Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to the Chailease Second 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.
Now I would like to turn the call over to Kimberly Lian, Assistant Manager of Investor Relations. Please go ahead.
Hello, everyone. Thank you for joining us today for our second quarter investor conference call. I'm joined by Mrs. Sharon Fan, Head of IR department, and she will be open to your questions after my presentation.
The presentation I'm giving today will be available for download on our official website at www.chaileaseholding.com.tw. And as a reminder, please refer to the disclaimer in Slide 2 regarding forward-looking statements. Our actual results may differ from such statements.
Now let's begin the presentation by turning to Slide 3. The agenda we are going to cover for today includes management highlights, followed by consolidated fulfillment review and segment review for our major operations, including Taiwan, China and ASEAN operations.
Now let's turn to Slide 4 for highlights that summarize our performance of the second quarter of 2018. First, the summary table here shows you the loan portfolio growth for each of our main operating regions for the second quarter of 2018. On a consolidated level, you can see on the right-hand side of the table, we achieved 21% year-over-year portfolio growth and 10% year-to-date growth, thanks to the continuous strong business momentum in our main operating regions.
On a year-over-year basis, our main regions, Taiwan, China and ASEAN's loan portfolios grew by 15%, 35% and 20%, respectively. While Taiwan and ASEAN's portfolio growth was in line with our internal target, China operations was ahead of the plan target and showed better-than-expected results.
In the second quarter, the market demand remains strong, and business momentum continues on the previous quarter, as for the year-to-date growth for our 3 main operating regions, which grew 7% for Taiwan, 15% for China and 8% for ASEAN. To factor in the better-than-expected growth for our China business, the whole year portfolio growth target for China is revised up to 25% from 15% to 20% previously, and the other regions, our growth target remains unchanged for the year of 2018.
Second highlight. Our healthy portfolio growth, together with stable asset quality, helped achieve higher profit growth for the first half of this year.
Third point. To maintain stable dividend policy, it's management's commitment, with years of track record since listed, the company has declared cash dividend of TWD 3.8 per share and stock dividend of TWD 0.02, and the payment day will be on August 31.
Let's move to the next section, performance review for the second quarter of 2018, shown on Slide 6.
Consolidated loan portfolio reached TWD 312.4 billion for the second quarter of 2018 with 21% year-over-year growth and 10% year-to-date increase. All 3 of our main operating regions, especially China, continued to grow steadily.
Turn to the next slide, Slide 7. The graph shows the trend of consolidated loan yield and cost of funds for the past 12 quarters. As you can see, we managed to maintain stable spread with a narrow range of 7.0% to 7.2% in the last 3 years. This quarter, there is a slightly increase of cost of funds due to China's credit tightening situation. However, we have the ability to repricing to the new view. Therefore, the spread is expected to maintain a stable trend.
We will look at each operating region's yield and cost of funds in the section.
Moving on Slide 8. The graph in this slide shows you the trend of consolidated fee income. The fee income represents the new business momentum during each quarter. Fee income is TWD 1.63 billion for the second quarter. The year-over-year and quarter-over-quarter growth of fee income reflects the growth momentum of new business volume.
Slide 9. On the left-hand side, the consolidated revenue for the first 6 months of 2018 reached TWD 24.3 billion, representing 26% growth compared with the same period of last year. On the right-hand side, the second quarter consolidated revenue is TWD 12.8 billion, up 11% on the previous quarter, which was quite aligned with portfolio growth.
Moving on to Slide 10. On the left-hand side, the consolidated net profit for the first 6 months of 2018 reached TWD 6.6 billion. And the retroactively adjusted earnings per share for the first 6 months of 2018 was TWD 5.15. Net profit amount increased 53% year-over-year and 19% quarter-over-quarter. Substantial increase of net profit was boosted due to 2 reasons: first is that impressive business momentum and top line growth were generated; the second factor is significant asset quality improvement, with low impairment losses compared to the same period of last year and the gradually stabilized asset quality for the year of 2018 so far.
For quarter-over-quarter comparison, China's tax rebate is in April, which is at second quarter, therefore, makes the second quarter a lot stronger than the first quarter.
Turn to Slide 11. This page shows you our loan portfolio mix and profit contribution in terms of our main operating regions. On the left-hand side, we can see Taiwan business accounts for 53% of total portfolio in 2018, China is 32% and ASEAN is 14%. For the first 6 months of 2018, China's business volume is stronger, therefore, its proportion is up 2% -- 2 percentage points, while Taiwan is lower 1 percentage point compared to 2017, and ASEAN's contribution percentage remains unchanged.
On the right-hand side, it shows the profit contribution in the first 6 months of 2018. Taiwan's net profit contribution accounts for 48%, China accounts for 45% and ASEAN, 4%.
Moving on to Slide 12. On the left-hand side, it shows that our group level cost-to-income ratio maintained productive at 32% this quarter, same level as previous quarter. Cost-to-income ratio is expected to maintain at this efficient level for the rest of the year.
On the right-hand side, you can see that asset-to-equity slightly increased to 6.2x from 5.8x this quarter. This is a result of the portfolio asset growth as well as the declare of the dividend in the second quarter.
Next slide, Slide 13. The consolidated return on assets on an annualized basis achieved a new record high of 4% for the first 6 months of 2018. And the consolidated return on equity, on the right-hand side, achieved 24%.
Slide 14. The consolidated delinquency ratio shows on the left-hand side. At second quarter end, delinquency ratio further decreased to 3.2% because of the improvement of Taiwan and China's asset quality.
Later in the presentation, we will look at each region's asset quality in the segment review.
Looking at the right-hand side, allowance-to-portfolio ratio is at 3.2%, which is evaluated to be still at a sufficient level.
Moving on to segment review, let's look at our operating performance country by country. Slide 16. On Taiwan's loan portfolio, it reached TWD 165.7 billion at the end of the second quarter, representing a 15% year-over-year increase. And the year-to-date growth rate is at 7%. We see business momentum pick up in the second quarter and catch up our internal whole year plan for Taiwan.
Next slide, Slide 17. This page shows the trend of our Taiwan loan yield and funding costs. As you can see, we maintained steady loan yield of around 8% for the past 3 years and a trend down funding costs due to two of our subsidiaries go public and have more diversity funding options.
Slide 18. The graph shows Taiwan's fee income for the last 5 quarters. Fee income in Taiwan is composed of fees from alliance with commercial banks and general fee income. For the second quarter of 2018, the overall fee income performed better than the same period of last year, reflecting higher new disbursements for the second quarter of 2018.
Moving on to Slide 19. Revenue from our Taiwan operations for the first 6 months reached TWD 10.4 billion, representing 10% year-over-year growth. The revenue's year-over-year growth rate is lower than the portfolio growth is due to less trade finance recognized in the first 6 months of this year. And for the quarter-over-quarter comparison, the revenue growth was 5%.
Turning to Slide 20. Taiwan's net profit for the first 6 months of 2018 reached TWD 3.39 billion, which grew by 26% compared to the same period of last year. Better growth rate of the bottom line compared to the top line is because better cost and expense control, including funding costs and credit costs. For the quarter-over-quarter comparison, profit was up 8% if compare -- if comparing to the prior quarter.
On Slide 21, the left-hand side shows Taiwan's delinquency ratio of second quarter, which was 3.2%, down by 0.1 percentage point on the previous quarter, reflecting that asset quality has been improved.
Slide 22. As you can see that allowance-to-loan portfolio in Taiwan was maintained sufficient at 2.3%.
Next, let's take a look at China operations on Slide 23. China's total loans and receivables reached TWD 99.31 billion at the second quarter end, which grew by 35% year-over-year and 15% quarter-over-quarter. Business momentum has been quiet from -- in China since the beginning of 2018 and continues throughout the second quarter.
Turning to Slide 24. This page shows you the loan yield and cost of funds trend for our China operations. Funding costs slightly trend up in the second quarter, as mentioned earlier, because of the credit tightening situation in China. However, we still managed to maintain a stable interest rate by repricing to the new view, and it will take some time to fully factor in.
Slide 25. This slide shows you the trend of fee income in China. Fee income in second quarter is high as new disbursements continued to pick up.
Next slide, Slide 26. China's revenue for the first 6 months of 2018 totaled TWD 11.5 billion, increased by 45% year-over-year and by 16% if compared second quarter to the first quarter. The year-on-year revenue growth is higher than portfolio is due to more trade finance business is generated in the first half of 2018. We can see this more clearly by looking at the revenue breakdown in the next slide.
Revenues generated on trade finance business in the first 6 months of 2018 totaled TWD 4.9 billion. This is much higher than the same period of last year, therefore, crossing an overall high year-over-year in revenue growth.
Moving on to Slide 28. China's first 6 months net profit in 2018 was TWD 3.17 billion, increased by 92% year-over-year. It was boosted by impressive business momentum, plus lower impairment loss on loans and receivables and also more tax rebate for the first half of this year compared to the same period of last year.
On the right-hand side, China's second quarter net profit was up 27% and was attributed to the reason that tax rebate was recognized in the second quarter.
Turning to next slide, Slide 29. On the left-hand side, China's delinquency ratio at second quarter end further decreased to 2.5% from 2.9% in the previous quarter. China's asset quality starts to show improvement since early last year and continues throughout the year of -- throughout 2018. There is still some marginal improvement in the first half of this year. However, overall China's asset quality should be maintained stable at current level and going forward.
Next slide, Slide 30. China's allowance-to-portfolio ratio for the second quarter was decreased 0.3% to 4.3%.
Now let's move to ASEAN region on Slide 31. Right now our ASEAN operations, including Thailand, Vietnam, Malaysia, Cambodia and the Philippines. Thailand still accounts for the majority of the ASEAN operations in terms of the portfolio breakdown. The total loans and receivables at the second quarter end of 2018 was TWD 43.2 billion and was up by 20% year-over-year and 8% for quarter-over-quarter growth. The main growth for the ASEAN regions continued to be driven by Vietnam and Malaysia operations for the first 6 months.
Let's turn to the next slide, Slide 32. The left-hand side shows the revenue for the first 6 months for ASEAN operations. It was TWD 2.1 billion, which grew by 31% year-over-year.
On the right-hand side, the revenue for the second quarter was TWD 1.14 billion, which grew 16% quarter-over-quarter.
Business momentum overall is good for 2018 for the ASEAN so far. And the higher revenue growth and the portfolio growth for the year-over-year comparison and quarter-over-quarter comparison is both due to more trade finance business generated in the first half of 2018.
On the right-hand (sic) [ left-hand ] side, total net profit for the first 6 months of 2018 was TWD 524 million, representing 36% year-over-year growth. For year-over-year comparison, ASEAN's net profit outgrew portfolio for the first 6 months mainly due to lower impairment loss on loans and receivables compared to the same period of last year as a result of the improved asset quality.
For quarter-over-quarter comparison, second quarter's net profit was decreased by 3% for ASEAN regions, mainly because more provision expenses were booked in the second quarter for our Thailand subsidiary since higher-than-expected loss was evaluated for some delinquency cases. However, if we compare the total provision expenses for the first half of 2018 with those for the same period of year 2017, the total provision expense amount is significant decrease for Thailand, reflecting the gradually improved asset quality for our Thailand operations.
And this brings to the end of my presentation. Thank you for listening.
And now I would like to turn the call back to operator to turn on our Q&A section.
[Operator Instructions] The first question is from Anthony Lam with HSBC Hong Kong.
I think, firstly, I want to clarify on the growth target. You have revised the growth target from -- for China to 25% from 15% to 20% previously. So I'm just wondering, what's the overall target from 14% for the overall loan portfolio, as you mentioned, still in first quarter? And supporting that, I mean, is there any corresponding growth in staff in China to support the continuous or ongoing stringent credit quality checks of clients? And what you -- and also, would management be concerned about the ongoing trade tensions on the domestic economy and -- that's affecting clients and the credit quality going forward?
Okay. So it's all about our China operations, right? The overall growth target -- actually, for the consolidated level, I think probably still around like 20%, mid- to high teens. Probably 20% is -- there is a chance that we can achieve, just like you can see our first half result year-over-year growth actually generates like achieved 21%. So yes, that's the overall about the portfolio growth guidance. And you mean the asset quality. I think, yes, we observed that current asset quality in our China portfolio is very good, and the property delinquency ratio is historically low. But because this delinquency ratio has 2 factors: one is the new delinquency amount, and the other is the new portfolio growth. So actually, if you look at the new delinquency inflow, has achieved to a quite stable level. So I will say our asset quality should be stabilized for China. But in terms of the delinquency ratio, probably you will still have some further decrease in the following quarters because better growth and the stable asset quality, stable new delinquency amount. So yes, so that's -- while we see going forward, we can expect -- we could expect that the asset quality maintain stable and the provision expense also maintain stable.
The next question is from [ Mark Smith ] with Sierra Capital London.
Looking at Page 24 and the yield on the China loan business, I'm slightly surprised the yield hasn't moved up somewhat in this tighter liquidity environment. Is there a reason behind that? And has there been a -- perhaps does this reflect a shift to a less risky lower delinquency plan? Or, indeed, perhaps do you expect the yield to edge higher in the coming quarters, and this is just a temporary delay?
Actually, we already tried to -- like we price our yield by adding of like probably 40 to 50 basis points since second quarter. But actually, those only for the new deals, so it will gradually factor in to this overall yield level. Yes, actually, we have been try to increase the price already, but only for the new deals, new business, yes.
Okay. So there's been no change in the targeted nature of clients as you've accelerated growth in the -- in China, particularly, in the last 12 months?
Yes. No, you're right. Correct.
[Operator Instructions] The next question is from Ben Huang with Mizuho Securities Hong Kong.
So I have 2 questions here. So the first is on the loan growth target. So at the beginning of the year, over loan targets of about 14%, so I mean, up to the second quarter, the year-on-year growth is now 21%. So I would like to ask, is that a change of our risk appetite? Or is -- I mean, or is that a change of our strategy? Or we see a much stronger demand so far in the year? And the second question is on asset quality. So do you think there's any impact from the current, I mean, trade conflicts between China and U.S.? So how will that impact our progress in China?
Okay. Regarding our risk appetite, actually, we -- because our strategy is still to maintain a stable spread and to reflect the credit -- the risk that we assume, so actually, the increase of the growth target, planned target is mainly because we see the China market demand stronger than we originally planned, especially for the first quarter. This year, if you look back to our historical trend, the first quarter, actually, is quite strong. And this strong business momentum continued to the second quarter. So we need to like true up our first half results so to have a better realistic trend for our whole year growth for the China. So it doesn't mean that we increase our pricing or risk appetite strategy. So yes. And the second question about whether the U.S.-China trade war will impact our asset quality and our clients' business, actually, things right now, our customers, 90 -- more than 90-something-percent of our China customers are local enterprises, SME, and actually, they are more focused on the domestic market. So the export-oriented and the customer base actually account for less than 5% of our total customer base. And even for those 5%, they are not 100% doing U.S. export business, so the impact still is minimal, actually, so far for our observation. So we will continue to monitor the situation.
The next question is from Anthony Lam with HSBC Hong Kong.
I just want to follow up on the spread side because I think it's been the strategy of Chinese to maintain stable to around 7%. But given the faster growth in China and probably a little bit faster growth in ASEAN, do you think there's actually some scope for even higher spreads for the entire portfolio because you earn a higher spread than 7% in China? And also, I guess probably higher than 7% in ASEAN as well? So just given the portfolio mix shift, do you, I mean, expect even higher spreads from here going forward? I think that's the first one. And the second one is on the Thailand business. I think Kimberly mentioned some gradual improvement in asset quality in Thailand business. Just trying to understand if you could share with us some numbers around that, like the delinquency ratio and things like that.
Okay. Anthony, do you mean the spread expansion opportunity for China?
No. For the whole loan portfolio because you have a higher portfolio mix in China and probably ASEAN given the faster growth in these 2 major markets and the Thailand market.
So actually, if you look at the -- we have a slide to show the portfolio mix. Actually, the change is not that significant, so I don't think it will change the overall spread. So probably, it will maintain as quite stable. Okay, because Taiwan still accounts for like around 50% of the portfolio, 48%, 49% or 50%.
Right. But in the second quarter, we also observed some spread expansion in Taiwan as well. I think lower funding cost as well as higher loan spreads, so I was just trying to gauge whether there's any scope for upside here.
Okay. For Taiwan spread expansion, because probably, there's some sector, as a result of our product mix, a little bit change. Probably, we have been growing faster in some nonmanufacturing sector, some micro business client sector. So it will help to expand a little bit of the pricing, the spread. But actually, overall, I think it won't have some big change. And also, it's not the management's goal to drive further expansion of the spread significantly because we have locked in this risk appetite. So actually, I don't think the spread expansion will be the major strategy for our business growth in Taiwan. Yes. And regarding the Thailand provision expense, yes, because in the second quarter, we had some delinquent cases, has a higher expected loss. So we set aside higher individual provision expenses. So that's the reason why the second -- in the second quarter, Thailand and also ASEAN net profit didn't grow compared to the previous quarter. But if you look at the accumulated results for the first half, first 6 months, actually, the overall provision expense for Thailand still has a year-over-year decrease compared to the same period of last year. That's what Kimberly mentioned, that we also have gradually improved the asset quality for our ASEAN operations.
The next question is from Chung Hsu with Crédit Suisse Taiwan.
It's Chung from Crédit Suisse. I was just curious, on 2 questions for your China business. First, when you mentioned better growth on China business, would you -- are you able to give us some detail or color, is it better loan demand for your existing customers? Or you're doing more new customers? And my second question is, given the current funding condition in China, are you able to fund this growth with similar cost of funding? Or this will be higher cost of funding?
Okay. Regarding the better than expected than the originally planned growth, actually, for our China operations, still, I think 80%, 90% of the business is still generated from new customers. Because in China, we are still in the expansion mode. We continue to open new branches in new cities and develop a new customer base, so it should mainly come from new customer base. Regarding the funding costs in China, there's some slightly increase, especially starting from the fourth quarter of last year and to the first quarter of this year, we do feel some tension for increase of borrowing costs. But because China government also from time to time, they have some policy to ease the liquidity, so-called the -- to lower the provision for the banks, so actually, our China CFO, he also mentioned he has -- feels that this increase of borrowing cost pressure has been like eased up a little bit.
Okay. And just a follow-up question on the funding side. This better growth this year, in terms of -- if you think about it from the funding perspective, is this going to have any impact for your growth next year? I mean, if you use up more funding -- your funding this year, are you able to get enough funding to support your growth...
Okay, okay. I think that's the reason why we will continue to further diversify our funding sources for our China operation. So as we mentioned earlier, we are plan for -- to issue some ABS -- [ ABN ], and probably, we will launch the first [ ABN ] in the third quarter of this year. So going forward, I think we will try to further diversify the funding source and -- to support our business growth in China.
[Operator Instructions] The next question is from Ben Huang with Mizuho Securities Hong Kong.
I have another question on the dividend. So can you explain to us, I mean, the rationale behind for declaring the initial dividend this year? So I'm not sure if it's -- this happened in the last few years. But is it the first time ever that you declare a cash dividend for the interim results?
No. Actually, it's -- every year -- I think, because our dividend policy now is to maintain around 50% payout. So usually, we declare the dividend after the AGM in -- after -- in May. So usually, we declare a dividend in like June or July. Yes.
The next question is from Anthony Lam with HSBC Hong Kong.
Just wanted to follow up on that aspect securities issuance. I mean, I think that has been planned for a couple of quarters, I thought 3, 4 quarters already. Just trying to understand, do you -- if you have any sort of expected issuance size already, or are you still in the planning stage, or depending on market outside or things like that.
The size probably will around like RMB 1.2 billion to RMB 1.5 billion. And the funding costs should be roughly the same as our current funding costs.
Kimberly, there are currently no questions.
Okay, thank you. We can end the call now. Thank you.
Thank you. Thank you for your participation in Chailease's conference. You may now disconnect. Goodbye.