Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to the Chailease Third Quarter 2020 Earnings Release Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded.
For your information, the webcast replay will be available within an hour after the conference is finished. And now I would like to turn the call over to Vic Wang, the Senior Manager of Investor Relations. Mr. Wang, please go ahead.
Thank you, Jason. Hi. Good evening, everyone. I would like to welcome everyone to Chailease Holdings Third Quarter 2020 Earnings Conference Call. With me this evening is Miss Sharon Fan, Head of IR, and she will be open to your questions in Q&A period.
I will walk you through this quarter's 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 2020 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 third quarter 2020 operational 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 15%, 22% and 5%, respectively.
On a consolidated level, we achieved 16% year-over-year loan portfolio increase. For the first 3 quarters portfolio growth, Taiwan increased 10%, China increased 10%, ASEAN increased 0.4%, and 8% growth on a consolidated basis.
We expect Taiwan and China loan portfolio growth will outperform the original target, which is 5% to 10% growth, as business momentum continued to build up in the second half of 2020.
Second, in the following presentation, you will see the consolidated asset quality shows stable improvement and the delinquency ratio decreased for major operations. I will discuss in greater detail in the following slides.
Third, the capital increase of TWD 15 billion through preferred shares was complete. And this also brings down the group asset to equity ratio from 7.1x in second quarter to 5.9x in third quarter 2020.
The increase of capital will support the company next 3 to 4 years business growth and strengthen overall financial position.
Let's move to the next slide, third quarter 2020 performance review.
Moving on to Slide 6. Consolidated loan portfolio reached TWD 448 billion at third quarter-end 2020, with 16% year-over-year growth and 8% year-to-date increase, as China resumed the growth for the quarter.
Next slide. Slide 7 shows you the trend of 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 7.3% to 7.6% in recent quarters. We will discuss the change of each operation region in the next section. Next slide, Slide 8. This page shows you the change of consolidated fee income. Starting from 2019, we started to amortize our fee income over the contract period. On a quarter-over-quarter comparison, consolidated fee income continued to grow, reflect the continued business momentum and deferred fee income from 2019.
Next slide, Slide 9. On the left-hand side, the consolidated revenue for the first 9 months of 2020 reached TWD 43.6 billion, representing 2% growth compared to the same period last year.
Starting from this year, we changed the recognition of sales revenue from gross amount to net amount in China and Vietnam. If we use the same math as last year, the year-over-year consolidated revenue for the first 9 months of 2020 grew 18%.
On the right-hand side, third quarter consolidated revenue was TWD 15.4 billion, increased 7% from the previous quarter, as China revenue increased 9% for the quarter.
Moving on to Slide 10. On the left-hand side, the consolidated net profit for the first 9 months of 2020 totaled TWD 12.4 billion and earnings per share was TWD 8.96. The slower net profit growth was mainly driven by more expected credit loss was booked in China due to COVID impacts and some one-off incomes recognized last year.
On the right-hand side, third quarter consolidated net profit was up 13%, as Taiwan net profit also up 13% for the quarter.
Turning to Slide 11. This slide show you the loan portfolio mix and the profit contribution in terms of operating region.
On the left-hand side, we can see Taiwan business still accounts for 49% of group total loan portfolio.
China is about 36% and ASEAN slightly decreased to 14% at third quarter-end 2020. On the right-hand side, Taiwan net profit contribution accounts for 52% and China accounts for 43%. ASEAN contribute 5% to the consolidated net profit.
Moving on to Slide 12. The chart on the left-hand side, cost-to-income ratio slightly improved to 28% for the first 9 months of 2020 due to less other operating expense this year due to COVID impact.
The chart on the right-hand side, asset to equity decreased to 5.9x for the quarter as TWD 15 billion preferred share insurance was complete for the quarter.
Slide 13. The consolidated ROA on an annualized basis was 3.3% for the first 9 months of 2020, slightly increased from 3.2% for the first half of 2020. The consolidated ROE, on the right-hand side, was maintained at 23% compared to the previous quarter. The formula for ROE exclude the preferred shares.
Next slide, Slide 14. The consolidated delinquency ratio, on the left-hand side, at third quarter end was slightly improved to 2.8%. Later in the presentation, I will talk about each region in more detail.
Moving to the right-hand side. Allowance to loan portfolio ratio maintained at 2.5% compared to previous quarters.
Moving on to segment review. Let's look at our operation performance region by region.
Under Slide 16, Taiwan loans portfolio reached TWD 219 billion at third quarter-end 2020, representing 15% year-over-year growth, and year-to-date was up 10%.
The new disbursement for offshore lending, used car financing and lending in my core business continued the business momentum for the quarter. We expect Taiwan loan portfolio will outperform our original target.
Next slide, Slide 17. This page presents trend of our Taiwan loan yield and funding costs. We maintained steady interest rate in the narrow range of 6.6% to 6.9% for the past 3 years.
Turning to Slide 18. This slide shows you the change of our Taiwan fee income as we can see business momentum continued for the quarter.
Moving on to Slide 19. Revenue for our Taiwan operation for the first 9 months of 2020 reached TWD 22 billion, representing 18% year-over-year growth. The faster revenue growth compared to the portfolio growth was because Solar asset was not included in the loan portfolio.
For the first 3 quarter of 2020, Solar business accounts 13% of Taiwan revenue and Solar net asset grew mid to high teens year-over-year. For the quarter-over-quarter comparison, on the right-hand side, third quarter revenue was TWD 7.8 billion and grew by 6% quarter-over-quarter.
Turning to next slide, Slide 20. Taiwan's profit for the first 9 months of 2020 grew by 21% compared with the same period last year. Faster bottom line growth reflects the decrease of cost-to-income ratio this year.
The third quarter Taiwan net profit was TWD 2.6 billion, which grew by 13% quarter-over-quarter, as cash dividend from investment was recognized this quarter.
On Slide 21. On the left-hand side, Taiwan delinquency ratio at third quarter was down 0.2 percentage point to 2.7%, mainly driven by fewer write-offs for the quarter. If we look at the new delinquent amount this quarter, it decreased from prior quarter. On the right-hand side, recovery from delinquency was slightly up for the quarter.
Next slide, Slide 22. Allowance to loan portfolio for Taiwan maintained at 2.1% this quarter.
Let's start China operation on Slide 23. China total loan and receivable reached TWD 160.8 billion at third quarter-end 2020, which grew by 22% year-over-year and 10% increase year-to-date.
This quarter, China picked up the business momentum from prior quarter, which increased the new loan disbursement. We expect China loan portfolio growth will exceed our guidance, which is 5% to 10% this year.
Turning to Slide 24. This page shows the loan yield and cost of fund trend for our China operation. We continued to maintain stable spread of loan yield and cost of funds were up for the quarter.
Next slide, Slide 25. This slide shows you the trend of fee income in China. Compared with prior quarter, fee income increased for third quarter as new loan disbursement picks up.
Next slide, Slide 26. China revenue for the first 9 months of 2020 totaled TWD 16.3 billion, decreased 14%, as sales revenue recognition changed this year. If we use the same math as last year, the year-over-year revenue for first 9 months 2020 grew 19%. The sequential increase of top line growth, on the right-hand side, was driven by picked-up business momentum.
Moving on to Slide 27. China for the first 9 months of 2020 net profit reached TWD 5.9 billion, increased by 11%. The slower growth compared to top line was mainly driven by more expected credit loss booked due to COVID impact this year.
On the right-hand side, China's third quarter net profit was up 8% sequentially, reflected top line growth.
Turning to next slide, Slide 28. On the left-hand side, China delinquency ratio in the third quarter decreased to 2.3% from 2.4% in prior quarter, mostly driven by higher loan portfolio growth and less new delinquent amount this quarter. On the right-hand side, write-off amount reduced for the quarter compared to the prior 2 quarters.
Next slide, Slide 29. China's allowance to portfolio ratio for third quarter was slightly up 0.1% percentage point to 3.7%, mainly due to a less write-off for the quarter. We expect this ratio will maintain stable.
Moving to ASEAN on Slide 30. The total loan and receivable at third quarter end 2020 reached TWD 63.6 billion, up 5% year-over-year and flat year-to-date growth, due to depreciation of ASEAN currencies against the NT dollars this year, ASEAN loan portfolio will have a better growth if we denominate it in the local currency.
Let's turn to next slide, Slide 31. The left-hand side, ASEAN revenue for third quarter totaled TWD 4.9 billion, grew only 4% compared to the same period last year, as Vietnam sales revenue recognition changed this year. On the right-hand side, ASEAN's third quarter revenue was up 8% sequentially.
Moving to the next slide, Slide 32. ASEAN first 9 months of 2020 net profit reached TWD 1 billion, increased by 13%. On the right-hand side, ASEAN's third quarter profit was also up 3% sequentially. The slower bottom line growth compared to the top line was due to more expected credit loss in Thailand for the quarter.
And this also 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 open the line to questions. Operator?
[Operator Instructions]
And the first question is coming from Yafei Tian of Citi.
I have a few questions, if I may. The first one is that the loan growth this quarter is very strong. Would it be possible to give an updated guidance of loan growth for the group?
And maybe also the loan growth target for Taiwan and China, as you mentioned, that they are likely to exceed the prior guidance?
The second question is around asset quality. You mentioned that the allowance ratio is going to be stable. It looks like asset quality in Taiwan and China are broadly stable as we get into the quarter. I just wanted to get a bit of understanding with the details in China, what is the current early alert that you previously highlighted when those loans come out of those interest moratorium programs? So I'll stop here and maybe another question later.
Okay. Regarding the growth -- portfolio growth guidance, actually, I think it's already November now. So management, we don't change our official guidance.
But just in our presentation, we are confident that we will outperform the original target, which is like 5% to 10% portfolio growth for both Taiwan and China.
It's very likely that both China and Taiwan will outperform and -- which means our portfolio growth will be more than 10% and -- for the whole year.
The second question, about the asset quality and the allowance provision level. Actually, although we already see quite obvious improvement of the -- actually, it's quite stable for the asset quality and our delinquency ratio for China also like gradually decreased from the previous quarter.
But I think we still need -- because the COVID thing hasn't like ended yet, so the management still prefer to see more confirm trend about this potential impact.
So so far, we didn't make a big change, but we will gradually reflect this kind of improvement and gradually like lower the provision level in the following quarter. But it won't be a big change of the single quarter.
So would it be possible to share with us some early indicators in terms of delinquency in China? You used to share that you are able to recover like 99% plus loans, right? So yes, those data, if you can share with us?
Okay. So account receivable collection rate, actually, for the recent 2, 3 months has been quite stable, around 99.1%, 99.2%.
So not really back to the highest level in the past, like 99.5%, that kind of level. But it's already back to 99.2%, 99.1%.
Okay. And is it also possible to share how much loans in China and also in ASEAN are currently under interest or principal moratorium and the performance of those loans in moratorium?
You mean for those we offer special program? Actually, in the Chinese session, our CFO share his view on this because it has been like 3 quarters already since we adopt this special program in China.
And originally, we communicated about 5% under this -- about 5% of the portfolio -- China portfolio under this kind of program. But actually, it's already -- most of the -- I mean all of the forbearance loss still follow the same -- exactly the same definition of the delinquency definition.
So right now, you can just look at our overall delinquency ratio. So for those -- under the special program, if there's no on time payment after 30 days overdue, it's already brought into the delinquency pool.
So it's better for you to look at this more timing information about the overall delinquencies for China. So for us, it's not necessary to follow this small pool of the portfolio going forward.
I understand. How about in ASEAN countries? I understand the moratorium, probably some are still in moratorium. The situation is a bit more challenging than in China.
Because for our ASEAN, Thailand still account for 65%. It's still the majority. So roughly, Thailand, it's about 10% of the portfolio still under this kind of special program.
And the rest of the ASEAN operation except the Philippines actually has been gradually stabilized. And also Thailand shows some improvement in this quarter, in the third quarter. So so far, it won't has a big like profit impact to the whole group.
The next question is coming from Edwin Liu of HSBC.
I have several questions here. First one is on your preferred shares issuance. So just would like to get more idea in terms of the cap of how much you can issue.
So in my calculation, for example, your common shareholder equity probably double in the next 5 years. And I just wonder, in fifth year, would you be able to further issue more preferred shares so that you don't have the need to issue common equity?
So that's my first question. A second one is on ASEAN. So I see that in the third quarter, the momentum in ASEAN actually picked up quite well. So I just wonder where the growth is coming from. Is it from Thailand or other country? Appreciate any color on this.
Okay. About the preferred share plan, actually, this is the first time we issued the preferred share. Management still keep this as an option for the future plan if we need to raise more equity to support continuous growth.
But I think we keep every master open, like also, we will also consider like we issued a GDR in the past. And so we won't just exclude any other possible tools.
And about the ASEAN growth, actually, in terms of portfolio growth, if we take into consideration of the FX impact, actually, ASEAN has grown more than 0%, which is our original guidance, and so -- mainly comes -- still comes from Vietnam and Malaysia. Thailand is still quite benign. And yes, that's about the growth from ASEAN.
If I can just quickly follow-up with some minor question's. First one is cost-to-income ratio, you mentioned the improvement is due to less operating expense due to COVID-19 impact.
May I know, is it related to like travel expense or more related to employee costs? Because I'm thinking, if it is coming from a reduction in employee cost, does that mean that your recruitment plan is behind schedule?
Second line of question is on -- a second line of question is on the spread in China. It seems expanded a little bit. Just wonder, is there any improvement in terms of the pricing that you see on the ground?
Okay. About the headcount, actually, we continue to increase the headcount to support our long-term growth plan.
So the OpEx decrease is more because of less travel, that kind of related expenses. And about the China spread, actually, like in the presentation, like within 30% bps, the variation to us is quite normal. We didn't change the pricing. We didn't change -- our funding cost also quite stable. So it's just within the reasonable range.
And the next to ask question is from Gurpreet Sahi of Goldman Sachs.
May I now basically follow up from the topics that have been touched previously? So can I ask, why do the cost ratio very good at around 28%? As things become more normal, collections or travel or meeting your clients, et cetera, how does the management see over the next 1 or 2 years?
Is this trending higher? Because the old guidance we had was around 30% cost-to-income ratio. And at 27% -- 28%, it is very strong. So that's my first question.
And second, any guidance on credit costs? We know that the allowance to loans ratio is very high, relatively okay or high in China. And then broadly, asset quality is not deteriorating.
And then YTD credit cost was around 1.6%, 1.7%. So as macro improves, will you -- will the management be comfortable to let the allowance to loans ratio maybe dip a bit, and so can, in the next 2 years, the credit cost be lower than this year?
About this cost-to-income ratio, if you compare to last year, last year the cost-to-income ratio before the COVID-19 impact is about 29%.
So this year, further down to like 28%. I think if we go back to a normal growth momentum starting from last year, probably you can take the last year as a benchmark. I think -- because this year, almost all the travel just totally stopped. So this kind of expense like put this ratio down a little bit.
Regarding the credit cost, because this year, our credit cost is increased from last year, with -- so far, the current credit cost is probably around 2% level.
And for the next year, for sure, if the trend continues, as the asset quality trend continue, for sure, it will be lower for next year compared to this year.
[Operator Instructions] And the next question is coming from Anupam Mathur of Goldman Sachs.
I have a few questions. So I'll just go one by one. So firstly, on the restructured book. I just wanted to understand, we talk about this 5% of the portfolio under restructure.
But now since they are acting normally, why are we still looking at this 5%? Like why are we still monitoring like a separate 5% portfolio?
It's in the different pool. We also keep it in a different pool. But actually, we are more monitoring the overall because it already has been 3 quarters.
If they has maintained the 3 quarters regular payment, I think we just -- theoretically, that's treated like the other pools.
We just need to follow -- we just need to monitor the overall delinquency pool, including the delinquency pool from the -- from those parent loan.
But we still have a separate record for those parent loans. But it's simply not necessary for us to calculate the separate delinquency ratio for those forbearance. It has been 3 quarters.
Is it separate driven by regulatory requirements? Or is it internally? Like why -- if there is -- this type of portfolio?
Yes. It's more internally maintenance reporting.
And till what time will you plan to monitor them as a separate pool?
If they were gradually just retired according -- as followed by the new schedule. And you will be -- yes, it will be fall into delinquency pool if they over past -- overdue by 30 days, just using exactly the same definition.
Okay. Understood. My second question is on the provisions. I see that we have -- so you seen a Q-on-Q jump in provision expenses.
My question is what is driving that, because the delinquency seems to be quite stabilized, so what is driving the Q-on-Q jump in provisions? And is it driven by, say, China?
Yes. Yes. For Q1, we set aside some special provision for those special program under the grace period or restructuring program. It's kind of one-time.
So if the portfolio is performing all right, then why do we need that extra provision so far? Also what is the reason?
You mean compared Q3 to Q2?
Yes.
All right. Q3 is because of a much stronger new business. For every new business, we set aside provision upfront, kind of so-called a general provision, yes.
Okay, okay. So it's mostly driven by market. Okay. Portfolio growth but not any specific volume?
Yes. Yes, yes.
Okay. And on the fee income side, especially in China, like could you give a breakdown? Like are we at the normalization stage? Or like what portion is deferral versus the current business momentum?
Just to get a clear sense like -- because the growth has been quite strong year-on-year, partly driven by deferral, so how to think about fee income going forward?
Supposedly, because we start to do the fee amortization like in year 2019, so this is the second year. And usually, we need to amortize over 3 years, for the 3 years leasing term, leasing contract.
So supposedly, after 3 years, it will be normalized. The -- it will be more in line with the new business growth rate.
And during in -- in the meantime, it's kind of complicated to separate because -- so probably internally, I don't have this split.
Okay. Understood. And just one final question from my side is, have you decided on any growth targets for next year?
I understand we are going to beat guidance this year. But how are we thinking about -- given we have so much capital now, how are we thinking about growth in Taiwan and China maybe next year or maybe a medium-term growth outlook?
Usually, our CEO will give the guidance at the year-end results call, which is about March next year.
Right now, we are in the process of doing next year's business planning and budget planning. So this time, we haven't had this number final yet.
Right. But when we mentioned that this capital is enough for 4, 5 years, we must have some reference point in mind in terms of target for -- Maybe not exact target of next year, but maybe a range of growth we are looking to target over the next 3 to 5 years. So I'm just curious, like what is our internal thinking about that?
Okay. This is not official guidance. Just if you -- if we believe the COVID-19 thing has gradually behind us, and next year, we will be going back to the normal, probably, it's -- there's a possibility that we can go back to the growth about 2019 kind of growth pace.
And next, we'll have Yafei Tian of Citi for questions.
So I just have a follow-up related to the credit cost guidance you gave earlier. Did you say that next year's credit cost will be lower than this year?
Are we talking about the absolute reported loan losses number? Or are we talking from a ratio perspective?
It's the ratio. Because when we grow the portfolio, like we mentioned, the amount will be increased, definitely, yes.
[Operator Instructions] And the next question is coming from Edwin Liu of HSBC.
So just one quick final follow-up question. You have this fiscal repay from Mainland China every year. I know it's sustainable. But can you give us more idea about how we should forecast it?
Maybe it is -- is it relating to how much revenue we generate every year from Mainland China or related to other factors?
Can you repeat your question? Sorry.
I'm sorry. Sorry, my line may not be that good. So just -- you know this, you have the fiscal repay from Mainland China every year. Can you give us some idea -- Sorry, the fiscal repay?
Fiscal repay? Okay. Okay. So how should we -- you forecast the amount?
Yes. Is it related to the revenue you generate every year?
It's related to the tax we pay. The tax -- the more tax we pay, the more we can get back as the incentive.
And next, we'll have Gurpreet Sahi of Goldman Sachs for questions.
Small follow-up on the preferred shares. So how much is the issuance amount, the dividend yield? And hence, how much will the impact be on the profit? So that we can get a rough sense of the drag on profit for next year.
Okay. This time, we raised TWD 15 billion from preferred shares program. And the coupon rate is 3.8%. Yes.
And there are currently no questions. We thank you for all your questions. We thank you for your participation in Chailease conference. You may now disconnect. Goodbye.
Thank you.
Bye.
Thank you. Bye.