Chailease Holding Company Ltd
TWSE:5871
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Chailease Holding Company Ltd
Earnings Call Analysis
Q4-2023 Analysis
Chailease Holding Company Ltd
In 2023, the company showcased resilience in the face of a global macroeconomic slowdown, with a focus on its credit portfolio, which includes all interest and revenue-generating assets, except solar assets on the balance sheet. This shift from loan to credit portfolio representation aims to better reflect the company's business momentum. The credit portfolio expanded across all regions, with Taiwan, China, and ASEAN growing by 12%, 7%, and 11%, respectively, leading to a 5% year-over-year increase in the consolidated loan portfolio.
Continued profitable growth was achieved in various operating regions, with expectations to expand the portfolio by around 10% in 2024. This anticipated growth, however, hinges on macroeconomic recovery conditions. Taiwan has seen interest spread improvements as funding costs—impacted by rising interest rates since 2022—are now reflected in new contracts. Additionally, the company's branch expansion in China, with 3 new service locations established, underscores its strategic focus on growth and market penetration.
Though the company experienced robust growth with a consolidated revenue of TWD 97.5 billion, representing a 13% increase from the previous year, Q4 of 2023 saw a minor revenue dip of 0.5% quarter-over-quarter. Notably, the net profit for 2023 was TWD 25.034 billion with an EPS of TWD 15.15, depicting a descent, primarily attributed to higher interest expenses in Taiwan and elevated expected credit losses, particularly in China.
Taiwan remained the most significant contributor, representing 56% of the company's total credit portfolio and 49% of net profit, followed closely by China, which contributed 45% to net profit. Challenges in ASEAN were evident as the region's net profit decreased by 19%, affected by higher interest expenses and expected credit losses. Thailand, being responsible for half of the ASEAN portfolio, played a critical role here.
The company faced increased delinquency ratios and had to bolster provisions accordingly. In Q4 of 2023, this was particularly evident in China's 3.9% delinquency ratio and ASEAN's climb to 4.3%, reflecting economic headwinds. Thailand and Vietnam especially contributed to higher delinquency rates, signalling caution for investor expectations on asset quality and potential provisioning needs moving forward.
Looking ahead, the company is cautiously optimistic about interest spread recovery in Taiwan, as it continues to factor in decreased funding costs into new contracts, which could result in marginal benefits. Furthermore, a stabilization in new delinquency formation—particularly in China—is needed as a precursor to improving overall asset quality and, ultimately, a return to stronger growth momentum.
To effectively capture the company's broad business activities, including various fee and revenue income products, a more comprehensive credit portfolio approach has been adopted. This realignment in financial reporting is intended to provide a more holistic view of the company's growth and performance.
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Welcome to the Chailease Fourth Quarter 2023 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions] And now I would like to turn the call over to Kimberly Lian, Project Manager of the Chailease Holdings. Ms. Lian, please go ahead.
Thank you, Jason. Hello, everyone. Thank you for joining us today for our full year 2023 results conference call. I'm joined by Ms. Sharon Fan, Head of IR Department, and she will be 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 results may differ from such statements.
Now let's begin the presentation by turning to Slide 3. Today's agenda includes management highlights for the full year 2023 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 2023. First of all, the summary table here shows you the credit portfolio growth for each of our main operating regions for the year-over-year and quarter-over-quarter comparison.
Starting from this quarter, we used credit portfolio instead of loan portfolio to better present the company's overall business growth momentum. Compared to loan portfolio, credit portfolio presented here includes all the interest and revenue earning assets, except solar assets on the balance sheet.
On year-over-year basis, Taiwan, China and ASEAN credit portfolio grew 12%, 7% and 11%, respectively. On a consolidated level, we achieved 5% year-over-year loan portfolio increase. As for the fourth quarter growth, Taiwan increased 1%, China increased 3%, ASEAN increased 1% quarter-over-quarter and a total 1% growth on the consolidated basis.
Chailease continued to deliver profitable growth in all operating regions even during the macroeconomic slowdown in 2023. For 2024, we plan to grow the portfolio around 10% across all the 3 operating regions. However, management believes there is still some change to outperform this 10% growth target depending on the macroeconomic recovery situation.
Second, Taiwan's loan yield has gradually reflected the interest of funding costs with interest spread improvement. Taiwan interest spread was impacted by the continuous interest rate hike since year 2022 till early 2023. The company already reflected the increase of funding cost to the new contract and expect the interest spread for Taiwan to be gradually improved and back to previous level.
Third point, is about our branch expansion plan in China. At the beginning of this year, we have already added in 3 new service locations in the area where we already have a presence, which are Shanghai, Suzhou and Hangzhou. And in total, we have reached 62 service branches in total as for now.
Moving on to Slide 6, consolidated credit portfolio reached TWD 795 billion at 2023 year-end with 9% year-over-year growth and 1% quarter-to-quarter 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 quarters, we see a slightly increase of loan yield as we gradually reflect the new price for increased funding costs in Taiwan and some of our ASEAN markets. 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 full year of 2023 reached TWD 97.5 billion, representing 13% growth compared to last year. On the right-hand side, fourth quarter 2023 consolidated revenue was down 0.5% from previous quarter, mainly due to the less solar electricity sales in Taiwan due to less sunshine in the winter.
Moving on to Slide 9 on the left-hand side, the consolidated net profit for the full year 2023 totaled TWD 25.0 billion (sic) [ TWD 25.034 billion ] and earnings per share was TWD 15.15. The decrease in net profit was mainly driven by higher interest expense in Taiwan and more expected credit loss were booked for China.
On the right-hand side, third quarter consolidated net profit was down 8% -- fourth quarter consolidated net profit was down 8% quarter-over-quarter mainly driven by more expected credit loss.
Turning to Slide 10. The slide shows the credit portfolio mix and profit contribution in terms of operating region. On the left-hand side, we can see Taiwan credit portfolio accounts for 56% of group's total credit portfolio. China is about 29% and ASEAN maintained to 14% at the year end of 2023.
On the right-hand side, Taiwan net profit contribution accounts for 49% and China was 45%. ASEAN contributed 5% to the consolidated net profit. Taiwan's contribution still accounts the largest in terms of credit portfolio and net profit.
Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio remained 28% for 2023. However, a slightly increase in ratio compared to 2022 mainly due to the slower growth of gross profit due to the interest spread contraction in 2023.
The chart on the right-hand side, asset to equity remained at 5.8x. Slide 12. The consolidated ROA was 2.9% for 2023, decreased from 3.6% in 2022 because of profit decrease. Consolidated ROE on the right-hand side was also down to 17%. Here, the calculation for ROE exclude preferred share.
Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side, at fourth quarter end 2023 was slightly up to 3.2% from 3.1% from previous 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 remained at 2.4% compared to the previous quarter.
Moving on to the segment review, let's look at our operating performance region by region. Slide 15. Taiwan credit portfolio reached TWD 447.6 billion at the end of 2023, representing 12% year-over-year increase and 1% quarter-over-quarter increase. Micro business installment sales, used car financing and offshore USD business remained the major growth driver for Taiwan in 2023.
Slide 16. This slide shows the change of Taiwan solar asset. Taiwan solar net asset reached TWD 53.3 billion at the end of 2023, representing 13% year-over-year increase and quarter-over-quarter was up 3%.
Next slide, Slide 17. This page presents trend of our Taiwan loan yield and funding costs. Starting from the year 2022, the increase in funding costs reflect continued interest rate hike. The interest -- the increase of funding costs in the fourth quarter was due to more USD borrowing in the quarter. The gradual increase in loan yield for recent quarters was reflected the new price for the increased funding costs.
Moving to Slide 18. Revenue for our Taiwan operation of 2023 reached TWD 52.4 billion (sic) [ TWD 45.6 billion ] representing 14% year-over-year growth. The solar revenue accounts 13% of Taiwan revenue for 2023.
For the quarter-over-quarter comparison on the right-hand side, fourth quarter revenue was down 3% quarter-over-quarter due to less solar electricity income for the fourth quarter compared to previous quarter, as mentioned earlier.
Turning to next slide, Slide 19. Taiwan's profit for 2023 reached TWD 13.9 billion, decreased by 6% compared to last year. The decreasing year-over-year mainly due to increase in interest expense and higher expected credit loss. The fourth quarter Taiwan net profit was down 3% quarter-over-quarter due to less solar electricity sales.
On Slide 20, on the left-hand side, Taiwan's delinquency ratio at fourth quarter end 2023 was down 0.1 percentage point to 2.3%. As for new delinquency formation amount for the quarter, it slightly increased from the prior quarter. On the right-hand side, recovery from delinquency and write-off amount were both up for the quarter.
Next slide, Slide 21. Allowance to loan portfolio for Taiwan has remained at 1.8% for the quarter. Next our China operation on Slide 22. China's total credit portfolio reached RMB 53.3 billion at the end of 2023, which grew by 7% year-over-year and 3% increase quarter-over-quarter, which show continuous business growth momentum.
Turning to Slide 23. This page shows the loan yield and cost of fund trend for our China operation. Interest spread maintained stable over the quarter. The slightly lower benchmark rate, LBR rate in the middle of last year, also respect to the funding cost in the fourth quarter. In addition, there is 1 USD bond paid off in October.
Next slide, Slide 24. China revenue for 2023 totaled TWD 31 billion, increased 6% compared with the same period of last year. On the right-hand side, fourth quarter revenue was up 4% sequentially. In 2023, business momentum in second half is better than the first half.
Moving on to Slide 25. China for 2023 net profit reached TWD 12.8 billion, decreased 2% compared to last year. The decrease in profit was mainly due to more expected credit loss this year. On the right-hand side, China's fourth quarter 2023 net profit was down 3% sequentially as more provision expense for the quarter as a result of more business volume achieved compared to the third quarter as well as more accrued expense in the fourth quarter as usual.
Turning to next slide, Slide 26. On the left-hand side, China delinquency ratio at the fourth quarter was slightly up 0.1 percentage point to 3.9%. However, we see new delinquency formation has been stabilized. On the right-hand side, recover and write-off amount increased a little compared to the prior quarter.
Next slide, Slide 27. China's allowance to portfolio ratio for the fourth quarter of 2023 was up 0.1 percentage point to 3% for the increase of delinquency amount. Moving to ASEAN on Slide 28. The total credit portfolio at fourth quarter end 2023 reached TWD 114 billion, up 11% year-over-year and 1% sequentially. Malaysia and Thailand remain as the main portfolio growth driver for ASEAN in 2023.
Let's turn to next slide, Slide 29. The left-hand side, ASEAN revenue for 2023 totaled TWD 13.2 billion, grew 26% compared to the same period of last year. On the right-hand side, ASEAN's fourth quarter revenue was also up 0.3% sequentially.
Moving to Slide 30. ASEAN's 2023 net profit reached TWD 2.2 billion, decreased by 19% due to more interest expense and expected credit loss were booked this year. On the right-hand side, ASEAN's fourth quarter 2023 net profit was down 46% sequentially mainly because of increased expected credit loss in our Thailand operations for the quarter.
The last slide, Slide 31, on the left-hand side. ASEAN's delinquency ratio at fourth quarter continued to increase to 4.3% reflects weaker economy. On the right-hand side, ASEAN's allowance to loan portfolio ratio for the fourth quarter was also increased to 3.3%.
And this also bring us to the end of my presentation for today. Thank you for your time and listening. And now I would like to turn the conference to moderator to open the line for questions. Jason, back to you.
[Operator Instructions] And our first question will be coming from Gurpreet Sahi of Goldman Sachs.
I have a few questions. First of all, ASEAN asset quality, can you give us more details as to what drove the delinquency higher Q-on-Q and also the provisioning? Which country, which sector and what's the outlook? So that's the first question, and maybe I'll let you answer that, and I will ask the ones later on.
Okay. We do see some asset quality change for our ASEAN operation, especially for Thailand and Vietnam. I think the at the quarter end, Thailand delinquency ratio increased to like 5 -- Okay. Thailand delinquency ratio increased to 4.7% compared to previous quarter, it's around 4.1%. So slightly up. And the Vietnam delinquency ratio was up to 5.4% versus 5.2% in the previous quarter. For Malaysia, actually improved a little bit down to less than 2% in the recent quarter. So we did see some delinquency ratio increase for both Thailand and Vietnam. And so that's the reason why at the fourth -- for the fourth quarter, we increased the provision amount. So the credit cost increased for this quarter.
In Thailand, was it commercial vehicle financing?
Yes, yes.
And what's the outlook? Like do we see it stabilize anytime soon? Because the manufacturing activity and all the things related to economy in that sector are still suffering, and there is no like guarantee when we will come out of this.
Yes. So that's the reason why actually when the management gave out our growth plan for this year. For Thailand, actually, we remain quite similar growth target compared to last year, which is around 10% versus last year, we achieved like a little bit more than 10%; 11% of portfolio growth. So yes, so far, the macro situation hasn't really to -- I mean, recovered too much. So yes, that's our current view.
Okay. And then ASEAN -- and then on ASEAN, this TWD 114 billion of total portfolio, how much is Thailand and then Malaysia and the rest of the others? What percentage?
Thailand still account for majority like 50% of ASEAN. And Vietnam is about 17%, and Malaysia is like 15%.
Okay. And then moving on to Taiwan interest spread. It seems like it's recovering, but every quarter, it cannot recover. So if you remove that U.S. dollar bond financing, does the underlying spread continue to recover?
Yes. I think because we still continue to reprice for the new deals. And until we see the interest rate cut for funding costs to start to decrease, I think we still can enjoy marginal benefit of the repricing of the new contract continuously, yes.
So you would expect the first half spread to be higher than the current level?
Yes. There's still has some continuous improvement area, yes.
Okay. And then on China asset quality, it seems as delinquency formation was lower Q-on-Q, but delinquency level continues to go up, but the pace is lower. So what do we see in terms of underground feedback from our relationship managers or branch managers. When can we convincingly say that now the provision cost has really peaked in China? Because I think we don't give out the breakout for the provisioning at the group level, but fourth quarter provision was up like 14% Q-on-Q, which is a big number.
I think for the fourth quarter, the increase of the provision expense, mainly driven by ASEAN, especially in Thailand. For the China part, actually, the provision ratio remained similar, but because we have a better new business volume for fourth quarter, so even with the same GP ratio in terms of the amount, we still need to set aside more provision expense.
Okay. And then thinking that delinquency will peak in China at around 4%, still remains consistent?
So far, that's still our view. Yes. I think you see more meaningful decrease of the delinquency ratio. First of all, we need to see the stabilization of the new delinquency formation as the first step. And then we continue to drive better recovery performance for those people cases, improve the recovery of the collection. And then if we can go back to a better growth momentum, I think this delinquency ratio then will start to fall.
Okay. And then final one is this change in the overall credit portfolio reporting versus the old way of reporting just the portfolio. I understand this brings in more of the interest assets in the reporting. But why did we feel the need to change it now?
As we mentioned in the presentation, because management would like to have more comprehensive -- comprehensively present our business growth momentum because especially for our Taiwan business mix, in addition to the traditional interest earning business, we also have some -- the other fee income or revenue income product offering. So we all take into as a credit portfolio. So that's the reason why we want to make next our presentation more comprehensive in terms of the overall business growth momentum, yes.
[Operator Instructions] Ms. Lian, there are currently no questions at this point.
Okay, we can end the call, please. Thank you.
And ladies and gentlemen, that will be the end of the conference. We thank you for your participation in Chailease conference. You may now disconnect. Thank you, and goodbye.