Chailease Holding Company Ltd
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Chailease Holding Company Ltd
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Welcome to Chailease Fourth Quarter 2020 Earnings Release Conference Call. [Operator Instructions] Following the management's prepared remarks, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask questions. As a reminder, this conference is being recorded. For your information, a webcast replay will be available within an hour after the conference ends.
And now, I would like to turn the call over to Kimberly Lian, Project Manager of Investor Relations. Kimberly, please proceed.
Thank you. Hello, everyone. Thank you for joining us today for our full year 2020 results conference call. I'm joined by Ms. Sharon Fan, Head of IR Department, and we will open to your questions after my presentation. The presentation I'm giving today will be available for download on our official website at www.chaileaseholding.com.tw. And as a reminder, please refer to the disclaimer in Slide 2 regarding forward-looking statements. Our actual result may differ from such statements.
Now let's begin the presentation by turning to Slide 3. Today's agenda include management highlights, 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 for highlights that summarize our performance of 2020. First of all, the summary table here shows you the loan portfolio growth for each of our main operation regions for the year-over-year and quarter-over-quarter comparison. In 2020, when the pandemic broke out, Chailease Holding immediately took all possible precautionary measures to reduce the negative impact of the crisis. In the face of these challenges, we stayed in fore of the latest industry development trend and of our customer circumstances. Diversification in our customer base, industries that we serve and the geographical regions where we run our business also helped mitigate the negative impact of the pandemic.
In 2020, Chailease Holding once again had outstanding performance. On a consolidated level, we can see on the right-hand side of the table we achieved 16% year-over-year portfolio growth, thanks to the strong recovery in the second half of 2020 in our segment operation regions. Our main regions, Taiwan, China and ASEAN's loan portfolio grew by 15%, 22% and 17% year-over-year, respectively, although business volume slowed down in the first quarter of 2020 due to the pandemic.
However, our main regions made to slowly recover after the second half of this -- of 2020 and gained business momentum as the year went on. All of our 3 operation regions outperformed our 2020 planned target of portfolio growth rate. Second, sales volume and profitability in those markets grew steadily with improved asset quality. The delinquency ratio in the fourth quarter continued to decrease as a result of improved asset quality, and we expect the ratio to be stable going forward. We will see detailed figures in the later part of the slide.
Moving to the tax rate. The effective tax rate will be increased this year, and we see this as a one-off impact. The impact is response to the new regulation requirements of economic substance by European Union and OECD. In order to comply with the requirement, Chailease Holding will adjust the investment structure this year. And due to this investment structure change, the effective tax rate for the holding company is estimated to be around 33% this year. And we'll be back to a normal tax rate of 29% in 2020 -- 2022, sorry, as we've done with the investment structure change.
Last highlight point. Chailease Holding Board of Directors today approved a proposal of cash dividend of TWD 5 per share, a stock dividend of TWD 0.50 per share, totaled TWD 5.50 per share. The dividend proposal will be submitted for approval by the AGM, which will be held on May 28. Looking into 2020, the company will continue to pursue high -- healthy growth in all of our major operation regions. In terms of portfolio growth targets in the year of 2021, the company is looking for 10% to 15% for Taiwan; 15% to 20% for China; and 10% to 15% for ASEAN regions. And this is our guidance for portfolio growth for 2021.
Let's move to the next section, performance review for the full year of 2020. As we see on Slide 7, the consolidated loan portfolio reached TWD 481.9 billion for the fourth quarter end of 2020, with 16% year over growth -- year-over-year growth rate and 8% sequential increase. Strong growth momentum showed in the fourth quarter of all of segment operation regions, especially China's portfolio grew 11% quarter-over-quarter.
Turn to Slide 8. The graph shows the trend of consolidated loan yield and cost of funds for the past 12 quarters. As we can see, we managed to maintain stable spread, which varied with lower range in the last 3 years. This quarter, the yield and cost of funds remained stable. Now let's turn to Slide 9. Fee income is TWD 2.13 billion for the fourth quarter, similar to the previous quarter, as we had strong quarters for both third quarter and fourth quarter.
Next slide, Slide 10. On the left-hand side, the consolidated revenue for 2020 reached TWD 59.5 billion, representing 0.6% growth compared to the last year versus 16% year-over-year portfolio growth. The slower year-over-year revenue growth rate compared to the portfolio growth is due to sales revenue recognition change to methods starting this year. If we try to add back the sales revenue to assume the recognition method unchanged, then the growth rate will be 18%, which is more in line with the portfolio growth rate. On the left-hand side, fourth quarter consolidated revenue was TWD 15.9 billion, up 3% from the previous quarter, which was lower than portfolio growth of 8%. The main reason is because less trade finance business in fourth quarter for Taiwan operations.
Moving on to Slide 11. On the left-hand side, the consolidated net profit for 2020 reached TWD 16.9 billion, and the earnings per share for 2020 was TWD 12.2. Net profit amount increased by 9% year-over-year and decreased by 0.1% quarter-over-quarter. The slower net profit growth versus portfolio growth was mainly driven by more expected credit loss booked in China due to the COVID impact and some one-off tax benefits of Taiwan and U.S. recognized last year. For quarter-over-quarter comparison, the slower profit growth is because more operating expense was accrued at the year-end, as usual.
Turning to Slide 12. This page shows you our loan portfolio mix and profit contribution in terms of the operation regions. On the left-hand side, as we see, Taiwan business accounted for 48% of group's portfolio; China accounts for 37%; and ASEAN, 14%. On the right-hand side, Taiwan's net profit contribution accounts for 50%; China accounts for 45%; ASEAN contributed 5% of the consolidated profit, if we excluding the minority interest. If we compare 2020 to 2019, as China's portfolio continued to grow and outperform the other operation regions in 2020, its portfolio and profit contribution to the group increased compared to previous year.
Moving on to Slide 13, it shows the cost-to-income ratio and leverage ratio for the group level. On the left side, cost-to-income ratio is 29% for 2020, which was improved from the previous year because of less travel-related OpEx this year due to the 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 issuance was completed for the quarter.
Please turn to Slide 14. The consolidated return on assets achieved 3.2% for 2020 compared to 3.6% in 2019, reflecting slightly stronger growth of net profit due to the pandemic impact. The consolidated return on equity on the right-hand side is 22% for 2020, which is also a bit lower than previous year. However, this rate continue to achieve our long-term target level of above 20%. The formula we used for return on equity calculation is excluding the preferred shares.
Next slide, Slide 15. The consolidated delinquency ratio is showed on the left-hand side. At fourth quarter end, the delinquency ratio further decreased to 2.4% because of the improvement of all 3 major operations asset quality. The asset quality is already returned to a normal level as before the pandemic outbreak. Later in the presentation, we will look at each region's asset quality in the segment review section. Looking at the right-hand side of the graph, allowance to portfolio ratio is at 2.5% and remains sufficient.
Moving on to the segment review. Let's look at our operation performance country by country on Slide 17. Our Taiwan portfolio reached TWD 229.9 billion at the end of 2020, representing 15% year-over-year increase and 5% quarter-over-quarter growth rate. Major growth driver are from the new disbursement for offshore lending, used car financing and lending in the micro business. The talent operation of diversified products and service in different niche market helped continue to drive growth in Taiwan and achieve nice portfolio growth. Taiwan's loan portfolio growth has outperformed our original target set in the beginning of 2020.
Moving on to Slide 18. It shows the trend of our Taiwan loan yield and funding costs. As you can see, we maintained steady loan debt of around 6.6% to 6.9% for the past 3 years and a stable funding cost in 2020. Turning to Slide 19. The graph shows Taiwan's commission and fee income for the last 5 quarters. For the fourth quarter of 2020, the fee income from general business was TWD 764 million, and the fee income from alliances we spent was TWD 132 million.
Moving on to Slide 20. Revenue from our Taiwan operation, including the solar income for 2020, reached TWD 29.9 billion, representing 16% year-over-year. The revenue year-over-year growth rate is slightly faster than the portfolio growth rate because solar asset was not included in the loan portfolio, but it's included in the revenue. For the quarter-over-quarter comparison, the revenue growth was negative 1% and the stronger quarter-over-quarter growth was due to less solar power sales revenue recognized in the fourth quarter because of less sunshine in the wintertime.
Turning to the next slide, Slide 21. Taiwan's net profit reached TWD 9.5 billion, which grew by 13% year-over-year, which is slightly lower compared to the portfolio growth because of the tax benefit of our Taiwan operation book back in 2019. For a quarter-over-quarter comparison, profit was down 9% as compared to previous quarter due to a higher recognition of operating expense in the fourth quarter.
On Slide 22, again this slide shows Taiwan's fourth quarter delinquency ratio, lower to 2.4%, which is down by 0.3 percentage points from the previous quarter, reflecting that asset quality has been continuously improved in the fourth quarter with delinquency amount decreased compared to previous quarter. Slide 23, the allowance to loan portfolio in Taiwan was 2% at fourth quarter, which has remained positioned.
Next slide. Let's take a look at our China operations. China's total loan and receivable reached TWD 179.1 billion at the year-end, which grew by 22% year-over-year and 11% quarter-over-quarter. Business momentum has been strong, starting from the second half 2020 and continue throughout the year-end. Turning to Slide 25. We still managed to maintain a stable interest spread in China. The slide shows you the 1-year and cost of fund trend for our China operation. Funding costs and the yield remained stable.
Next slide, Slide 26. China's fee income was TWD 1.1 billion for the fourth quarter, higher than previous 3 quarters, indicate our business momentum is increasing. Next slide, Slide 27. China's revenue for 2020 totaled TWD 22.6 billion, increased by 14% year-over-year. This year-over-year revenue grew slower than total growth, was also due to trade finance recognition method change. If we use the same recognition method as last year, then the year-over-year revenue for 2020 was calculated to grow 21%. On the right-hand side, the sequential increase of top line growth of 9% was driven by the strong business momentum in the fourth quarter.
Moving on to Slide 28. China's net profit in 2020 was TWD 8.68 billion, increased by 14% year-on-year. The lower profits versus portfolio growth was because of higher expected credit loss as a result of facing the change of [ disciplined MEs ]. On the right-hand side, China's fourth quarter net profit was up 2% quarter-over-quarter, and the slower profit growth than the revenue growth rate for the quarter compared to previous quarter was because of less tax rate. About RMB 28 million was recognized in the third quarter versus only RMB 80 million in the fourth quarter.
Turning to the next slide, Slide 29. On the left-hand side, China's delinquency ratio at the fourth quarter has further decreased to 1.9% from 2.3% in the previous quarter. China's delinquency ratio is back to the prepandemic levels. Slide 30. China's allowance to portfolio ratio is 2.7% at the fourth quarter and same as previous quarter. There is possibility for the provision ratio to be adjusted down if China's asset quality continue to maintain at this good level for the next few quarters.
Moving to ASEAN regions on Slide 30 -- 31. Right now, our ASEAN operation includes Thailand, Vietnam, Malaysia, Cambodia and Philippines. Thailand still accounts for the majority of our ASEAN operation in terms of the portfolio breakdown. The total loan and receivable at the first quarter end of 2020 was TWD 68.06 billion and was up to 7% year-over-year and 7% quarter-over-quarter. The lower accumulation of the loan portfolio growth this year was due to the impact of the coronavirus lockdown in some of our ASEAN operations. However, in the fourth quarter, we see a meaningful recovery of our business momentum.
Let's turn to Slide 32. The left-hand side shows the revenue of our ASEAN operations. It was TWD 6.66 billion, which grew by 20% year-over-year. However, for apple-to-apple comparison, the revenue growth will be 14%, 1-4, 14%, if the sales revenue for Vietnam's trade finance business were booked using the growth method as last year. On the right-hand side, the revenue for the fourth quarter was about TWD 1.75 billion, which was up 4% quarter-over-quarter. Business momentum in our ASEAN operations is turning better in fourth quarter and was less impacted by the COVID outbreak compared to the first 3 quarters.
Slide 33. On the left-hand side, total net profit for 2020 was TWD 1.36 billion, representing 1% year-over-year growth and 2% quarter-over-quarter growth. For year-over-year comparison, ASEAN's portfolio output net profit is due to higher expected credit loss in our ASEAN subsidiary compared to the same period of last year. For quarter-over-quarter comparison, ASEAN's fourth quarter portfolio output net profit is due to higher operating costs compared to previous quarter.
Slide 34. The left-hand side shows ASEAN's fourth quarter delinquency ratio. And as you can see, the ratio lowered to 3.8%, down by 0.5 percent points from the previous quarter, the fact that asset quality started to show some improvement. In the fourth quarter, the allowance to loan portfolio in ASEAN also lowered to 3.7%.
This brings to the end of my presentation. Thank you for your attention. Now I would like to turn the call back to the operator to start our Q&A session. Thank you. Operator, back to you.
[Operator Instructions] The first to ask question is Chung Hsu from Crédit Suisse.
I would like to ask 3 questions. My first question is, I think in the presentation, if I hear it correct, that the provision level -- general provision level in China could be lower a few quarters later, if you continue to see a steady asset quality in China. Can you remind us what is your general provision, that is, general provision number for China? And how many -- if we do see a steady asset quality in China in the next couple of quarters, perhaps by later this year, how much can that general provision decline can we go back to as low as 1% before COVID-19 outbreak?
My second question is on Slide 29 on China asset quality page. In Q4, there's a bigger increase in recovery from delinquency. Just wanted to check if this increase in recovery is related to the provision -- the extra provision you set in the first quarter this year and second quarter -- first half this year because of those restructured loans or those were something else? And if there's any guidance you can provide us on your potential recovery for 2021 if asset quality continue to stay stable.
My last question is on Taiwan business. We understand the overall market rate environment is going down. But your China asset yield actually ticked up slightly. Can you give us some color what's driving that 10 basis point increase in asset yield in the past 2 quarters for Taiwan business?
Okay. I think the first question about the general provision ratio for our China operation. And for last year, because of the COVID impact, I think you know that we increased the general provision ratio to about 2% to 2.1% level for 2020. And this year, as you can see, we already see some improvement of the delinquency ratio for our China book. And although it's already back to the pre-COVID level of 1.9%, but I think we still need to -- need more time to see whether this can be stabilized at around this level, so that we can greatly adjust some -- the provision ratio. So -- but at least, I think our CFO mentioned in the Chinese session that it should be lower than 2% for this year. But again, we still need to continue to monitor the delinquency ratio development trend for the next few months or a few quarters. So for sure, it will be less than 2% this year. And if this delinquency ratio continued to trend down, and we can go back to like previous level, which probably around like 1-point-something.
And the second question about the recovery amount in the fourth quarter for China. I think we just follow the standard SOP process to do our collection activity. And just it happened that more deals closed in this fourth quarter. So there is no special event. And I think we still follow the same standard for our collection activities. Usually, it will take about 2 years to complete all the crushing process for a default delinquent case.
And the third question about the Taiwan, I think it's more because of the product mix change. Because, as you know, in Taiwan, we gradually venture into some consumer-related financing business, although it still accounts for a small portion. And also our micro business finance -- micro business financing business also gain more growth momentum. So I think this will be the main reason for the blended yield is slightly increased.
If I may follow-up on more question about China business. I think in the Chinese session, Chairman commented about a couple of new business in China, like auto loans and also supply chain finance. I think that's what he -- if I hear it correctly, was supply chain finance that Chinese is trying to explore. Can I -- or I'm not sure if you're able to provide a breakdown. That 15% to 20% growth target for China this year, how much of that is from existing equipment leasing business? How much coming from those new business segments or new opportunities that you are exploring?
I think this is for more longer-term strategy to do the product expansion in our China market. But still, right now, I think the car financing only accounts for like 3% of the China overall portfolio size. So because it's a small base, so probably the growth rate is higher, but I don't think it will change the overall growth target. The majority still comes from the traditional SME leasing business in China. Yes.
The next one to ask question is Gurpreet Sahi from Goldman Sachs Hong Kong.
I have just 2 simple questions. Maybe I missed the growth outlook. But -- so can you remind me the numbers for Taiwan, China and overall group targeted portfolio growth? I see that 2020 was quite impressive loan growth, especially in the fourth quarter also. And then my second question is tax. So I'm a bit surprised by this investment holding company structure change and 33% tax rate for this year. And going back to normal from 2022 onwards, so what should be the normal? Can you give us some rough sense? Is it mid-20% effective tax rate -- is that normal?
Okay. The growth guidance for this year, 2021, which was given by our CEO, is 10% to 15% for the overall. And so this is also the growth target for our Taiwan operation and ASEAN overall blended growth rate. For China, we are a little bit -- we had a little bit higher growth target, which is like 15% to 20% for our China portfolio growth for this year. And about the effective tax rate for the -- on the consolidated level, this year, we estimate to be about 33% because of the investment structure change. And after we've done this process, I think it will be back to normal, which is about 29% as 2020.
[Operator Instructions] Now we're having Anupam Mathur from Goldman Sachs.
I just had a couple of questions. Firstly, you mentioned that general provision guidance is 2% for next year or maybe lower. It can go down. How about for the other portfolios like Taiwan and ASEAN. What's our guidance on overall provision or anything?
You mean the general provision rate for ASEAN country?
Yes. So basically, is there any provision guidance for this year for the overall company or for the other markets also?
For ASEAN because -- last year, because of this pandemic impact, actually, we didn't have aggressive growth target for ASEAN overall. But at the end of the day, actually, we still deliver some growth for last year, mainly comes from Vietnam and Malaysia. And -- but this year, we do see some sign of business activity recovery in those ASEAN countries. But -- so this year, we couldn't compare to last year, which is why we expect to grow portfolio by 10% to 15% blended growth rate for ASEAN. Actually, for Vietnam and Malaysia, actually, we can grow better than this average number. But for Thailand and the other, we still maintain relative conservative growth target. So overall, it will be better than last year. Anything else?
[Operator Instructions] Now we're having Anupam Mathur from Goldman Sachs.
Yes. Sorry about that. I don't know how I dropped. But again, going -- like I dropped initially when you were answering. So just on the provision guidance, any guidance for individual countries?
Okay. Actually, for Taiwan, as you know, the asset party, although there is some small variation year-over-year or quarter-over-quarter, but actually, we regard it as being a very stable. Also the Taiwan general provision ratio has been maintained quite stable, around 1%. And for ASEAN because the product is different we offer in different countries. Like in Vietnam, basically still mainly offer our traditional SME equipment leasing; and in Malaysia, it's more consumer used car financing. So the provision ratio is different. But basically, it won't have too much difference, too much change compared to last year. Because last year, although there is some impact from the COVID-19, because actually as -- because we deliberately slowed the growth, and the overall delinquency ratio didn't increase too much for last year. So I think the provision ratio still maintained a quite similar level for ASEAN and Taiwan.
Understood. Understood. But for China, it will come down overall provision for this year versus last year?
Yes, yes. For China, I think it's for sure, if this delinquency decreasing trend continue, I think we will gradually adjust down the general provision ratio.
Understood. Understood. And I recall like, regionally, in China, we had like 5% restructured book. So is that all resolved or already flown into delinquency? And similarly, I think ASEAN we had -- like in Thailand, we are something like 10-odd percent restructuring book. So just to understand, like any restructuring book we are carrying as we enter?
In Thailand, because of last year, we need to like follow the government requirement to offer some forbearance program and/or offer some restructuring program. But I think starting from this year -- and we already stopped new forbearance programs. So I think the asset quality -- the delinquency ratio will be more representative going forward.
Is already over, right? Or is it...
That 5% actually already like incorporate into the normal asset pool already. So you just look at our overall delinquency ratio for China book. It's all factored in those 5%.
Okay. Understood. And the next question I had was on the growth side. Like I'm curious, like, you mentioned you are thinking about new products in China. So what is the reason we are thinking about the new products in China? Is -- are we -- do we think the leasing -- equipment leasing business is already penetrated? Or what is the reason we are looking for...
Okay. When you look at our introduction presentation material, actually I think it will follow the product development road map that we developed here for Taiwan. So basically, we're starting with equipment leasing and then some corporate car financing and then like insurance brokerage, et cetera. So those new products actually are those products we have been introduced in Taiwan and already proved to be a very successful like business model. So in China, starting from about 2 years ago, we started to launch this car leasing business. But after 2 years, it grew to be like 3% of China book.
But we are still like experienced collecting the market data to see what kind of pricing strategy is a more longer-term, sustainable that can meet our return requirement. So those are one of the new products we tried to introduce in China market. And also, the micro business financing, we also have a quite long-term experience here in Taiwan and also make a very good contribution to Taiwan profit. So both -- we also start to gradually try to add both to our product portfolio in China in addition to the equipment leasing. So I think we did follow the product rollback like we used -- we did up here in Taiwan.
Understood. But just a follow-up on that. Who exactly are our competitors? And what is our competitive advantage in these 2 particular products? Like it took me during -- it's fine. We have clear competitive advantage in this. Can you share like who are the competitors in this business?
Just see, in China, actually different financing company has different business model, and we just try to replicate our successful experience here in Taiwan into China. So I think the market is still very big and competitive for those products we mentioned. So I think the competition is not a major concern at this stage.
Understood. And sorry, just one last one from my side. Like what is the cost-to-income expectation for this year and maybe in the medium term?
Okay. Right now, the cost-to-income ratio is about 29%. I think it's further decreased from last year, which is 31%. Part of the reason is because of 2020, there are less travel-related expenses occurred. And I think part of the reason also can contributed to some benefit of the bigger economy of scale of our operation for the whole group overall. So -- but I think this efficiency improvement will be like gradual. And probably, we still can maintain around this level, like 29%, 30% of the cost-to-income ratio in the near term.
[Operator Instructions] There are currently no question at this point. Kimberly, can we close the conference call now?
Yes. Thank you. We can end the call now.
Thank you, Kimberly. And ladies and gentlemen, we thank you for your participation in Chailease conference. You may now disconnect. Thank you, and goodbye.
Thank you.