Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to the Chailease Third 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 Mr. Vic Wang, Senior IR Manager. Please go ahead.
Hi. Good afternoon, everyone. This is Vic. I would like to welcome you to Chailease Holding Third Quarter 2018 Results Conference Call. On our call this afternoon, I'm joining here by Ms. Sharon Fan, Head of IR, and she will open to your questions 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, third quarter 2018 consolidated performance review, followed by the segment review for our Taiwan, China and ASEAN operations.
From hereon, I would like to start the presentation from Slide 4, highlights for a overview of our third quarter 2018 operation results. First, the summary table here shows the loan portfolio growth for the third quarter. On a year-over-year basis, Taiwan, China and ASEAN loan portfolio grew 17%, 32% and 20%, respectively. China grew 34% in local currency.
On a consolidated level, we achieved 21% year-over-year loan portfolio increase. As for the first 3 quarters of portfolio growth, Taiwan increased 14%, China increased 21%, ASEAN increased 15%, and 16% growth on a consolidated basis. This quarter, China continued the business momentum from prior quarter, while Taiwan resumed the portfolio growth as U.S. dollar-denominated loans and solar business increased in disbursement for the quarter. We expect Taiwan and China loan portfolio growth could outperform the original targets, while ASEAN will reach the high-end guidance for this year.
Second, in the following segment review section, you will see we continue remain stable asset quality on the group level as well as in China and in Taiwan. Taiwan and China delinquency ratio decreased for the quarter, but better loan portfolio growth this quarter. The new delinquent formation remains in line with the portfolio growth.
Let's move through the next section, third quarter 2018 performance review. Moving on to Slide 6. Consolidated loan portfolio reached TWD 330 billion for third quarter 2018 with 21% year-over-year growth and 16% year-to-date increase, as China continues with the growth driver for the quarter. The 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 rate, but loan yield and cost of funds gradually increased. We will discuss the changes of each operation region in the next section.
Next slide, Slide 8. This page shows you the change of consolidated fee income. On a year-over-year and quarter-over-quarter comparison, consolidated fee income continued to grow, reflect a continued business momentum.
Next slide, Slide 9. On the left-hand side, the consolidated revenue for first 9 months 2018, reached TWD 37 billion, representing 24% growth compared to the same period last year. The better consolidated revenue growth compared to portfolio growth was mostly driven by more sales revenue was booked this year for China.
On the right-hand side, third quarter consolidated revenue was TWD 12.7 billion, remain flat from the previous quarter as China revenue decreased for the quarter.
Moving on to Slide 10. On the left-hand side, the consolidated net profit in the first 9 months of 2018 totaled TWD 10 billion and earnings per share was TWD 7.78. The increase of net profit was mainly driven by top line growth and less expected credit loss recognized in China as a result of improved asset quality. On the right-hand side, third quarter consolidated net profit was down 6% as tax rebate of RMB 80 million for China was booked in the previous quarter.
Moving on to Slide 11. The chart on the left-hand side, cost to income ratio, maintained position at 32% for the first 9 months of 2018 as we continue to hire new employees. The chart on the right-hand side, asset to equity, slightly increased to 6.3x for the quarter.
Slide 12. The consolidated ROA on an annualized basis was 3.9% for the first 9 months of 2018, reflecting higher growth of net profit for the period. The consolidated ROE on the right-hand side was maintained at a historical high of 24%.
Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at third quarter end was down 0.2 percentage point to 3%, as Taiwan and China delinquency ratio both decreased this quarter. Later in the presentation, I will talk about each region in more details.
Moving to the right-hand side, allowance to portfolio ratio was slightly decrease to 3.0%.
Moving to the segment review. Let's look at our operation performance region-by-region.
On Slide 15, our Taiwan loan portfolio reached TWD 176 billion in third quarter end 2018, representing 17% year-over-year increase. And year-to-date growth rate was 14%, as new disbursement for offshore lending, solar business, and lending in service industry picked up the momentum this quarter.
Next slide, Slide 16. This page presents trend of our Taiwan loan yield and funding cost. Slight increased in cost of fund and loan yield this quarter reflects the interest rate hike for U.S. dollar-denominated loans.
Turning to Slide 17. The slide shows you the change of our Taiwan fee income. Compared to the same period last year in prior quarters, the income increased for the quarter as new loan disbursement continued to increase.
Moving on to Slide 18. Revenue for our Taiwan operations for the first 9 months of 2018 reached TWD 16 billion, representing 12% year-over-year growth. The slower revenue growth compared to portfolio growth was mainly driven by net sales revenue was recognized this year. For the quarter-over-quarter comparison on the right-hand side, third quarter revenue was TWD 5.6 billion and grew by 6% quarter-over-quarter.
Turning to next slide, slide 19. Taiwan's profit for the first 9 months of 2018 grew by 21% compared with the same period last year. Better bottom line growth reflects improved cost to income ratio and better asset quality. The third quarter Taiwan net profit was TWD 1.9 billion, which grew by 7% quarter-over-quarter, driven by top line growth.
On Slide 20, on the left-hand side, Taiwan delinquency ratio in third quarter was down 0.2 percentage point to 3%, mainly driven by better portfolio growth for the quarter. On the right-hand side, write-offs slightly increased while recovery remained for the quarters.
Next slide, Slide 21. Allowance to loan portfolio in Taiwan increased from 2.3% in second quarter to 2.2% this quarter, driven by better portfolio growth this quarter.
Let's cover China operation on Slide 22. China total loan receivable reached TWD 104 billion at third quarter end 2018, which grew by 32% year-over-year and 21% increase year-to-date. This year, China better business momentum was supported by a tighter liquidity and credit condition. We expect China loan portfolio growth will outperform our guidance, which is 25% this year.
Turning to Slide 23. This page shows the loan yield and cost of fund trend for our China operation. Loan yield slight pickup in third quarter 2018 reflects the increase of new -- of loan yield for new loans in the second quarter.
Next slide, Slide 24. This slide shows you the trend of fee income in China. The income slightly decreased this quarter compared to the previous quarter, mainly due to the depreciation of RMB for the quarter.
Next slide, Slide 25. China revenue for the first 9 months of 2018 totaled TWD 17.3 billion, increased 36% year-over-year. The sequential decrease of top line growth on the right-hand side was driven by decrease of trades, finance, business and fee income for the quarter.
Let's look at China revenue breakdown on Slide 26. Trade finance revenue totaled TWD 6.9 billion in the first 9 months of 2018, which was up 39% year-over-year and decreased 25% quarter-over-quarter.
Moving on to Slide 27. China first 9 months of 2018, net profit reached TWD 4.7 billion, increased by 70%, mainly driven by top line growth and less expected credit loss once booked. On the right-hand side, China third quarter net profit was down 13% sequentially. A corporate tax rebate of RMB 80 million was recognized in prior quarter, while RMB 20 million tax rebate was booked this quarter.
Coming to next slide, Slide 28. On the left-hand side, China delinquency ratio at the third quarter continued to decrease to 2.3% from 2.5% in prior quarter, mostly driven by higher portfolio growth this quarter. On the right-hand side, recovery and write-off amount remained relatively stable for the quarter compared to the prior quarters. We expect delinquency ratio stable at this level for the coming quarter.
Next slide, Slide 29. China's allowance to portfolio ratio for the third quarter was down 0.3 percentage point to 4%, mainly due to better portfolio growth for the quarter. We expect this ratio will slightly decrease as we continue to maintain stable asset quality.
Moving to ASEAN on Slide 30. Total loan and receivable in third quarter in 2018 reached TWD 45.8 billion, up 20% year-over-year and 15% year-to-date growth, which is in line with our guidance. Vietnam and Malaysia operation continued to deliver higher loan portfolio growth this quarter.
Let's turn to next slide, Slide 31. The left-hand side, ASEAN revenue for third quarter totaled TWD 3.3 billion, grew 31% compared to the same period last year. The better top line growth was driven by more sales revenue booked for Vietnam this year. On the right-hand side, ASEAN's third quarter net profit was up 5% sequentially.
Moving to the next slide, Slide 32. ASEAN's first 9 months 2018 net profit reached TWD 788 million, increased by 27%, mainly driven by top line growth. On the right-hand side, ASEAN's third quarter net profit was also up 3% sequentially.
And this bring us to the end of my presentation for today. Thank you for your time and listening. Now I would like to turn the call to operator to start Q&A. Operator?
[Operator Instructions] The first question is from Anthony Lam with HSBC Hong Kong.
Probably a simple but mixed detail question around growth. You mentioned that growth in Taiwan and China probably will exceed your original target -- I mean, revised target in the first half. I'm just trying to get a sense how much, by year-end, that target will be outperformed by? And I think, would that lay a higher base of comparison for 2019? And around China, we see that you probably [ made me think ] your company, talked about opening [ 45 ] branches in China next year. Just trying to get a sense from you whether you think the ongoing trade tensions between China and U.S. is going to have some spillover impact on growth and SME finance demand in Mainland China, or you don't see any sort of weakness pertaining through, or just limited to the trade finance related revenue [ as seen ] in the third quarter? And would you see any, I would say, substitution effect of both a stronger growth in Vietnam and broader ASEAN region? So that's my question around growth for, I think, by year-end and next year.
Okay. Regarding the growth, actually, as I remember, last quarter investor conference, as our CEO guided, that our overall growth should be around like 10% to 15% for the consolidated level. China is 25%, Taiwan is like 10% to 15%, and ASEAN is like 15% to 20%. So, so far, when you see our first 3 quarters results, pretty much we are in line with guidance and probably a little bit ahead as was said earlier by Vic. So I think we remain the growth guidance unchanged at this point. So yes, that's our overall guidance about the portfolio growth for this year. And regarding the trade flow tensions between U.S. and China, whether it will impact our growth momentum or the next year growth estimates, actually, so far, we are in the process of doing next year's business plan and the budgeting. So we haven't finalized the number yet. But so far, when we see -- we will closely monitor every month, every quarter, business momentum, business volume trends. So far, we haven't seen any significant change, slowdown or anything. So basically, with this kind of growing trend, we think we still can maintain our -- we are still confident to achieve our -- this year's target. And for next year, so far, we are cautiously optimistic, I should say. Probably, we can achieve similar or a little bit better growth. But anyway, the final numbers will be released in the next quarter conference -- investor conference.
The next question is from Gurpreet Sahi with Goldman Sachs Hong Kong.
Gurpreet from Goldman. A couple of questions. First is directly on growth. In the fourth quarter, will there be any growth? As I see, quarter-on-quarter, the last few quarters has seen very fast growth of around 5%, let's say, average every quarter going back around 1.5, 2 years. So how do you see the fourth quarter progressing? And then, I'll have a next question after you answer the first one.
If you look at our growth pattern, actually you can see our quarterly portfolio growth. Sometimes, our peak season will happen in third quarter, sometimes it will happen in the fourth quarter. So far this year, in Taiwan, we see the third quarter outperform second quarter. And in China operations, the third quarter is a similar growth rate with the previous quarters. So I think we will see, probably the fourth quarter in Taiwan, we still can keep this kind of momentum. And in China, probably, it will remain at this healthy kind of growth rate. If you calculate the last 2 quarters, China portfolio grew by like 9% to 10%, quarterly -- quarter-over-quarter. So that's quite a good growth rate as we -- yes. So probably, we are happy about this kind of growth momentum.
Okay. And then the second is on write-offs. I know you disclose the detailed number in the financial statements when it come out. But can I check that the write-off -- overall net write-off level at the consolidated level increased quarter-on-quarter, and what was that number? I mean, compare that number to the second quarter number of around TWD 600 million. Can you give me the third quarter number?
Gurpreet, this is Vic. We only have a regional like write-off a month, but the consolidated number should be released by tomorrow. Yes. The financial statement for third quarter will be released tomorrow. Then -- so tomorrow you will get the consolidated write-off numbers.
Yes. I think in China, Taiwan and ASEAN, China had already accounted for like 85%, 90%.
Okay. Can I ask this a bit differently, not to ask any numbers. But in Taiwan and in China separately, did quarter-on-quarter, you have higher provision? I can see at the consolidated level, the provision amount was from TWD 900 million close to TWD 1 billion. So what drove the TWD 100 million something increase, which geography between the 2?
In the allowance to loan portfolio for China is 4%, for Taiwan it's 2.2%. And for the consolidated level, it's 3%.
Yes, I'm not asking about the stock of provision. The P&L, the impairment loss on loans in the second quarter was around TWD 900 million and in the third quarter, it was more than TWD 1 billion. So the difference -- extra TWD 100 million, which geography, I know there's overall portfolio growth that contributed to it, but then it seems a bit higher than what we expected.
Because you know this impairment loss is also including the general provision with that aside. So as I mentioned in the presentation, this quarter we do have a better momentum. So in terms of the general provision, a month -- after do a month, actually increased due to the more new disbursements, both in Taiwan and China.
Okay, understood. And then finally, just quickly checking, there's no earlier question here. In terms of your financing mix shift towards more bonds, is there anything that has been happening this year? And how is your overall financing happening in terms of -- do you have to pay more to the interbank lending?
No. We cannot get access to the interbank fundings. So actually, to support our growth trends, I think in China, especially, we are working on further diversify the funding source and we continue to working on this [ ABN ]. And hopefully, we can finalize this first deal by end of this year. And next year, this will be one of our major funding source for China.
The next question is from Anthony Lam with HSBC in Hong Kong.
I just wanted to follow up on the previous question about financing mix. I think I heard Sharon talking about a third deal of asset-backed notes by year-end. Just wanted to get a bit more color around the [ ABS ] of about, I think, RMB 1.6 billion the last month as far as the syndicated loans of about RMB 2 billion, I think it was Mizuho [ SB Lite ] Banks. Second, I'm just trying to get a sense of what sort of pro forma -- or incremental impact on the third quarter cost of funds in China that will be linked to. And I think in terms of asset deal, I think you mentioned in the second quarter analyst briefing that you are in the process of pricing your loans upward by about 40 to 50 basis points on your new loans. Just trying to get a sense whether keeping this sort of incremental markup on your new loan disbursements, or do you take the opportunity of, I mean, further the risk to your loan portfolio, given the more favorable conditions to you, given the size of equity conditions and demand in China market. And I think in Taiwan, noticed some pickup in funding costs,[ FX management ]. It's probably related to just dollar-related funding cost increase. Just trying to get a sense of whether the recent drawdown from, I think, the Taishin loan. I think about USD 250 million, would mean lead to further increase in cost of funds. And I think in Taiwan factored in fourth quarter, and I think I also saw you, I think, raise the loan for Mega in late third quarter. Just trying to get a sense of whether these financing initiatives have to have a -- any sort of impact on third quarter numbers, I mean, in the fourth quarter.
Okay. First of all, for the U.S. denominated lendings, actually, it's floating rates. So you can see both our funding costs and lending yields increased together. So you will -- it won't impact our spreads. Our spread will remain stable. For those incremental funding, actually the borrowing rate is quite similar. I don't see any significant change for the funding costs in the near term. Does this answer your question?
I think, kind of. But I think, also -- I think the spread remained a little bit higher than what you're probably guiding. I think 7% overall -- I mean, look overall spreads. But then I think in third quarter, it's about, I think, 7.2%. So given the mix of -- I mean, increasing mix throughout China -- just trying to get a sense whether you think you're in a position of guiding for a higher spread, I think, going forward? I think 7% is a little bit more conservative, given the current status of...
Are you looking at the consolidated level in terms of the spreads, right?
Yes.
Okay. So you can see this quarter is like 7.24%. Last quarter, it's 7.22%. And I think it's still in the range of about 7 to 7.2 something. So internally, we still remain -- because this is calculated -- this number is calculated backwards. So for our forward-looking funding plans and the pricing strategy, I think we maintain the spread targets.
[Operator Instructions] The next question is from Gurpreet Sahi with Goldman Sachs in Hong Kong.
Just quick follow-up on China, and a qualitative question. We hear a lot regarding financing being difficult for small companies in China and the government trying to do more encouraging banks. Tell us what you're seeing on the ground and how your business managers are dealing with the situation at hand?
Do you know -- do you mean that whether we change our credit policy or credit lender?
No. Just wanting to know how your customers are kind of feeling this relative tightness in the financing situation. Do you have customers that not just take loans from you, also could be taking loans from the bank or could be borrowing from other sources, are they facing any difficulty?
Because as you know, we are still mainly targeting this SME manufacturing sector. So they always have some funding needs. And we continue to position ourself as a supplemental funding provider. And to this, I think the market demand to us, still -- we still can find qualified customer to like grow at our trend pace. So, so far, we are not speed up the growth or slow down. So far, I think, we maintained this kind of pace and the market demand's still there.
Okay. But some of the surveys that are done by the government and by industry participants of manufacturing performance seem to have deteriorated in the last 2 to 3 months. These are very wide surveys covering thousands of companies. Have you seen anything from your clients that suggest that their activity levels have slowed a bit?
So far in our existing portfolio, we didn't see the deterioration situation. And as you know, we are still in the cherry-picking stage when developing our China market. So -- and yes, our total size compared to -- probably when you look at those Chinese banks, larger financial institutions, they are more exposed to macro. And I think, we are still more resilient.
Okay. Understood. And then in terms of the person who is managing your risk in China, call it, the Chief Risk Officer. So you're saying he is not seeing any deterioration in the overall portfolio that he manages in China? Not even in the third quarter or in October or in the month of October?
No -- yes, you're right. We still have similar collection rates. As you know, we see -- we -- internally we look at this our monthly collection rate as an early indicator. Still remains very high, very healthy.
The next question is from Yafei Tian with Citigroup in Hong Kong.
I have 2 questions. The first question is mainly around China, the sales trade related revenue actually came down this quarter, and when you look at the consolidated income statements, it's actually a relatively large decline in terms of volume, with sales revenue came down 23%. So just wanted to understand, how do you see this progressing into next year? Why shouldn't we be worried about these trade-related demand going to be much weaker because of trade war with the U.S. in China? That's question number one. Question number two, a more specific question around the tax. You mentioned that bottom line came a bit lower because of a tax rebate in China. So how should we think about the tax rate in China going forward? Should we assume that the tax rebate is going to be sustainable going forward?
Okay. Regarding the China trade finance revenue, if you look at our revenue mix in China over the past couple of years, you can see roughly the sales revenue accounts for like 40% of the total revenue. But actually if you -- internally, we look at the business volume. For business volume, actually sales -- trade finance accounts for around 10%, 10% to 15% of our China business. So I think this is our company's scope to maintain at this revenue mix of service portfolio mix for China operations. But for trade finance, the markets -- the demand will be a little bit more volatile quarter-over-quarter. There's more variation. But overall, for the whole year, we have a target, have an internal plan to maintain the stable mix. So because we have a quite faster growth for the trade finance business in the first half, so -- especially in the second quarter. So in the third quarter, actually is -- the management deliberately to like slow down this kind of business a little bit. But for the whole year, I think it will maintain roughly the same product mix for China business.
In terms of tax rebate, I think, according to our China CFO, he mentioned in the earlier translation conference he -- we are confident that we can continuously to have this kind of tax rebate from the government and the amount probably will be similar, going forward.
To remind us, how much rebate you had -- you get per annum?.
This year, we got like 10 -- RMB 100 million.
And is that booked quarters-on-quarters? Or mainly in present quarter?
Usually a majority of this rebate will be booked in the first half. Sometimes in the first quarter, sometimes in the second quarter. Depends on when we actually get -- repeat this rebate a month.
Got it. And why did management deliberately slow down the growth in the...
Because we want to have a optimal product mix. Especially, we want to better utilize our funding. So we don't want to like use -- like doing -- using -- utilize 100% of our funding source to do this more shorter-term business because trade financing, generally, is only for 1 year.
[Operator Instructions] And next question is from Anthony Lam with HSBC in Hong Kong.
A couple of quick follow-ups. I think, I mentioned that the U.S. dollar parts both folding rate on both funding side and asset side. Just trying to get a sense whether it's tied to the same high -- I mean LIBOR rate. I think either is it the 1-month LIBOR or 3-month LIBOR or asset side's tied to 1 month and [ probably ] tied to 1 month? So that's the first one. And on the growth side, trying to get a sense around the new disbursements of U.S. dollar loans and so really financing as well as the service industry growth in Taiwan. And just trying to get a sense where these U.S. dollar loans will be utilized then. Are they for SME spending in the ASEAN region mainly? And does the 10% cap still apply to the solar financing in terms of sector remit? So those are my follow-up questions.
This is Vic. So the first question is about our U.S. dollar-denominated loans. So whether we are linked to the LIBOR 1-month or 3-months, right?
Yes.
I think it's depending on the duration and also on the contract. So I think we kind of post -- some of the countries are linked to the 1-month and some are to the 3-month. But as Sharon just mentioned, because our U.S. dollar-denominated loan is floating, so it won't impact our spread. Our spread should be very stable, yes. And so for some of our U.S. dollar-denominated loans, one is the offshore lending you just mentioned. We also provide financing for the Taiwanese client. They go to the Southeast Asia to set up a factory. But some of the U.S. dollar-denominated loan actually link to do the private jet, helicopter financing. So actually this quarter, we did more like [ private share ] in helicopter financing.
Okay. And what about the forward financing? I think you did quite a bit of projects, I think, in the second half of this year. Just trying to sense whether you have more projects done in your pipeline rolling out for the general public for subscriptions?
What sort of project you are referring to?
I think you -- I think Chailease did roll out some solar financing projects, I think, in the second half. I think at that time you roll out that project, I think that's about 624 slices of solar panels in a solar farm and then our internal rate of 2.45%. I'm just trying to understand how you booked that hand, whether you have new summer projects in the pipeline going forward?
I think solar business is still one of our new business units and has a better growth rate compared to the Taiwan overall portfolio growth. But it still accounts for a small percentage of Taiwan total portfolio, like 3%, 4%, yes.
Okay. So does that imply, to think it -- does that imply that it will be one of the better growth driver going forward for quite a couple of years, maybe 3, a few years?
Yes.
Because of the small base?
Yes.
[Operator Instructions] Mr. Wang, there are currently no questions.
Please end the call, thank you.
Thank you for your participation in Chailease conference. You may now disconnect. Goodbye.