meeting, the Board proposed a cash dividend of TWD 5 and a stock dividend of TWD 0.50 for AGM's approval. The cash payout ratio stands at around 40% in recent years.
Third, the recent MSCI ESG Ratings Report upgraded Chailease to A from BBB, driven by our strong business ethics practice and the leading position in corporate governance among home market peers, which also demonstrate the company's continuous efforts to strengthen our ESG practice.
Let's move to the next session, first quarter 2021 performance review. Moving now to Slide 6. Consolidated loan portfolio reached TWD 492 billion at first quarter end 2021, with 18% year-over-year growth and 2% quarter-over-quarter increase as Taiwan continued the business momentum for the quarter.
Next slide. Slide 7 shows the trends of our consolidated average loan yield and cost of funds for the past 3 years. As you can see, we maintained relatively stable interest rate in a narrow range of 7.5% to 7.7% in recent quarters. We will discuss the change of each operation region in the next section.
Next slide, Slide 8. On the left-hand side, the consolidated revenue for the first 3 months of 2021 reached TWD 16.8 billion, representing 20% growth compared to the same period last year. On the right-hand side, first quarter 2021 consolidated revenue increased 6% from the previous quarter as Taiwan revenue increased 7% sequentially.
Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 3 months of 2021 totaled TWD 4.9 billion, and earnings per share was TWD 3.6. The higher net profit growth was mainly driven by less expected credit loss was booked in China and improved overall cost-to-income ratio. On the right-hand side, first quarter consolidated net profit was up 11% quarter-over-quarter as China net profit was up 35% for the quarter due to the portion of tax rebate received.
Turning to Slide 10. This slide shows our loan portfolio mix and the profit contribution in terms of operating region. On the left-hand side, we can see Taiwan business still account for 49% of group total loan portfolio. China is about 36%, and ASEAN slightly decreased to 14% at first quarter end 2021. On the right-hand side, Taiwan net profit contribution accounts for 44% and China increased to 50%. ASEAN contribute 5% to the consolidated net profit.
Moving on to Slide 11. The chart on the left-hand side. Cost-to-income ratio improved to 26% for the first 3 months of 2021 due to well-controlled operating expenses. The chart on the right-hand side, asset to equity also slightly decreased to 5.8x for the quarter.
Slide 12. The consolidated ROA on an annualized basis was 3.5% in the first quarter 2021, increased from 3.2% in 2020. The consolidated ROE on the right-hand side was 23% for the quarter. The calculation for ROE excludes preferred shares.
The next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at first quarter end 2021 was maintained at 2.4%. Later in the presentation, I will talk about each region in more detail. Moving on the right-hand side, allowance to loan portfolio ratio was also maintained at 2.5% compared to previous quarters.
Moving on to the segment review. Let's look at our operation performance region by region. On Slide 15, Taiwan loan portfolio reached TWD 241 billion at first quarter end 2021, representing 17% year-over-year increase and quarter-over-quarter was up 5%. Taiwan continued the business momentum this quarter.
Slide 16. This slide shows the change of Taiwan Solar asset. Taiwan Solar net asset reached TWD 32 billion at first quarter end 2021, representing 28% year-over-year increase and quarter-over-quarter was up 4%.
Next slide, Slide 17. This page presents trends of our Taiwan loan yield and the funding costs. We maintained steady interest spread in the narrow range of 6.6% to 6.9% for the past 3 years.
Moving on to the Slide 18. Revenue for our Taiwan operation for the first 3 months of 2021 reached TWD 8.3 billion, representing 17% year-over-year growth. The Solar revenue accounts 11% of Taiwan revenue for the first quarter 2021. For the quarter-over-quarter comparison on the right-hand side, first quarter revenue grew by 7% quarter-over-quarter.
Turning to next slide, Slide 19. Taiwan's profit for the first 3 months of 2021 grew by 22% compared with the same period last year. And the bottom-line growth reflects improved cost-to-income ratio for the quarter. The first quarter Taiwan net profit grew by 13% sequentially.
On Slide 20. On the left-hand side, Taiwan delinquency ratio at first quarter 2021 was slightly up 0.1 percentage point to 2.5%, mainly driven by fewer write-offs for the quarter. On the right-hand side, recovery from delinquency was up for the quarter.
Next slide, Slide 21. Allowance to loan portfolio for Taiwan maintained at 2% this quarter.
Let's start China operation on Slide 22. China loan -- total loan and receivable reached TWD 176 billion at first quarter end 2021, which grew by 23% year-over-year and 2% decrease quarter-over-quarter. For China, first quarter is usually relatively low season compared to other quarters. We expect China loan portfolio growth of mid 15% to 20% yearly guidance.
Turning to Slide 23. This page shows the loan yield and cost of fund trend for our China operation. We continue to maintain a stable spread over the quarters.
Next slide, Slide 24. China revenue for the first 3 months of 2021 totaled TWD 6.6 billion, increased 28%. The sequential increase of top line growth on the right-hand side was driven by better growth of interest income.
Moving on to the Slide 25. China for the first 3 months of 2021, net profit reached TWD 3 billion, increased by 46%. The higher growth compared to top line was mainly driven by less expected credit loss and more tax rebate booked this year. On the right-hand side, China first quarter 2021, net profit was up 35% sequentially as RMB 93 million of tax rebate was recognized for the quarter.
Turning to next slide, Slide 26. On the left-hand side, China delinquency ratio at first quarter maintained at 1.9% compared to the prior quarter, with a stable new delinquent amount for the quarter. On the right-hand side, write-off amount slightly increased for the quarter compared to the prior 2 quarters.
Next slide, Slide 27. China's allowance to portfolio ratio for the first quarter 2021 was maintained at 2.7%. We expect this ratio will remain stable.
Moving to ASEAN on 28 -- Slide 28. The total loan receivable at first quarter end 2021 reached TWD 69 billion, up 11% year-over-year and 2% sequentially. Vietnam and Malaysia remain as the main growth driver for ASEAN portfolio.
Let's turn to next slide, Slide 29. The left-hand side, ASEAN revenue for first quarter 2021 totaled TWD 1.8 billion, grew 10% compared to the same period last year. On the right-hand side, ASEAN first quarter revenue was up 5% sequentially.
Moving to the Slide 30. ASEAN's first 3 months of 2021 net profit reached TWD 0.5 billion, increased by 70 -- 47% due to less expected credit loss booked this year. On the right-hand side, ASEAN first quarter 2021 net profit was also up 47% sequentially. The higher bottom line growth compared to top line was due to less expected credit loss booked for the quarter.
The last slide, Slide 31. On the left-hand side, ASEAN delinquency ratio at first quarter slightly decreased 0.2 percentage points to 3.6% compared to 3.8% in fourth quarter 2020. On the right-hand side, ASEAN allowance to loan portfolio ratio for the first quarter 2021 was 3.6%. And this also bring us to the end of my presentation for today.
Thank you for your time and listening. I would like to turn the call to the operator to open the questions.
[Operator Instructions] The first to ask question, Gurpreet Sahi from Goldman Sachs, Hong Kong.
I really have a question around the cost of funds. How come in the first quarter the cost of funds is so low in Taiwan? And sequentially, it also declined in China. So can you update us on what has happened there?
As you remember, for the October last year, we issued some preferred share to increase some of our equity funding. Those also support a portion of our source of funding for the past couple of months. And so this helped a little bit about improve of the overall funding cost. I think, overall, still -- you still can see our spreads still maintained at a quite reasonable range.
Understood. So if there is no plan to kind of pass on this benefit of cost of funds to the borrowers, then we can expect this widened spread to remain here for a while?
No. No. So far, we don't have that kind of plan. And we still regard this as a normal variation.
Okay. And then a final one on China. I know first quarter is seasonally weaker and second half is especially strong. But still seems like loan growth, especially given the economic recovery that's happening there could have disappointed expectations. So can you add a bit more color as to why loans were flat in China on a quarter-on-quarter basis? Or maybe talk about loan demand from your borrowers. Has anything changed in this quarter?
Actually, for the first quarter, this kind of a slightly decrease of the portfolio balance is quite normal. So that's the reason why management still maintain our full-year growth guidance for China. And we didn't see this first quarter slightly drop will impact our full year view about the whole year growth target, which still maintain like 15% to 20% portfolio growth for our China.
Next one to ask questions, Yafei Tian from Citigroup.
My first question is just to follow up on Gurpreet's question of the loan growth in China. Would it be possible to give us a little bit of flavor, the loan growth that we are seeing for April and maybe so far in May to see whether that growth momentum has picked up into second quarter? So that's the first question.
Yes. Usually, the lowest month will be like in the Chinese New Year month in February. And so starting from March, April, we do see a normal recovery of the business volume.
Okay. And the second question is really on the Taiwan business, again, on the yield that you are seeing on the Taiwan side. It has actually been increasing for a couple of quarters now. So just wanted to understand what is driving that? And along with that, you're expanding. The Solar business in Taiwan seems to be growing really nicely. So I wanted to understand what is the margin or return for the Solar business compared to the existing Taiwan business?
I think in terms of yield, our Solar business probably is roughly the same as the average of overall Taiwan yield. But for the slightly expansion of the increase of the yield, I think it should be related to some of the micro business or some consumer business that we start to put more efforts to develop as a new business. And yes, we do -- we also -- we do see some small yield increase for the past couple of quarters. But that will be small, gradually increase. We thus -- yes. It's just a few basis points.
Do you expect that trend to continue as you invest more, diversify more into the consumer lending business in Taiwan?
I think, yes. If our product mix reached to some to some level, that has some more meaningful change of the product mix this year and the spread will change a little bit. But we need to also take into consideration of the other cost. Like the credit cost and operating cost. Yes. So, so far, but that part -- consumer-related business still accounts for a very small portion of the overall Taiwan operation, which is probably like 2%, 3% now.
[Operator Instructions] Next one, we have Chung Hsu, Crédit Suisse.
Sharon, 2 questions for me. One is, if I look at your presentation, the asset yield for China and Taiwan, the first quarter's asset yield sequentially increased in both markets. But if I look at consolidated asset yield of [Technical Difficulty] seems to be flat.
And my second question is, if look at the monetary -- the loan growth and TSF data from China recently, there seems to be a slowing trend. Just wondering if this is in line with what you expect will budge for 2021. And whether you would have some potential impact in terms of expectation of credit costs of China's loan and TSF growth in relation to the year?
I think, so far, for China growth target, management is still quite confident that we can like maintain our full year growth target. And this is low first quarter balance -- portfolio balance growth is as we expected. So I think for the recent months, business volume momentum, we still expect that we will have portfolio growth for this year. But I cannot hear your first question because of the line didn't stable -- are not stable.
Okay. I can repeat that. Just on the asset yield on a Q-over-Q for both Taiwan and China improve. But if I look at consolidated asset yield, Q-over-Q seems to be flat.
Yes. I think probably it's because of slightly decrease for the ASEAN card. Yes.
Right. Okay. So -- but ASEAN -- so ASEAN must have seen a question that, that can drop to offset a sequential -- quite a bit of increase in both Taiwan and China.
For -- because ASEAN is still under some impact -- I mean, larger impact of this COVID compared to Taiwan or China. So that both in the cost of funding and the yield -- asset yield still got more impact.
Do you expect this to change or to continue in the coming quarter?
It's really difficult to say. And you can see for the last quarter, actually, our ASEAN already improved from a year ago. But we need to continue to monitor whether the recent new outbreak of this COVID will have other impacts.
Next one in line, Gurpreet Sahi, Goldman Sachs, Hong Kong.
It is really related to the recent increase. I don't know if it is a slight increase or whatever increase in COVID cases in Taiwan. So Taiwan really getting COVID back, right? So how should we think about your Taiwan book now that you have some consumer also, which is all a bit small, but then you entered there? So in a way, the book is a bit more sensitive to the unemployment ratio and some of the GDP statistics that come out.
So tell us previously, I think, the overall experience for investors has been that their book has been quite resilient in Taiwan and China to economic fluctuations. But now given that you have done this, you continue to do this and that Taiwan might be coming off the peak in terms of economic growth. So help us think how -- not how -- what are the areas for monitoring risk?
I think this is only for a couple of days new development. So it's too early to say now. And -- but so far, it hasn't reached to the level of the lockdown the city for Taiwan. So we can like gradually behind this new increase of the confirmed cases situation so that we can gradually back to the previous normal business life. But it's too early to say.
Yes, I understand. Why I'm asking is because I don't think Taiwan really started on the vaccination thing. So in the event that really community transmission happens, then you don't even have that as an option to kind of say, okay, 6 months from now, we'll get out of it because people will be vaccinated.
But actually, because the reason the -- about the increase of the confirmed cases, I think people are getting more aggressive of getting vaccinated. So I think it will gradually improve, yes.
Next one to ask question, Yafei Tian, Citigroup.
I have a question on asset quality in Mainland China. I was actually expecting stronger improvements given the economic -- economy has improved quite a bit Q-on-Q in first quarter. But when I look at the delinquency ratio, especially if you look at a relatively larger write-off in Mainland China portfolio, actually the overall delinquency is kind of flattish Q-on-Q.
At the same time, I also noticed that the allowance ratio is also flat. So just want to understand, given that last year you reserved quite a lot of provisions for China, when will that provision be gradually released? And do you expect the delinquency ratio actually to fall further in Mainland China?
Actually, if you compare to like Taiwan, this 1.9% delinquency ratio for China already regarded quite low. So we will continue to monitor whether -- although it's kind of already back to pretty much normal operation for our China operation now, but whether it will continue to drop -- I mean, improved from 1.9% delinquency ratio to even lower, that we need more quarters' result to backcast.
And regarding this provision level, actually, it still follow our provisioning policy that we need -- we want to cover about like 2 -- 2x of the estimated loss for those delinquent cases and for those normal cases, the performing loans. We won't do write-back. But if you look at our provision expenses quarter-over-quarter or year-over-year, it already improved a lot. Yes.
So it will reflect in the P&L. But for the balance sheet account like this provision level, I think it should be maintained around this level to make the adequate -- an adequate provision according to our policy.
Yes. Sure. That's helpful. Would it be possible to also give us a little bit color on some of the leading indicators for China asset quality? You used to mention about the collection by each...
Accounts receivable.
So can that come back to...
We've mentioned already. I think it has come back to...
Come back to pre-COVID level?
I think it has come back to like 99.5% or 99.6% for the past couple of quarters and maintained a quite stable level there.
[Operator Instructions] Next one to ask question, Anupam Mathur from Goldman Sachs.
I just had a couple of questions. Firstly, just wanted to clarify this. In Taiwan, the consumer loan book is only 2% to 3% of total loan book, is it? Because for the past few quarters, we have been growing -- we have been talking about growth in the consumer and micro book. So I'm just curious like this is still so low?
Yes. It's still so -- it's still very low. And -- but for the micro business, it's more -- it's higher by 6%. But for the REIT consumer, it's still very low percentage.
So this micro plus consumer is still less than 10%?
Yes.
In terms of overall portfolio?
Taiwan portfolio, yes.
Yes. Understood. And in terms of -- although it's a very small increase in delinquency, but the new NPL formation seems to be slightly higher this quarter versus last few quarters. So I just wanted to understand like where are we seeing this new NPL formation in Taiwan?
Actually, if you look back for a longer period, this quarter-over-quarter, new delinquency amount variation still for this quarter, it's still within the normal range. If you compare to the first quarter last year, the new delinquency amount is like TWD 1.9 billion compared to this quarter TWD 1.8 billion. So it's still quite normal.
Okay. Understood. Understood. And sorry, just to check again, what is our Taiwan loan growth guidance?
It's 10% to 15% for the whole year.
Okay. And so far, we -- I understand it's still early, but we have not thought about, because of these cases, any relook at that guidance, especially the micro and consumer? We have not looked at it, right?
Yes. I think so far, we don't see any significant like signal that we need for us to change the full-year target. So, so far, we still maintain the same target.
And lastly, clarification on the cost-to-income. What levels are we looking for the year? It's tracking a bit low in the first quarter or so? And this quarter...
Yes. I think for this quarter, it's really a little bit low. I think probably part of the reason is we have a better growth of the gross profit as a denominator. And this better gross profit comes from lower interest expense -- interest as a cost, as we explained earlier.
So although I think slightly improved -- slightly improvement of this cost-to-income ratio is a long-term goal for the company, but I think it will be a gradual process. And so I think this 26% probably is just 1 quarter, and we will -- we need to monitor more quarters to see whether this will continue to maintain at this level. But I think, yes, you better to look at the annual basis.
So for the past like so many years, we gradually improved this ratio from like, I remember, in year 2012, it's like 40-something percent and gradually improved to last year 29%. So there's still room to improve, but probably not for the whole year, probably it won't be like 26% this much. So we have quarter-over-quarter variation. Yes.
Next one, we have Yafei Tian, Citigroup.
I have a more big picture question on the long-term growth outlook for Mainland China. So not just this quarter, but longer term. In this annual report that you put out, in the report, you mentioned that competition in Mainland China business is somewhat increasing. So can you give us a little bit more color, what are the incremental competitors you are seeing for the Mainland China business? Is it those banks, city rural banks that are more willing to lend to SMEs according to the government policy?
And then secondly, on the loan growth guidance of 15% to 20%. Pre-COVID, the loan growth in Mainland China tends to be somewhere around 25%, if not higher, right? So are we saying that Chailease's loan growth in Mainland China is actually already reaching somewhat of -- from the hyper growth to a more normalized high-growth stage?
Okay. To answer your first question, I think it will go back to our fundamental business model that you know our market positioning. Mainly, we want to differentiate our services from those traditional commercial banks so that we focus on the -- our core product is the equipment, manufacturing equipment leasing. So, so far and also SME and also try to be very diversified in terms of industry in terms of a customer.
So I think so far in China, we haven't seen any competitor or any peers are really doing the same business model as we are using. And so for China, because the overall market compared to Taiwan, we think it's still so big and there are still a lot of unserved customers, SME customers in manufacturing customers in China. So from a management point of view, we still think there's still a lot of growth potential for us to continue to implement our geographical expansion plan. So, so far, I think we are still quite confident that we can continue to pursue growth for the next few years, probably 5 to 10 years.
And in terms of the growth target, yes, before the COVID, our last year, we usually can reach like around 25% year-over-year growth, as you mentioned. And this year, we are giving like 15% to 20%. It's just try to take into consideration of this slightly recovery from the last, the more severe COVID impact. Actually, last year, we only expected China to grow around 10%, right? And so we think this year, after the past 2 quarters, improvement -- gradually improvement.
This year, management are more confident to give a better growth rate compared to last year. But it's still not totally behind this COVID impact yet. So we haven't really ready to go back to like 25%, that kind of growth ratio. It didn't mean that the market already is saturated or mature as like Taiwan. So there's still a lot of growth opportunity there.
Yes. If I can ask you a little bit more because even last year, the loan growth in Mainland China on a reported currency basis is about 23%. I think on the constant currency, it's even higher, right, maybe 25% or something. So if loan growth did not slow down, last year when COVID was hit in China much more severely, is it that the 15% to 20% guidance in China somewhat of a low volume, especially after a relatively soft first quarter, it doesn't feel that the 10 -- 15% to 20% target is too inspiring? I think a lot of analysts probably have higher loan growth in China than your guidance.
So you know if you compare 20% to versus 25%, it's not that big difference. And actually, we still prefer to see how the asset quality evolves during the quarters, like Q1, Q2 till the end of the quarter so that we are more comfortable to set more aggressive growth target. So I think we just -- management just want to set a target and communicate target that is most achievable. So we don't want to disappoint you.
The next one to ask questions, Gurpreet Sahi, Goldman Sachs.
So I see this slide maybe for the top 5 industry exposure. Maybe I missed it last time around. And I see for Taiwan and China, both construction activities is rising and becoming the number fifth largest exposure by sector. So can I ask what is the exposure here, broadly speaking?
Taiwan?
Taiwan, yes.
Taiwan and China, both construction activities is becoming the #5 industry exposure at the end of 2020. So what do you hold in these underlying -- like what is the underlying asset?
It's some of the heavy construction equipment, yes.
And why does it rise relatively in China? It's because of the boom in real estate? Is it?
I think actually, if you look at our Taiwan product development road map, this is a more latecomer kind of product. And I think we gradually penetrate into that kind of -- that market in China for the past couple of years.
Okay. And then for a more mature market in the same industry, like real estate, when you say in Taiwan is a slightly bigger exposure than construction. So what do you hold there as the underlying?
So the real estate is more for some of the financing to those are small -- medium, small size of the real estate developer in Taiwan.
Okay. And then just out of curiosity, you're doing the same thing in China, small developers?
No, no, no. We exclude that from, yes, in China.
[Operator Instructions] There seems to be no further question at this moment. Vic, can we close the conference now?
Yes, please. Please end the call.
Thank you. And ladies and gentlemen, we thank you for your participation in Chailease conference. You may now disconnect. Thank you, and goodbye.