Cathay Financial Holding Co., Ltd. (2882) Earnings Call Transcript & Summary

Welcome, everyone, to Cathay Financial Holding Company Second Quarter 2026 Conference Call. [Operator Instructions]. And now I would like to introduce Mr. C.K. Lee, the CEO of Cathay Financial Holding Company. Mr. Lee, please begin.

Good afternoon, and good morning to those joining us from Europe. Welcome to Cathay Financial Holdings 2026 Second Quarter Analyst Meeting. I am C.K. Lee, CEO of Cathay Financial Holdings. I will host today's meeting. Thank you for joining us. Let me begin by introducing the senior management team with us today. Ms. Grace Chen, CFO of Cathay Financial Holdings; Mr. Abel Lin, President of Cathay Life; Mr. Robert Fuh, EVP of Cathay United Bank. Before we begin the presentation, let me share a few key highlights. We delivered strong earnings in the first half of 2026. Cathay Financial Holding reported net income of TWD 76.5 billion. Net income plus after-tax every expected for the games recognized directly in the retained earnings, which TWD 165.9 billion, very much in the full year level for 2025 and reaching an all-time high. Core business momentum remains strong across the group. Cathay Bank a record high first half earnings supported by strong loan and deposit growth, higher net income, higher net interest income and robust wealth management fee growth. Customer net income plus every OCI equity disposal gains also reached an all-time high. New business CSM generation remained robust. The positive spread remains stable and network reached a record high. Cathay Century and Cathay Securities also delivered a record high first half earnings. Cathay Century's earnings was afforded by steady premium growth and will contain loss ratios. Cathay continued to expand its AUM while Cathay Securities benefit from Taiwan equity market tone and continued gains in brokerage market share. Now I will the call to Claire from our team for the 2026 Results Presentation. Claire, please.

Let's start with the business highlights on Page 4. Cathay United Bank, net income reached a record high for the first half, up 50% year-on-year. Loans and deposits both posted strong growth. While net interest income and net fee income increased 14% and 11% year-on-year, respectively. Cathay Life new business reached TWD 53.9 billion, while the CSM balance increased 6.9% year-to-date with TWD 547 billion. Liability interest costs declined significantly to 2.13%. Pre-hedging recurring yield reached 3.47% and the hedging costs remained stable, supporting a stable positive spread. Net worth reached a rig high. Cathay Century, the general insurance subsidiary, recorded steady growth in retail premiums, with market share at 30.2%, ranking #2 in the industry. Net income reached a record high for the first half. Loss ratio remained well contained and the return combined ratio improved year-on-year. Cathay SITE, the asset management subsidiary. Total AUM reached TWD 3.6 trillion. Discretionary mandate AUM reached TWD 1.7 trillion, maintaining the #1 position in the industry. Net income also reached a record high for the first half. Cathay Securities net income reached a record high for the first half. The strong performance was driven by active trading in Taiwan's equity market. Domestic voltage market share and supporting trading value continue to grow. Please turn to page 4 an update on our sustainable finance initiative. In July, we hosted the Cathay Sustainable Finance and Climate Summit with for the 10th consecutive year. This year's event attracting more than 5800 participants and participating listed companies represented over 80% of Taiwan's total market capitalization. Page 6 shows Cathay Financial Holding net income and EPS. In the first half, Cathay Financial Holding reported net income of TWD 76.5 billion. Net income plus TWD 89.4 billion of after-tax FBOCI equity disposal gains recognized directly in retained earnings reached TWD 165.9 billion, surpassing the 2025 full year level and setting a new all-time high. EPS was 4.95%, including after-tax FVOCI equity disposal gains the per share amount was 11.04%. Please turn to Page 7 for subsidiaries net income and ROE. Cathay United Bank, Cathay Century and Cathay Securities all delivered very high net income for the first half. Cathay Life net income plus after-tax BOC equity disposal gains surpassed the 2025 full year level and reached an all-time high. Cathay Financial Holdings ROE reached 16.9% and all major subsidiaries with double-digit ROE. Page 8 shows the net worth of Cathay Financial Holdings. Consolidated net worth reached TWD 1.13 trillion, supported by strong earnings and significant increases in OCI acid and liability valuation. Including after-tax CSM, adjusted network reached TWD 1.58 trillion, better reflecting economic value. After deducting preferred shares, adjusted book value per share was TWD 101.2. Now let's move to the performance of the major subsidiaries. Please turn to Page 10 for Cathay United Bank's loan and deposit performance. Total loans reached TWD 3.1 trillion, up 14% year-on-year, driven by double-digit growth incorporating customer loans and steady mortgage growth. Deposits grew 15% year-on-year to TWD 4.6 trillion, with the demand deposit ratio rising to 62.4%. Interest yield is shown on Page 11. Supported by strong foreign currency loan growth and a higher demand deposit ratio. The first half net interest margin and interest rates were 1.61% and 1.93%, up 5 basis points and 7 basis points year-on-year, respectively while both second quarter metrics increased by 4 basis points quarter-on-quarter. Page 12 shows the asset quality. Asset quality remains sound with the NPL ratio at 14 basis points, and the coverage ratio at 1,100%. Annual large credit cost was 24 basis points up year-on-year, mainly reflecting higher general provisions due to loan growth. Please turn to Page 15 for SME and foreign currency loans. SME loans grew 7% year-on-year to TWD 357 billion, accounting for 12% of total loans. Foreign closing loans reached TWD 35 billion at the end of the second quarter, up 34% year-on-year or 26% excluding FX impact, supported by supply term realignment and the corporate overseas CapEx demand. Page 14 shows offshore earnings. Offshore earnings increased 5% year-on-year to 5.4%, driven by growth in loans and deposits and investment income. Please turn to Page 15 for net fee income. Net fee income was TWD 19.8 billion, up 11% year-on-year, driven by strong growth management momentum. Wealth management fees reached TWD 13.9 billion, up 25% year-on-year. Page 16 shows the breakdown of wealth management fees. Fees from mutual funds grew 60% year-on-year, while fees from securities and structure products grew 74%, fees from insurance products also grew steadily. Please move to Page 18 for Cathay Life's earnings breakdown. Insurance service results was TWD 22.2 billion, supported by stable CSM release while financial result was TWD 38.8 billion, driven by recurring positive spread. Net income reached TWD 46.2 billion. Net income plus after-tax FVOCI equity disposal gains reached an all-time high of RMB 131.2 billion. Please move to Page 19 for Cathay Life's performance. FYP and FPE reached TWD 19.4 billion and TWD 39.3 million up 15% and 27%, respectively. Growth was driven by continued strong sales momentum in investment-linked products amid strong market. While FYP from health and [indiscernible] products, key contributor to NIM business DSM also increased year-on-year. Page 20 shows the distribution channels and persistency ratios. FYP was mainly generated through [indiscernible] and Cathay United Bank, which together accounted for nearly 99%. Please turn to Page 21 for new business CSM. New business in reached TWD 53.9 billion in the first half. Health and accident products contributed nearly 60% despite the relatively small share of FYP. [indiscernible] remains a primary contributor, while term marketing accounted for only 0.2% of FYP, but contributed 4% of new business CSM. Please turn to Page 22 for CSM balance movement. CSM balance reached TWD 547 billion, up 6.9% year-to-date, mainly driven by new business CSM. CSM released was TWD 17.4 billion, adding stable support to the insurance service results. Page 23 shows the liability on fractures and breakeven SIU. Under IFRS 17, insurance liability a major using market best discover liability interest to declined by 127 basis points to 2.3%, while the breakeven FIU also declined to 2.7%. Please look at Page 24 for the investment portfolio. Total investments were TWD 8 trillion at quarter end. With this investment accounting for nearly 70%. Please refer to the right-hand column for investment return by asset costs. Please turn to Page 25 for investment performance. Cathay Life has realized equity capital gains and strong equity market, bringing the after-hedging investment yield, including FOCF disposal gains to 5.55% in the first half. On P&L business, the after-hedging investment yield was 3.27%. Pre-hedging recurring yield was 3.7%. Please turn to Page 26 for FX hedging strategy. Annualized hedging growth was 1.21% down year, following the adoption of the new FX volatility reserve mechanism and FX amortization for bonds classified as amortized cost. Volatility in FX gains games and losses declined significantly and hedging can stabilized. The FX volatile balance increased to TWD 130.9 billion. Please turn to Page 27 for cash dividend cost. Cathay Life adjusted its addition and the realized capital gains amid strong equity market. Cash dividend income totaled TWD 12.7 billion as of the end of July. Page 28 shows the net worth and OCF valuation changes. Network reached a rig high of TWD 958. 7 billion, up TWD 454.2 billion in the first half, supported by earnings, equity disposal gains and OCI valuation gains. The OCI valuation gas reflected higher asset valuation amid strong equity market and the liability valuation gains due to higher term interest rate. The equity-to-asset ratio and adjusted equity to asset ratio reached 11.5% and 17.1%, respectively. Page 29 summarizes Cathay Life's key operating and financial metrics under IFRS 17 for reference. Let's move to copacetic security. Page 31, Cathay Century's written premium continued to grow, reaching TWD 21.3 billion in the first half, talking of 13.2%, ranking #2 in the industry. On Page 32, the return combined ratio improved by 2.4 percentage points year-on-year, has expanded underwriting capacity drove higher insurance revenues, while both ratios well as stable. Moving to Cathay SITE on Page 33. Cathay SITE net income reached a very high for the first half, up 27% year-on-year, with at 66.4%, supported by solid AUM growth, from the AUM and the number of beneficiaries also continue to grow. Moving to Cathay Securities on Page 34. Cathay securities net income reached a record high for the first half, up 148% year-on-year with ROE at 44.7%, supported by active trading in Taiwan's equity market. Domestic workage market share reached a new high, while our working trading value continues to grow. By the end of July, cumulative net income had already surpassed the 2025 full year level, setting a new all-time high. This concludes the presentation. I will now hand you back to C.K. for the Q&A section.

Okay. Thank you, [ Claire ].

Good afternoon. This is Grace Chen. Before we move into the Q&A, let me briefly recap some of the key topics discussed during our Chinese session which may also interest to international investors. Given our strong first half results, participants for particularly interested in recent operating trends, the outlook for key earnings and dividend policy. For banking business, operating momentum remained corporate foreign currency loans showed strong momentum, which should continue in the second half. We maintain our full year target of double-digit loan growth. First half net interest margin expanded by 6 basis points better than expected, given strong foreign currency loan momentum, effective funding cost management and greater visibility into the interest rate environment, we now expect full year NIM to be around 1.63% to 1.65% level. Asset quality remained stable in the first half with annualized credit cost at 24 basis points but remained stable in the second half. Strong wealth management momentum should support double-digit growth in net fee income. For Cathay Life, performance remained strong across both the insurance and the investment side. New business CSM reached TWD 3.9 billion in the first half, representing 72% of the full year target of TWD 75 billion. Given the strong momentum, new business CSM should exceed the full year target. The investment side -- the new AC FX accounting treatment has significantly reduced volatility in FX gains and ROCE and the hedging costs have stabilized. Full year hedging cost should be around 1.2%. Interest rates have remained elevated year-to-date, which has been shown to recurring income. The full year pre-hedging recurring yield could exceed 3.5%, supporting a stable positive spread. The significant increase in OCI valuation drove a strong rebound in Cathay Life's net worth and further strengthened its capital position. On dividend policy, net income plus after-tax FVOCI equity disposal gains reached an all-time high. In addition, Cathay Life strengthened capital position supports a positive outlook for future dividend upstreaming to the holding company. These developments provide a solid foundation for our dividend distribution. In determining future dividends, we will continue to cover overall earnings performance business development needs, shareholders' expectations and the peers dividend yield while maintaining healthy financial and capital ratios. But we have consistently communicated our objective is to appropriately reflect our strong earnings performance and provide a competitive dividend yield. These are the key highlights.