Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to Chailease 2023 First Quarter Earnings 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. Please visit www.chaileaseholding.com under the Investor Relations section.
And now I would like to turn the call over to Mr. Vic Wang, Part VP of Investor Relations. Mr. Wang, please go ahead.
Thank you, Jason. Good evening, everyone. I would like to welcome everyone to Chailease Holding First Quarter 2023 Earnings Conference Call. With me this evening is Mr. 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 in the form of the presentation.
The agenda we are going to cover for today on Slide 3, whose management highlights, first quarter 2023 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 2023 operating 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 20%, 6% and 25%, respectively. On a consolidated level, we achieved 15% year-over-year loan portfolio increase, which is in line with our yearly target. As for sequential portfolio growth, Taiwan increased 4%. China increased 1%, ASEAN increased 3% and 2% growth on a consolidated basis. The full year's portfolio growth for 2023 remains unchanged.
Second, -- the recent result of corporate government's evaluation announced by the Taiwan Stock Exchange include Chinese in the top 5%, standing our amount 928 Taiwan stock listed companies. The valuation shows the result of the company's actively improving corporate governance, enhancing the transparency of operational information and implementing corporate social responsibility.
Third, Chailease Holding Board of Directors approved the proposal of a cash dividend of [ 6.4 ] per share and stock dividend of 0.2 per share. The dividend proposal will be submitted for AGM's approval, which will be held on May 24.
Moving on to Slide 6. Consolidated loan portfolio reached TWD 684 billion at first quarter end 2023 with 15% year-over-year growth and 2% quarter-over-quarter increase as Taiwan and ASEAN contributed the most growth for the quarter.
The next slide, Slide 7, shows you the trend of consolidated average loan yield and cost of funds for the past 3 years. In recent quarters, we see increase of funding costs, mainly due to interest rate hikes in Taiwan and ASEAN. The increase of funding costs were gradually reflected to the new price for the new disburse. 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 2023 reached TWD 21.4 billion, representing 16% growth compared to the same period last year as Taiwan and ASEAN remain a growth driver this quarter. On the right-hand side, first quarter 2023 consolidated revenue remained flat on the previous quarter.
Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 3 months of 2023 totaled TWD 6.9 billion, and earnings per share was TWD 4.35. The decrease in net profit growth was mainly driven by higher interest expense in Taiwan and more impairment losses was booked for China. On the right-hand side, first quarter consolidated net profit was up 12% quarter-over-quarter, as China net profit was up 25% for the quarter due to around TWD 250 million tax rebate received.
Turning to Slide 10. This slide shows you our loan portfolio mix and profit contribution in terms of operating region. On the left-hand side, we see Taiwan loan portfolio still accounts for 52% of group total loan portfolio. China is about 32% and ASEAN slightly increased to 15% at first quarter in 2023. On the right-hand side, Taiwan net profit contribution accounts for 45% and China was 48%. ASEAN contributes 6% to the consolidated net profit.
Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio increased to 28% for the first 3 months of 2023 compared to the same period last year, mainly due to slower growth of gross profit. The chart on the right-hand side, asset to equity slightly decreased to 5.6x for the quarter.
Slide 12. The consolidated ROA on an annualized basis was 3.3% for first quarter 2023, decreased from 3.6% in 2022, mainly due to decrease in profit for the quarter. The consolidated ROE on the right-hand side was 21% for the quarter. The calculation for ROE exclude preferred shares.
Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at first quarter end 2023 was increased to 2.7% from 2.4% in prior quarter. Later in the presentation, I will talk about each region in more detail. Moving to the right-hand side, allowance to loan portfolio ratio was slightly up 0.1 percentage point to 2.2% 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 354 billion at first quarter end 2023, representing 20% year-over-year increase and quarter-over-quarter was up 3%. Taiwan business momentum continued this quarter.
Slide 16. This slide shows the change of Taiwan solar net asset Taiwan Solar has reached TWD 49 billion at first quarter end 2023, representing 20% year-over-year increase and quarter-over-quarter was also up 4%.
Next slide, Slide 17. This page presents trend of our Taiwan loan yield and funding costs. Starting from the year 2022, the increase of funding costs reflects continued interest rate hikes. The slight decrease in loan yield for first quarter 2023 was mainly due to less interest income as a result of less calendar day in first quarter compared to fourth quarter 2022.
Moving on to Slide 18. Revenue for our Taiwan operation for the first 3 months of 2020 reached TWD 12.1 billion, representing 17% year-over-year growth. The solar revenue accounts 11% of Taiwan revenue for the first quarter 2023. For the quarter-over-quarter comparison on the right-hand side, first quarter revenue was down 2% quarter-over-quarter due to lower solar revenue because of less shiny winter.
Turning to Slide 19. Taiwan's profit for the first 3 months of 2020 decreased by 3% compared with the same period last year, mainly due to increase in interest expense and slightly higher in impairment losses. The first quarter Taiwan net profit was down 2% quarter-over-quarter, reflecting sequential decrease in revenue.
On Slide 20, on the left-hand side, Taiwan delinquency ratio at first quarter 2023 was up 0.2 percentage point to 2.1% for the quarter. On the right-hand side, recovery from delinquency was down for the quarter, while write-off amount remained.
Next slide, Slide 21. Allowance to loan portfolio for Taiwan maintained at 1.7% this quarter. Let's start China operation on Slide 22. China total loan and receivables reached TWD 220 billion at first quarter end 2023, which grew by 6% year-over-year and 1% increase quarter-over-quarter. For China, first quarter is usually relatively low season compared to other quarters and economic recovery after COVID might take longer than expected to resume. We maintain our China loan portfolio growth target of 10% to 15% this year.
Turning to Slide 23. This page shows the loan yield and funding cost trends for our China operation, we managed to maintain stable spread over the quarters.
Next slide, Slide 24. China revenue for the first 3 months of 2023 totaled TWD 7.8 billion increased 8%. On the right-hand side, first quarter revenue was up 1% quarter-over-quarter.
Moving to Slide 24. China for the first 3 months of 2023, net profit reached TWD 3.8 billion decreased 2%. The decrease in net profit was mainly driven by more expected credit loss for the quarter. On the right-hand side, China first quarter 2023 net profit was up 25% sequentially as RMB 250 million of tax rebate was recognized for the quarter compared to RMB 50 million in fourth quarter 2022.
Turning to next slide, Slide 26. On the left-hand side, China delinquency ratio at first quarter was up 0.5 percentage points to 3.2%, reflecting the impact and uncertainty after accidentally ended zero COVID policy. 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 loan portfolio ratio for the first quarter of 2023 was up 0.3 percentage points to 2.7%, reflecting the increase of delinquency amount.
Moving to ASEAN on Slide 28. The total loan and receivable at first quarter in 2020 reached TWD 105 billion, up 25% year-over-year and 3% sequential increase. Malaysia and Thailand remains the main growth driver for ASEAN this quarter.
Let's turn to next slide, Slide 29. The left-hand side, ASEAN revenue for first quarter 2023 totaled TWD 3.2 billion grew 39% compared to the same period last year. On the right-hand side, ASEAN's first quarter revenue was also up 7% sequentially.
Moving to Slide 30, ASEAN first 3 months of 2023, net office reached TWD 0.7 billion increased by 1% due to more interest expense and impairment loss for the quarter. On the left-hand side, ASEAN first quarter 2023 net profit was up 7% sequentially, in line with sequential revenue growth.
The last slide, Slide 31. On the left-hand side, asset delinquency ratio at first quarter increased 0.2 percentage points to 3.5%. On the right-hand side, ASEAN's allowance to loan portfolio ratio for the first quarter 2023 was 2.8%. And this also brings us to end of my presentation for today. Thank you for your time in this inning.
Now I would like to turn the call to operator to open the line to questions.
[Operator Instructions] And our first question is coming from Gurpreet Sahi of Goldman Sachs.
So a very simple question on this China asset quality. We see that delinquencies have risen. But still, if you look at in the same chart in the same slide, the write-offs have been coming down. How do we explain that? So if really borrowers are having difficulty, shouldn't the write-off rate should also be increasing. So if you can please answer that, then I have a follow-up question.
So for China, first quarter delinquency ratio actually as we communicated in the last quarterly result call. Actually, we still expect this ratio will slightly increase, although the new people were actually not already stabilized from our observation. For example, like our monthly account receivable rates still remain at a quite stable rate. It didn't deteriorate further. But because the first quarter is still a slower growth month in terms of the portfolio. So I think this increase is within our expectation. And this 3.2% still within our expectation, yes.
And then the other question is regarding the spreads in Taiwan. So quite low. I hear you that part of it is because less number of days in the first quarter. But shouldn't the cost of funds also be impacted by trading days? And then linked to that, the question is how fast can we pass this higher cost to the clients like our customers? What is the typical lag? And will it be completely passed on? Or will it be like 60%, 70% passed on?
I think there are several aspects that we need to look at for this yield trend and the cost of funding trend for Taiwan. Let's talk about the funding first because in Taiwan, we have about 20% business is more U.S.-denominated business. For that point, actually, the increase -- the funding cost increase is a much higher increase compared to a Taiwan funding. But the good thing is that for those U.S.-denominated business, actually, we are charging for rate. So it's relatively easier to reset in our new price. Everything in the second half of last year when the Taiwan central banks start to increase the benchmark rate. We already gradually like reflect in our new price for the new business build.
So -- but this still need to take some time to fully like factor in. And from the longer trend, you can see our spread has really back to the normal level yet because it still take some more time. But on a shorter trend, like this quarter variance, it's more because for the first quarter, we have like fewer calendar day for the interest revenue to be booked in the book. So this also has some kind of seasonality impact. So it's just slightly dip for this quarter. Some -- for some reason, it's because of this calculation. So -- but from the longer-term trend, I think it still follow our communication like we already gradually try to reprice. And hopefully, this interest rate increase already approached the end. So yes, that's so far our view.
And so how much will we pass on in terms of the impact of the funding to the borrowers? Will we -- like, let's say, our Taiwan cost of funding was 1% and now 2%. Let's say, roughly 100 basis points is the increase. And if it stays here, are we passing on 100 basis points more to the borrowers?
I think it really depends on what kind of product like for the traditional SME financing product, we pretty much can pass on quite a majority. So for more consumer-related financing product, probably it will have some discount about this reflect in the new pricing. So there's still some small impact. But I think if this interest rate start to be stabilized and we will go back to our target spread target.
And final one for me. Do we see this interest rate stabilize and the cost of funding in April was at this level at the group level or in Taiwan? Was it like around the level of first quarter? Or did it still go higher in the month of April?
I think there are still 2 parts. The birth is that for the past several quarters, interest rate increase hasn't really fully factored into our funding costs yet because our funding is on, I mean, repriced quarter-by-quarter. So I believe there is still some lagging impact.
And the second factor is it really depends on if the Central Bank really stopped the rate increase.
[Operator Instructions] Next question, Anupam Mathur, Goldman Sachs.
Yes. So I had a few questions. So firstly, just on China again, delinquency. So how do we expect like -- because like do we expect stabilization on delinquency from going forward, like or it could still continue to increase? Like what is our expectation right now on China?
It was as we indicated in the presentation, since that for the first quarter result, the China economy recovery seems a little bit smaller than our original expectation. So I -- from our observation, probably it will take a little bit longer time to see our portfolio start to like recover to the previous level. So this delinquency ratio probably will still continue to increase in the second quarter. But it really depends on the -- how the GDP or the macro economy developed going forward. And -- but actually, we can say that the impact -- the negative impact from the COVID actually already like fully like behind us. And right now, it really depends on what the macro economy going to developed.
And so far because the first quarter is throughout season, and hopefully, that if we can really increase the momentum starting from the second quarter and then third quarter and the next. So there is still possibility this delinquency ratio will be picked up during the second quarter.
Okay. Understood. But in terms of -- because some reopening benefits we might have already seen, but still it's not at the level to show improvement in delinquency. That's still not happening in China.
[indiscernible] The recovery of the economy activity. But from our current observation is that it's slower than we expected. So although it's a positive development, but the pace is still gradual. So yes, we need to continue to see what's the development for the next few months.
And our monthly indicators like the monthly collection ratio, what is the level right now we are seeing?
I think that monthly collection rate already back to like before that we opened. But just like stay at this level and how can we back to pre-COVID like 2020-2019, which should be like more than 99 point something percent. We haven't back to that level yet. But it's already improved a lot compared to this before the reopen.
So is it already over 99% on a monthly basis?
Not yet. Probably 99% something 98-point-something.
And on the Taiwan business also, we are seeing increase in deliverances. So what is the driver here? And what is our expectation going forward?
I think it's probably more as a result of the slower macro economy overall in Taiwan. Probably you are aware that Taiwan's first quarter GDP was like a negative 3%. And so we didn't see any like specific any industry or segment this kind of issue, but it's more across the board, but on a very high level, probably I think our SME financing business still maintain quite stable delinquency for this more consumer-related like used car financing has some pickup of the delinquency, yes. But overall, this 2.1% is still at the lower range of our history.
So in terms of -- because Taiwan macro is deteriorating. So are we dialing down on our growth because Taiwan has been growing quite strongly, right? So are we looking to tighten up in Taiwan? Or we are still continuing with the growth going forward also? Because at the beginning of the year, actually, our growth guidance for Taiwan is like 10% to 15% portfolio growth so far, we still maintain this target unchanged.
And -- but I think we still need to see what the second quarter result if we need to do any adjustments. But so far, I think we still can achieve within this range, 10% to 15%.
And similar to China, are we expecting delinquency ratio in Taiwan to also continue to increase in second quarter?
Delinquency – Taiwan current delinquency ratio…
In second quarter do you expect to increase?
No. I think because we are more experience for our Taiwan, either product portfolio or our operation team, sales team, credit team. So actually, we are more comfortable to maintain a relatively more stable delinquency for Taiwan. So probably just around this level.
Okay. And just one other question from my side is on the provisioning level. So what is our expectation of provisioning? Do we expect to continue to increase or reduce or like what is our expectation of provisioning?
I think in Taiwan we -- because of this slightly increase of the delinquency ratio, so we increased the provisioning expense a little bit quarter-over-quarter. But for its many -- the increase mainly come from China, our China operation. China provision actually in the first quarter, we increased the provision ratio a little bit compared to the fourth quarter last year because we still see this slightly pick up of the delinquency. And I think for the second quarter, so far, probably as long as this delinquency ratio stays within our expectation. I think it's more likely that we will maintain similar provision ratio at the first quarter.
[Operator Instructions] There are currently no questions.
Jason, we can end the call, please.
Sure. And ladies and gentlemen, we thank you for your participation in Chailease conference. You may now disconnect. Thank you, and goodbye.