Chailease Holding Company Ltd
TWSE:5871
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Chailease Holding Company Ltd
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Welcome to the Chailease Third Quarter 2021 Earnings Release Conference Call. [Operator Instructions] And now I would like to turn the call over to Kimberly Lian, the Project manager of the Chailease Holdings. Ms. Lian, please go ahead.
Thank you. Hello everyone. Thank you for joining us today for our third quarter 2021 results conference call. I'm joined by Ms. Sharon Fan Head of IRD, and she will be open for your questions after management presentation. Now let's begin the presentation by turning to Slide 3. This slide includes management highlights for the third quarter, followed by the consolidated performance review and segment review for our major operations, including Taiwan, China and ASEAN operations.
Now, let's turn to Slide 4 to highlight and summarize our performance of 2021. First of all, the summary table here shows you the loan portfolio growth for each of our main operating regions for year-over-year and quarter-over-quarter comparison. On a year-over-year basis, Taiwan, China and ASEAN loan portfolio grew 19%, 16% and 13% respectively. On a consolidated level, we achieved 17% year-over-year loan portfolio increase as for year two third quarter portfolio growth, Taiwan increased 14%, China increased 4%, ASEAN increased 6% and this resulted in a 9% growth on the consolidated basis.
We expect consolidated loan portfolio continued to grow in line with the yearly guidance. Second, overall asset quality remained stable with slightly increased delinquency ratio in ASEAN. However, the delinquency ratio for our two major operation regions, Taiwan and China remained the same as previous quarter. Third, the company announced newly setup Indonesia operations, which is headquartered in Jakarta. At current stage, our Indonesia operation will focus on second-hand car financing as their main products.
Now, let's move to the next session. Third quarter performance review. Moving to Slide 6. Consolidated loan portfolio reached TWD525 billion at the third quarter end, with 17% year-over-year growth rate and 9% year-to-date increase, which is pretty much in line with our 4 year growth targets. The next slide, Slide 7, shows 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 spread with slightly increased loan yield in recent quarters.
We will discuss the change of each operation regions in the next section. Next slide, Slide 8. On the left-hand side, the consolidated revenue for the first 9 months reached TWD52.8 billion, representing 21% growth compared to the same period last year, mainly driven by the portfolio growth. On the right-hand side, third quarter consolidated revenue increased 3% from the previous quarter, which was contributed by all of our three main operating regions. Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 9 months of 2021 totaled TWD16 billion -- per share was $10.93 million.
The EPS already reflects the deduction of the declared preferred share dividend for the year of 2020. The higher bottom line growth versus top line growth was mainly due to less expected credit loss booked in China and improved overall cost-to-income ratio. On the right-hand side, third quarter consolidated net profit was flat quarter-over-quarter as Taiwan's net profit was down by 2% for the quarter. Turning to Slide 10. This slide shows you the loan portfolio mix and profit contribution in terms of operation regions.
On the left-hand side, we can see Taiwan business still account for one-half of the group total loan portfolio. China is about 36% and ASEAN maintained 14% at third quarter end. On the right-hand side, owners net profit contribution accounts for 46%; China, 48% and ASEAN 6% to the consolidated net profit. Turning to Slide 11, the chart on [indiscernible] for the first 9 months due to improvement in the operational efficiency compared to previous years. The chart on the right-hand side, asset to equity maintained at 6x for the quarter.
Slide 12. The consolidated return on asset was 3.6% for the third quarter of 2021, which improved compared to the previous year due to better profitability. The consolidated return on equity on the right-hand side -- the quarter. The calculation for ROE is excluding preferred shares. Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at third quarter end was slightly increased 0.1 percentage point to 2.4% because of Myanmar's operations was affected by the COVID outbreak after May this year.
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 2.4% compared to previous quarter. Moving on to the segment review. Let's look at our operation performance region by region. Slide 15, Taiwan's loan per quota reached TWD262 billion at third quarter, representing 19% year-over-year increase and year-to-date was up 14%. The new disbursement from microfinancing, shipping and consumer used car financing remained a major growth driver for the quarter.
Slide 16. This slide shows the change of Taiwan Solar Asset. Taiwan Solar net asset reached TWD35 billion at third quarter end, representing 20% year-over-year increase and year-to-date growth was up 13%. The solar asset accounted around 9% of Taiwan's total assets. Next slide, Slide 17. This page presents trend of our Taiwan loan yield and funding costs. In recent quarters, the loan year slightly increased are due more to the product mix change as we grew more in microfinancing and car financing. The gradually improved cost of funds was mainly due to Taiwan's low interest environment and improved company's credit profile.
Moving to Slide 18. Revenue for our Taiwan operation for the first 9 months reached TWD26.4 billion, representing 19% year-over-year growth. The revenue -- the solar revenue accounts 13% of Taiwan's revenue for the first three quarters of 2021. For the quarter-over-quarter comparison on the right-hand side, third quarter revenue grew by 4%. Slide 19. Taiwan's profit for the first 9 months grew by 24% compared with the second quarter last year. Higher bottom line year-over-year growth reflects improved cost-to-income ratio, as mentioned earlier.
The third quarter Taiwan sale profit decreased by 2% quarter-over-quarter as more OpEx booked, mainly headcount-related expenses were booked in this quarter compared to previous quarter. On Slide 20, on the left-hand side, Taiwan's delinquency ratio at third quarter 2021 was maintained at 2.3% for the quarter. Slide 21. Allowance to loan portfolio for Taiwan maintained at 2% this quarter. Let's start China's operation on Slide 22. China's total loan and receivable reached TWD187 billion at third quarter end of 2021, which grew by 16% year-over-year and 4% increase quarter-over-quarter.
For China, as the business momentum continues, so far, we stick to our yearly growth target. Turning to Slide 23. The page shows the loan yield on trends from our China operations. We continue to maintain stable spread over the quarters. Slide 24. China's revenue for the first 9 months of 2021 totaled TWD20.3 billion, increased 25%. The growth was driven by better growth of interest income and fee income. The sequential increase of top line growth was 4%. Moving on to Slide 25. China for the first 9 months of 2021 net profit reached TWD9.5 billion, increased by 48%.
The higher growth compared to the top line was mainly driven by less expected credit loss and improved cost-to-income ratio this year. On the right-hand side, China third quarter net profit was up 5% as business momentum continued and slightly improved expected credit loss for the third quarter compared to second quarter. For cash repaid, about TWD36 million was recognized in the third quarter versus TWD34 million in second quarter. Turning to next slide, Slide 26. On the left-hand side, China's delinquency ratio at the third quarter was maintained at 1.8%.
On the right-hand side, both write-offs and recovery from delinquent amount increased compared to prior quarters. China's allowance to portfolio ratio on Slide 27 shows the third quarter was slightly decreased to 2.5%, as more write-off this quarter compared to the prior quarter. The level at third quarter remains efficient. Turning to ASEAN on Slide 28. Total loan and receivable at third quarter end reached TWD72 billion up 13% year-over-year and 6% year-to-date. The portfolio growth was flat quarter-over-quarter, mainly because of Vietnam's slowdown due to the COVID impact in the third quarter.
The remaining operation regions, such as Malaysia and Thailand was less impacted by the COVID and our full year growth target for ASEAN remains the same. Turning to next slide, Slide 29. On the left-hand side, ASEAN revenue for the first three quarters totaled TWD5.7 billion, grew 17% compared to the same period last year. On the right-hand side, ASEAN's third quarter revenue was up 2% sequentially. Moving to Slide 30, ASEAN's first 9 months of 2021 net profit reached TWD1.6 billion, increased by 62% due to improved cost-to-income ratio and less interest expense.
On the right-hand side, ASEAN third quarter 2021 net profit grew by 11% sequentially. The last slide, Slide 31. On the left hand side, ASEAN's delinquency ratio at the third quarter increased 0.6 percentage point to 3.9%, and this has resulted from the COVID impact on Vietnam in the third quarter. On the right-hand side, ASEAN's allowance to portfolio ratio at the third quarter 2021 was maintained at 3.4%. And this also brings to the end of my presentation for today. The presentation I'm giving today will be available for download at our official website at www.chaileaseholding.com. Thank you for your time. And now I would like to turn the call to open the line for questions. Thank you.
[Operator Instructions] The first question is coming from Gurpreet Sahi of Goldman Sachs, Hong Kong.
Sharon, Kimberly and Vic how are you? I just have two simple questions. First is on Taiwan loan book, can you guys give us a clear split on how much of the Taiwan loan book is traditional portfolio leasing? And then the second part being consumer financing, excluding Zero Card, how much is Zero Card and then how much is car and other micro financing and how much is solar business. So like the four or five buckets of different portfolios within Taiwan, how much of the total in percentage are they? And how fast are they growing? Any sense would be great? And then I will have a second question later on.
Okay. In terms of the business mix for our Taiwan portfolio, actually, the Zero Card business is relatively new product, we start to put more growth targets starting from recent years. So, it only accounts for like 4%, 5% of the Taiwan total book. So, it still accounts for a small portion. And as we mentioned in the presentation, I think the faster growth driver for Taiwan is more like both micro financing, which I think is around 15 to 20 kind of percent growth rate. And for that part, probably accounts for around 10% to 15% of Taiwan book.
And solar is separately around 9%. Did I hear that correctly? Sorry...
9% around 10%, yes.
Okay. So it seems like so microfinancing and all kinds of consumer financing added up together would be roughly 30% of total. And so 70% is traditional leasing as we understand it and how fast is that growing? Can you give us?
Yes, for the remaining is our traditional leasing-related business. But let me remind you, the solar asset actually didn't include in the portfolio -- in the account receivable, actually, it's booked as fixed assets. So -- this contributed quite a major portion of our revenue growth.
Okay. So traditional business growing slow, let's say, slower than, let's say, micro financing and consumer, other kind of consumer, which is growing at 15%, 20%. Is the traditional business growing at -- still growing at high single digit or is it also double digit?
I think it's around 10%.
Okay. Cool. That makes sense. And then finally, on the first question, sorry for so many parts. Zero Card or any type of buy now, pay later experiment or kind of early moving that the company is doing. Do you have confidence now that you can take it to another market or it's still too early?
Actually, this product is not totally new for the company. Actually, we have been trying to provide this kind of services many years ago, just through the traditional physical partners through the physical stores, retail store. Just in recent year, we tried to leverage this new technology to make it online to cooperate with more online shop, both platforms. So, I think at the first stage, we try to increase our member. So for this year, I think our target member acquisition is to acquire 1 million of the member, so that we can gradually grow this business.
And if you acquire 1 million, how many merchants will you have in total?
How many?
Merchants members.
We already achieved probably 70%.
Okay. Understood. And then second part is on ASEAN delinquency rise in Vietnam, so any kind of review that the management has conducted of the book or if I ask differently, how much of a decline in credit quality are we supposed to see or do you see that it's already behind us?
I think for the ASEAN -- for this quarter, because Vietnam was impacted by the COVID outbreak starting from August, September, so it really impacted our asset quality for this quarter. The delinquency ratio for Vietnam increased to 4-point something percent. So we try -- we already set a more position to reset the higher delinquency ratio. But I think the city lockdown already relieved and hopefully that in the fourth quarter, we can gradually get back to more level operations.
[Operator Instructions] And next we'll have, Jemmy Huang of JPMorgan for questions.
Just one, trying to figure out that after you contact all your customers in China, could we get a little bit sense in terms of what percentage of your customers in China currently are -- their businesses are affecting by the power restrictions? And then also, how you perceive the potential impact of the portfolio growth and also the asset quality into the coming quarters.
Okay. Regarding this power supply restriction in China, it has been almost a month and after some internal research, actually, we see probably this more impact in some cities like Shenzen, Wenzhou or Suzhou and those higher impact cities, probably account for less than -- less than 10% of our total operating in China. But actually, I think after one month, actually, what we observe is that -- on the ground is that it's more and more normalized the power control process. So actually, majority of our SME like [ cars ], they can just like gradually operate under this normalized pace of the power control. So hopefully, this kind of impact will gradually like minimized.
And also according to some news, we heard from the China government actually policy wise -- the government also want to make these kind of power control in a more normal way and regular way. So hopefully, this kind of impact will be gradually decreased going forward. But of course, we will continue to have a monitor and if there's any update we can share with you.
[Operator Instructions] The next question is coming from Gurpreet Sahi of Goldman Sachs, Hong Kong.
A small follow-up. Cost-to-income ratio at around 25% or 26% level, but typically in the fourth quarter, there is a jump in the ratio for that quarter. So some year-end expenses may be booked. Can we assume that the normal seasonality will repeat this year?
I think so for this year, we can expect this kind of ratio should be roughly at this level. Yes, although usually, historically, we will have a higher OpEx in the fourth quarter because of some -- like year-end kind of expenses. But actually, it won't have too much like variance quarter-over-quarter or for the accumulated number. So, I think this cost-to-income ratio level should be quite stable going forward.
At around 25, 26, you mean, right?
Yes, yes.
And the next question is coming from Anupam Mathur of Goldman Sachs.
So I have two questions. Firstly, on China delinquency, it t seems to me that NPL formation has -- new NPL formation has slightly picked up quarter-on-quarter. So what is the reason and which sector have we seen the pickup?
Actually, as our current operating scale business scale in China with 52 branch and this quarter's level of the new delinquency actually is still within the normal range. If you can look back to our historical data per quarter, it's about RMB100 million around this kind of level. So we've done -- internally, we still think this is a quite normal level. Quarter-over-quarter, they will have some variation, but it's still in the normal range.
So in terms of provisioning, our current provisioning has been lower than historical run rate. So, we expect provisioning to pick up back to the previous run rate we had, like a higher level like 2% or 2.5%?
I think regarding the profit provision level actually, it really depends on how our asset quality evolve. So if you look at our past couple of quarters, delinquency ratio actually is very stable at 1.8%, 1.9%. So, that's the reason why if you compare to last year, we don't need to set such a high provision ratio. So, I think the provision ratio from 2.7% last quarter, down to 2.5% this quarter it's just gradually to reflect our stabilized asset quality compared to last year.
Right. But what I'm asking is for stabilization of that ratio, we would need to increase if we are back -- like if I look at last quarter, our NPL formation was lower than normal levels right? Now it's coming back to normal levels, so does it mean that provisioning also needs to go back to normal levels otherwise, this allowance ration will continue to decline right?
When we like evaluate -- provision level is adequate, sufficient or lot internally, we have a risk model, and we will factor in most updated data into that model and do some of that test. It's not just 100% look at the current quarter number, so according to this kind of process, we had this provisioning level for this quarter. I think those are -- as I mentioned, it's mostly flat -- mostly our past like 3 years to 5 years and most recent report. And yes, I think it will really depend on how our next quarter -- the following quarters -- our delinquency ratio that asset quality evolves. If our delinquency ratio continue to maintain at the current level, I think this provision ratio will be quite sufficient.
Okay. So maybe to ask another way. So in terms of asset quality, we are not seeing anything unusual because of these power shortages or say, property market issues, we are not seeing anything unusual. It's a normal run rate for us on the ground?
No. There's no significant unusual trend so far. As you know, we also monitor one early indicator, which is our monthly account receivable collection rate. For that collection rate is still maintained at a quite good level.
I'm sorry, what is that level?
Mostly account receivable collection rate.
Right, right. Previously, we used to give that number, right? Something closer to 99%, 98%.
Yes. 99% something. We didn't see any significant change of that rate, yes.
Okay. Okay. The second question I had was on the China portfolio growth. So YTD, it's tracking only 4% and 6% in RMB terms, while our original growth forecast was 15%, 20%, right. So, this seems quite a large gap to fill. So, are we going to miss on our guidance?
No. If you look at the year-over-year growth rate still has 15% and historically, you can see we always has a better growth momentum in the fourth quarter. So I think our management still want to stick to our original growth plan.
Okay. But again, sorry to be repeating myself. But again, from these issues regarding some of the slowdown, we are not expecting a slower growth than original expectations?
Because the growth target is a range. So, I think it's just a matter at which end of the range we will achieve. So, we still maintain the target.
Okay. So which end are we targeting now? It's at the lower end now?
We didn't change our annual guidance, yes.
[Operator Instructions] And Kimberly, there are currently no questions at this point. Thank you.
[indiscernible]
And ladies and gentlemen, we thank you for your participation in Chailease's conference, and this is the end of the call. You may now disconnect. Goodbye.
Bye-bye.