Chailease Holding Company Ltd
TWSE:5871
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Chailease Holding Company Ltd
Earnings Call Analysis
Q3-2024 Analysis
Chailease Holding Company Ltd
In the third quarter of 2024, Chailease Holdings reported a consolidated credit portfolio growth of 5% year-over-year, reaching TWD 825 billion. However, this growth was driven by regional variances: Taiwan (up 2%), China (up 4%), and ASEAN (up 10%). The slower growth, particularly in Taiwan, reflects a decrease in credit appetite in response to a challenging macroeconomic environment. Consolidated revenue for the first nine months of 2024 was TWD 76.9 billion, marking a 6% increase compared to the previous year.
The consolidated net profit for the first nine months of 2024 totaled TWD 18.4 billion, with earnings per share at TWD 10.83. This represents a year-over-year decrease primarily due to higher expected credit losses and a decline in tax rebates, especially in China. In the third quarter alone, net profit declined by 4% quarter-over-quarter, largely attributed to reduced tax rebates.
Taiwan remains the largest segment, contributing 55% to the total credit portfolio and about 49% to the net profit. However, growth was stunted due to challenges in the used car financing sector, which has seen a reduction in its contribution from about 14% to around 10%. Conversely, ASEAN operations delivered robust growth, with a 10% increase in credit portfolio driven mainly by Malaysia.
Chailease Holdings maintained a cost-to-income ratio of 27% for the first nine months of 2024, a slight improvement from the previous year. However, the return on assets (ROA) fell to 2.6% from 2.9% year-over-year due to decreased net profit. The return on equity (ROE) stands at 6%, reflecting a decline in leverage and overall profitability.
The consolidated delinquency ratio increased to 3.7%, up from 3.5% in the previous quarter, indicating rising credit risk. For Taiwan specifically, the delinquency ratio ticked up to 2.8%. In China, the delinquency ratio surged to 4.5%, exacerbated by economic uncertainties, leading to higher provisions for credit losses.
Looking forward, guidance suggests that credit costs in China may be slightly higher than the previously stated 3%. The portfolio growth outlook remains subdued with expectations for flat growth across the group, influenced by macroeconomic conditions and ongoing credit quality challenges. Guidance for the overall strategy includes maintaining a spread target around 10% despite changing risk dynamics in the market.
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Welcome to Chailease Third Quarter 2024 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. And for your information, a 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, Project Vice President of the Chailease Holdings. Mr. Wang, please begin.
Thank you. Hi. Good evening, everyone. I would like to warn everyone to Chailease Holdings Third Quarter 2024 Earnings Conference Call. With me this evening is Ms. Sharon Fan, Head of IR, and she will 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 2024 consolidated performance review followed by the segment review for our Taiwan, China and ASEAN operation --
With no more delay, I would like to start the presentation from Slide 4. Highlights for overview of our third quarter 2024 operation results. First, the summary table here shows the credit portfolio growth for the quarter. On a year-over-year basis, Taiwan, China and ASEAN credit portfolio grew 2%, 4% and 10%, respectively. On a consolidated level, we achieved 5% year-over-year credit portfolio increase. As for year-to-date portfolio growth, Taiwan increased 2%, China increased 1%, ASEAN increased 9% and 4% growth on a consolidated basis. Slower than expected portfolio growth reflected current macro environment and the company's decreased in credit appetite.
Second, as we continue to maintain the interest spread in China, current credit cost levels is within acceptable range. We also drove to improve cost-to-income ratio this year and maintain operational efficiency.
Moving on to Slide 6. Consolidated credit portfolio reached TWD 825 billion at third quarter in 2024 with 5% year-over-year growth and 4% year-to-date increase.
The next slide, Slide 7, shows you the trend of consolidated average loan yield and cost of funds for the past 3 years. In recent 2 quarters, as we saw a slightly increase of funding costs, mainly due to Taiwan increased benchmark rate of 12.5 bps in the first quarter 2024. We will discuss the change of each operation region in the next section.
Next slide, Slide 8. On the left-hand side, the consolidated revenue for the first 9 months of 2024 reached TWD 76.9 billion, representing 6% growth compared to the same period last year as Taiwan and China remain growth driver. On the right-hand side, third quarter 2024 consolidated revenue was also up 2% from the previous quarter.
Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 9 months of 2024 totaled TWD 18.4 billion, and earnings per share was TWD 10.83. The year-over-year decrease in profit was mainly driven by more expected credit losses were booked and the less tax rebate received for China. On the right-hand side, third quarter consolidated net profit was down 4% quarter-over-quarter, mainly due to less tax rebate in China was booked compared to prior quarter.
Turning to Slide 10. This slide shows you credit portfolio mix and the profit contribution in terms of operating region. On the left-hand side, we can see Taiwan credit portfolio still accounts for 55% of total group credit portfolio. China is about 30% and ASEAN is 15% at third quarter end 2024. On the right-hand side, Taiwan's net profit contribution accounts for 49%, China was 43% and ASEAN contribute 5% to the consolidated net profit.
Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio slightly decreased to 27% for the first 9 months of 2024 compared to the same period last year. The chart on the right-hand side, asset to equity slightly decreased to 5.5x from 5.8x in second quarter as we receive the proceeds from the new shares issued.
Slide 12. The consolidated ROA on an annualized basis was 2.6% for the third quarter of 2024, decreased from 2.9% in 2023 mainly due to a decrease in net profit this year. The consolidated ROE on the right-hand side was 6% for the quarter as leverage lowered. The calculation for ROE excludes preferred shares.
The next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at third quarter end 2024 was up to 3.7% from 3.5% in prior quarter Later in the presentation, I will talk about each region in more detail. Moving to the right-hand side, allowance to loan portfolio ratio was also slightly up 0.1 percentage points to 2.6% compared to the previous quarter.
Moving on to the segment review. Let's look at our operational performance region by region. On Slide 15. Taiwan's credit portfolio reached TWD 454 billion at third quarter end 2024, representing 2% year-over-year increase and year-to-date was up 2%, the slower than expected portfolio growth was mainly due to intentionally slowdown of used car installment financing business this year. The micro business installment sales and offshore USD business remained the main growth driver for the year.
Slide 16. This slide shows the change of Taiwan net Solar asset. Taiwan Solar net asset reached TWD 57 billion at third quarter end 2024, representing 11% year-over-year increase and year-to-date growth was also up 7%, the growth momentum maintained for the quarter.
Next slide, Slide 17. This page presents trend of our Taiwan loan yield and cost of -- funding cost. The slight increase in cost of fund for third quarter 2024 was mainly due to continue reflecting the rise of 12.5 bps of benchmark rate in first quarter this year.
Moving on to Slide 18. Revenue for our Taiwan operation for the first 9 months of 2024 reached TWD 41 billion representing 6% year-over-year growth. The Solar revenue accounts 14% of Taiwan revenue for the first 9 months of 2024. For the quarter-over-quarter comparison on the right-hand side, third quarter revenue was also up 1%.
Turning to next slide, Slide 19. Taiwan's profit for the first 9 months of 2024 decreased by 2% compared with the same period last year, mainly due to increase in expected credit loss. The third quarter Taiwan net profit was up 5% quarter-over-quarter as we booked more gains on disposal of operating lease assets for the quarter.
On Slide 20. On the left-hand side, Taiwan delinquency ratio in the third quarter 2024 was up 0.1 percentage point to 2.8% for the quarter. As for new delinquent amount for the quarter is slightly increased from the prior quarter. On the right-hand side, recovery from delinquency remained for the quarter, while a write-off amount decreased.
Next slide, Slide 21. Allowance to loan portfolio for Taiwan was slightly up to 2%, reflecting increase in delinquent amount for the quarter.
Let's start China operation on Slide 22. China's credit portfolio reached RMB 53.8 billion in third quarter in 2024, which grew by 4% year-over-year and 1% increase year-to-date. For China economic growth remains low and uncertain in response, we also remain conservative and low-risk appetite for the new loan disbursement.
Turning to Slide 23. This page shows the loan yield and the cost of fund trend for our China operation. We continue to manage to maintain stable interest rate over the quarters, the slightly lower cost of funding reflects the lower LPR and continued adjustment of funding structure.
Next slide, Slide 24. China revenue for the first 9 months of 2024 totaled TWD 25 billion increased 7% compared with the same period last year. On the right-hand side, third quarter revenue was up 2% sequentially.
Moving on to Slide 25. China for the first 9 months of 2024, net profit reached TWD 9.1 billion, decreased 9% compared with the same period last year. The decrease in profit was mainly driven by more expected credit loss this year and less tax rebate was received. On the right-hand side, China's third quarter 2024 net profit was down 17% sequentially, RMB 60 million of tax rebate was recognized for the quarter compared to RMB 170 million in the second quarter of 2024.
Turning to next slide, Slide 26. On the left-hand side, China delinquency ratio in third quarter was up 0.4 percentage points to 4.5%, reflecting China's uncertainty outlook and weakening economy. On the right-hand side, recovery and write-off amount increased for the quarter compared to the prior quarter.
Next slide, Slide 27. China's allowance to portfolio ratio for the third quarter 2024 was maintained at 3%.
Moving to ASEAN on Slide 28. Credit portfolio third quarter in 2024 reached TWD 124 billion, up 10% year-over-year and 8% sequentially, mainly due to the depreciation of NTD this quarter. Malaysia remains the main growth driver for our ASEAN operation this year.
Let's turn to next slide, Slide 29. On the left-hand side, ASEAN's revenue for the first 9 months of 2024 totaled TWD 10.3 billion grew 5% compared to the same period last year. On the right-hand side, ASEAN's third quarter revenue was also up 5% sequentially.
Moving to the Slide 30. ASEAN's first 9 months of 2024, net profit reached TWD 1.3 billion decreased by 29% due to more expected credit loss was booked this year. On the right-hand side, ASEAN's third quarter 2024 net profit was down 15% sequentially due to less nonoperating income for the quarter.
The last slide, Slide 31. On the left-hand side, ASEAN's delinquency ratio in the third quarter was up 0.2 percentage points to 5.1% compared to prior quarter, reflecting Thailand's weakened economy. On the right-hand side, ASEAN's allowance to portfolio ratio for the third quarter was also slightly decreased. 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 Instructions] And our first question will be coming from Gurpreet Sahi, Goldman Sachs.
So first is on the China credit quality. The delinquency made a big surge this quarter. So what was driving this change? Because till this quarter, we were seeing delinquency only rise -- the ratio only rise very modestly every quarter. So what changed? So that's the first question.
And second is with regards to growth, like where are we on the group growth guidance on the balance sheet growth for this year and next year?
Okay. This quarter and China delinquency ratio increased to 4.5%. And I think in terms of the new delinquency formation, although we see some decrease of the growth, the increased rate last quarter. However, this quarter seems to go back to previous quarters, that kind of increased rate. So I think the visibility is still low and if you -- we just released our October monthly number. So I think you can see that our expected credit costs still increased a little bit. So I think this delinquency ratio level for our China asset quality probably will like continue to slightly increase until end of this year.
So regarding the growth guidance, I think this year, we just reported for the first 3 quarters accumulated portfolio growth, which is around the low single-digit growth rate. And I think probably with the current visibility and the current run rate, if we assume the same run rate, probably it will maintain quite flat for this year. And next year, but we haven't kicked off our next year business planning session yet. And I think it really depends on what's our asset quality performance in the near term. We still have 1 quarter to go. And then our expectation of next year's macro economy like development. So yes, we will keep you updated about our next year's plan after we finalize the number.
Okay. Quick follow-up on China, roughly 3% credit cost that we were doing for this year. But then very recently, like this quarter or for October month, as you said, has this 3% reset to a higher level?
So far, I think in the Chinese session, our CFO mentioned that till October, roughly our current credit cost for China is a little bit higher than 3%. And I think with this very limited visibility, probably they will still have some chance of increase a little bit for the next few months. So yes, probably it still 3-point something percent for this year.
Okay. And then any collection deterioration in terms of how our team is reporting collection efficiency in China?
You mean collection? I think we continue to execute our collection like SOP or any like procedure across all the operating regions. Just because right now, we will put more resources to increase the efficiency, effectiveness of the all of collection activity, but that will be a long-term kind of process. So I think currently, probably our recovery rate still maintain a similar level.
Next question, Michael Zhang, Citi.
I just have -- first of all, I have a follow-up question on the October net profit because if I didn't look at it, incorrectly. I think the monthly profit was down about TWD 500 million month-over-month. Could you help us understand what's driving this big decrease in monthly profit? Is it all China credit cost? Or is there something else that's driving this decline in the deposit? And then you also mentioned that the credit cost could be slightly higher than the 3% in China. So is the October run rate much higher than 3%? Or it's still only slightly above this -- the 3% you mentioned previously?
And the second question is on Taiwan. Loan growth because I think this quarter, we are seeing some slowdown in Taiwan loan growth, but some of that is attributed to the decline in auto financing business. Could you give us some color around outside of the auto financing business, how has the SME leasing and other segments have been doing? Any quantitative figure would be very helpful.
And then thirdly, just my last question is on the ASEAN loan growth because this quarter, we see a pretty good loan growth, but probably due to some FX movements. Could you give us some color around the underlying loan growth in the ASEAN region, such as in Thailand or Malaysia?
The first question regarding our October profit I think the slowdown mainly due to the increased in provision expense from China. So that will be mainly related to the China, we set aside more provision.
And the second question about the Taiwan loan growth. Yes. I think in the Chinese session, management explained that for Taiwan portfolio growth this year was mainly impacted by our -- part of our used car financing business, which we have tried to explain in the earlier earnings results call, which is roughly 50% of our used car financing business. For the remaining 50%, actually remain quite healthy and we can continue to maintain the same business momentum. But for this half, I mean, 50% of this used car financing is more related to this, we do the financing through the dealer, the auto agent. That part because there has been a lot of market noises and some -- so we based on market disturbance over a year. And that part, I think, before this turbulence actually accounts for roughly 14%, 15% of the Taiwan portfolio. And right now, over the year, already decreased to around 10% or slightly below 10% of the Taiwan portfolio.
So I think the impact -- the negative impact gradually to decrease. And as our management also mentioned that part, we already deliberately slowed down the new disbursement activity. So right now, we are still at the stage of the retiring amount every month, every quarter is bigger than the new disbursement amount. So the portfolio balance for that part of the business will continue to decrease. And probably that will continue for another 1 or 2 quarters. And we will see. So for that part, clearly our strategy is to make it as a minimum momentum. So next year, then we will see what's the final business plan for next year. And that -- I think that's mainly the reason for the decrease of the Taiwan portfolio for this year.
And for the other BU, the other product like our traditional SME equipment leasing business and some micro business installment financing business actually remain similar growth rate. But as you know, in the past, the used car financing is a very strong growth driver for Taiwan business over the past couple of years. So we have this part a negative impact from that BU. And for the other also generate higher than average growth rate in the past. However, still, I think it's slightly slow -- I mean, the growth rate is a little bit lower than before because the macro environment is not that, I think, still quite moderate. So that's the reason why this year is quite tough in terms of the portfolio growth. So yes, that's 2 factors add together that caused the results.
And in terms of the ASEAN loan growth, I think in the presentation, we mentioned this year, it's only our Malaysia still delivered double-digit growth, which is like 18% for the first 3 quarters this year, and the Vietnam still generate some growth, like low single digits, which is quite an improvement compared to previous year. However, for Thailand still year-over-year, we have like 3% of the decrease in terms of portfolio balance, but because Thailand still accounts for 60% of our overall ASEAN. So that's roughly the ASEAN portfolio growth status, yes.
Can I just follow up on the October number because if we attribute most of that to China impairment, that means that monthly China impairment has risen a lot. Just wondering, are we seeing a corresponding increase in the delinquency rate? And how should we think about November and December because if we are running at this run rate, that means that fourth quarter credit cost could be a lot higher than previous quarter.
If there is no significant change of the major factor internally, externally, I think probably we will go with this run rate of October for the November and December, probably the delinquency ratio will continue to slightly increase a little bit and also the credit cost.
[Operator Instructions] Now we'll have the next one, Gurpreet Sahi, Goldman Sachs.
Sharon and team, follow-up. So let's say, China experience seems to have now been worse than what we would have anticipated. So when we are underwriting new loans, and we still have like whatever, not loans, the portfolio growth. On the new leases -- so like we have 4% Y-o-Y growth. So in the new leases, are we taking into account this experience of credit cost and trying to incorporate it in the spread for future? Or we are still happy with where things are on the yield side?
So far, I think management still want to execute our existing credit policy and maintain the same spread target which is, as you can see, we still want to maintain around 10% of the spread, which is the all-in price kind of spread. And -- but in the recent years, I think we have a slightly change of the mix between fee and the interest part. But we didn't change our pricing actually. Just try to slow down the growth try to mitigate or try to control our credit risk exposure. And so, so far, that's still our -- we will continue to execute the same credit standard.
Okay. And then another one on China is like the Central Bank has been cutting and I do remember last month, there was some cut in the policy rates. So our cost of funds for the fourth quarter should continue to decline by more than what it did this quarter in China?
Yes. I think we will reflect the reduce of the LPR further in the fourth quarter.
Okay. That means the spread can be better in China, right, for the fourth quarter.
Yes.
[Operator Instructions] Okay. Vic, there are currently no questions at the point.
Jason, please end the call. Thanks.
Yes, of course. Thank you. And ladies and gentlemen, we thank you for your participation in Chailease conference. You may now disconnect. Thank you, and goodbye.