Chailease Holding Company Limited (5871) Earnings Call Transcript & Summary

Welcome to Chailease Second Quarter 2025 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. [Operator Instructions]. Now I would like to turn the call over to Kimberly Lian, Project Manager of the Chailease Holding. Ms. Lian, please go ahead.

Thank you, Jason. Hello, everyone. I'm Kimberly. Thank you for joining us today for our second quarter 2025 results conference call. With me this afternoon is Ms. Sharon Fan, Head of IR, and she will open to your questions in Q&A section. 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. Today's agenda includes management highlights for the second quarter 2025, followed by consolidated performance review and segment review for our major operations in Taiwan, China and ASEAN. Now let's begin the presentation by turning to Slide 4. Some highlight points for our second quarter 2025. First, in the summary table here shows the credit portfolio growth for the quarter. On a year-over-year basis, Taiwan, China and ASEAN's credit portfolio grew 1%, decreased 5% and minus 4%, respectively. We have a more conservative portfolio growth target this year to reflect the continued economic uncertainty and weakening macro environment. On the consolidated level, there was a 3% year-over-year decline on credit portfolio. As for the year-to-date portfolio growth, Taiwan increased 0.3%, China decreased 4%, ASEAN decreased 8% and an overall negative 5% growth on the consolidated basis. The slower-than-expected portfolio growth reflects weakening macro environment for this year. Second highlight. Chailease Holding balance sheet was impacted by strong Taiwan dollar in the second quarter. the appreciation of Taiwan dollar resulted in a decline of portfolio value when converted back to Taiwan dollar. Third, China's cost of funds continued to show improvement trend along with decreasing loan prime rate. Lower cost of funds helped maintain the interest spread and maintain the return profile of China operations. Moving to Slide 6. Consolidated credit portfolio reached TWD 786 billion at second quarter end of 2025, with minus 3% year-over-year growth and minus 5% quarter-over-quarter decrease as conservative growth target continues and appreciation of Taiwan dollar also resulted in a decline of portfolio value when converted back to Taiwan dollar at the second quarter end. The next slide, Slide 7, shows you the trend of consolidated average loan yield and cost of funds for the past 3 years. The trend of decreasing funding costs for the recent quarters, mostly due to previously decreased loan prime rate in China. 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 6 months of 2025 reached TWD 49.2 billion, representing a 3% decrease compared to the same period of last year due to lower revenue for both Taiwan and China. On the right-hand side, second quarter 2025 consolidated revenue was down 1% from the previous quarter. Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 6 months of 2025 totaled TWD 10.5 billion, with 14% year-over-year decline and earnings per share was TWD 5.8. The decrease in net profit was mainly driven by reduce in revenue and more impairment losses were booked this year. On the right-hand side, second quarter consolidated net profit was down 9% quarter-over-quarter as China recognized more tax rebate in the first quarter than in the second quarter this year. Turning to Slide 10. The slide shows you our credit portfolio mix and net profit contribution in terms of our operating regions. On the left-hand side, we can see Taiwan credit portfolio still accounts for more than half, which is 59% of the group's total credit portfolio. China's mix decreased to 27% compared to last year due to slower portfolio growth, plus the appreciation effect of Taiwan dollar against RMB and ASEAN maintained at 14% at second quarter end of 2025. Right-hand side, Taiwan net profit contribution accounts for 55% and China's portion decreased to 36% as low impairment losses were booked this year than previous year and that impact China's profit. ASEAN's contribution increased from 5% last year to 8% this year as ASEAN's profit growth pace is faster than other 2 regions. Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio was up to -- up to 30% for the first 6 months of 2025, compared to 27% last year. This increase in OpEx was mainly due to decrease in operating profit. The chart on the right-hand side, asset to equity was 5.4x at the second quarter end this year. Slide 12. The consolidated ROA and annualized basis was 2.3% for the second quarter, same as previous quarter. The consolidated ROE on the right-hand side was 13% for the second quarter, which also maintained the same as previous quarter. The calculation of ROE here are excluding preferred shares. Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at second quarter end 2025 was increased to 4.4% from 4.2% in prior quarter. The increase in the ratio was mainly due to the decreasing in portfolio size. If we look at the delinquency amount and the new delinquency formation amount, it has been stabilized in the second 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 slightly increased to 2.9%. Moving on to the segment review. Let's look at our operation performance region by region. On Slide 15. Taiwan's credit portfolio reached TWD 461 billion at second quarter end 2025, representing 1% year-over-year increase and quarter-over-quarter was down 0.4%. The impact of intentionally slowdown of used car installment financing continue this year. On top of that, the USD-denominated portfolio was also impacted by the FX effect in this quarter, as mentioned earlier. For the rest of the product line in Taiwan still generated moderate growth this year. Slide 16. The slide shows the trend of Taiwan Solar assets. Taiwan Solar net asset reached TWD 59.8 billion at second quarter end of 2025, representing 6% year-over-year increase and quarter-over-quarter was up 1%. Right now, Chinese had more than 4,000 solar power plants with a total generation -- generating capacity of 1.5 gigawatts and remain #1 market share in Taiwan. Next slide, Slide 17. This page presents the trend of our Taiwan loan yield and funding costs. We see continued improvement in funding costs in Taiwan for the recent quarter. Moving on to Slide 18. Revenue for our Taiwan operation for the first 6 months of 2025 reached TWD 26.7 billion, representing 3% year-over-year decrease. We have a more conservative growth target this year, along with continued slowdown of used car installment financing. For the quarter-over-quarter comparison on the right-hand side, second quarter revenue was up 6% quarter-over-quarter, and this is due to better Solar income resulting from the more sunshine in the second quarter as well as better business volume from other product lines in the second quarter. Turning to Slide 19. Taiwan's profit for the first 6 months of 2025 reached TWD 6.7 billion, increased by 2% compared with the same period of last year. We see positive year-over-year profit growth due to a decrease in impairment loss in the first half of this year. The second quarter Taiwan sale profit was up 22% quarter-over-quarter, also mainly due to better revenue as well as lower impairment losses booked in the second quarter. On Slide 20. On the left-hand side, Taiwan delinquency ratio at second quarter 2025 was up 0.2 percentage points to 3.3% for the quarter due to a decrease in the portfolio balance of Taiwan. We have observed a new delinquency amount maintained from prior quarter show a stabilized sign of the asset quality in Taiwan. On the right-hand side, recovery from delinquency and write-off amount was up a little for the second quarter. Next slide, Slide 21. Allowance to loan portfolio for Taiwan maintained at 1.9% this quarter. Let's look at China's operation on Slide 22. China's credit portfolio reached RMB 51.6 billion at second quarter end 2025. which decreased by 5% year-over-year and 1% decrease quarter-over-quarter, reflecting company's lower risk appetite given current operating environment. Turning to Slide 23. This page shows the loan yield and cost on trend for our China operations. We managed to maintain stable spread over the quarter under the current challenging macro environment. The trend of improving cost of funds reflects continuously lower loan prime rate and adjustment of our funding structure in China. China's loan yield shows a bigger decline in the second quarter, partly due to the appreciation of Taiwan dollar versus RMB. If we look at this in local currency, the variance of loan yield for this quarter is still within a normal range. Next slide, Slide 24. China's revenue for the first 6 months of 2025 totaled TWD 15.2 billion decreased 7% due to slower portfolio growth. On the right-hand side, second quarter revenue was down 11% quarter-over-quarter. If we look at quarter-over-quarter growth in RMB, it's actually down 5% instead of 11% if it's in Taiwan dollar. Moving on to Slide 25. China's net profit for the first 6 months of 2025 reached TWD 4.5 billion, decreased 29% year-over-year. The decrease in profit was mainly driven by more impairment losses for the first 2 quarters this year. On the right-hand side, China's second quarter 2025 net profit was down 37% sequentially as tax rebate of RMB 200 million was received in the first quarter this year and only $40 million in the second quarter of this year. Turning to next slide, Slide 26. On the left-hand side, China's delinquency ratio at second quarter was up 0.3 percentage points to 6% as a result of continued macro weakness as well as decreasing in portfolio value. However, if we look at the new delinquency formation among our second quarter, show decreasing from prior quarter, which is a good sign for the future asset quality improvement. On the right-hand side, write-off amount slightly decreased for the second quarter. Next slide, 27. China's allowance-to-portfolio ratio for the second quarter 2025 was up 0.3 percentage points to 4%. Moving to ASEAN on Slide 28. The credit portfolio at second quarter end 2025 reached TWD 111 billion, down 4% year-over-year and minus 9% sequentially. The appreciation of Taiwan dollar against most of the ASEAN currency except Thai baht resulted in a decline of portfolio value at the second quarter end when converted back to Taiwan dollars. If we look at portfolio growth in local currency, apart from Thailand, Malaysia, Cambodia and other ASEAN countries all have positive double-digit portfolio growth. Let's turn to next slide, Slide 29. The left-hand side items revenue for the first 2 quarters 2025 totaled TWD 7.2 billion grew 7% compared to the same period last year. On the right-hand side, ASEAN second quarter revenue was down 3% sequentially, mainly due to continued sluggish growth of Thailand operations. Moving to the Slide 30. ASEAN's first 6 months 2025, net profit reached TWD 1.26 billion, increased by 34% due to less impairment losses were booked on a year-over-year comparison basis, especially for Thailand subsidiary. On the right-hand side, ASEAN's second quarter 2025 net profit was down 11% sequentially due to more impairment booked for the second quarter than first and it was more related to the general provision from better business volume from Malaysia and Cambodia for the second quarter. The last slide, Slide 31. On the left-hand side, ASEAN delinquency ratio at second quarter 2025 increased 0.1 percentage point to 5.2%. We observed that Malaysia and Vietnam's business delinquency ratio continued to improve for the second quarter. On the right-hand side, ASEAN's allowance to portfolio ratio for the second quarter 2025 was slightly increased to 4%. 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 back to Jason.

[Operator Instructions]. Now firstly, we'll have Gurpreet Sahi of Goldman Sachs for questions.

I have a couple, please. So first on asset quality. Can I -- so I'll give you the first question and maybe wait for the response. So the asset quality, can we -- can you categorize for us the asset quality reading that you have, let's say, China? Is it improving in your mind with the quarter that you saw and then Taiwan? Already, I don't think many people were worried, but would you call that improvement? And then ASEAN, tell us Thailand and other countries. Is it improving trend? Because from what I heard just now seems like Thailand asset quality, sequential, I don't know, but Y-o-Y has improved. So yes. So that's the first question.

Okay. For those 3 major operating regions about this asset quality trend, let's start with the China. For our China portfolio, although from the presentation, we see slightly -- still slightly pick up of this ratio. However, if we look at the sequential performance of the delinquency trend, actually, we see some stabilization. And so I think also in China, in the Chinese session of this results conference, our Chairman mentioned if we look at even a little bit leading indicator of the possibility of default for the first 6 months of our new business volume compared with the first 6 months of last year, the kind of the different vintage comparison, we also see some improvement about this PD. So which seems a little bit early indicators of some positive signal of the improvement possibility of the improvement for this asset quality in China. So that's our most recent observation for China as a quality. And for Taiwan, I think it's quite clear that you can see our new delinquency formation for Taiwan portfolio already showing some decreasing trend. However, when we look at the ratio because of the slower growth of the portfolio this year. So probably we cannot see a big decrease of this ratio. However, if we look at from the new delinquency formation trend and the new provision expense, trend actually it seems quite sustainable about this Taiwan asset quality improving trend. For ASEAN it's a little bit mixed. But actually, except Thailand, for the rest of our ASEAN -- show some sustainable improving trend about the asset quality. Like -- yes. So Thailand, right now, the delinquency ratio still increased from the previous quarter. Right now, it's about 7 -- more than 7%, 7-point something. And Vietnam already improved to like around 4.3%, quite a big improvement compared to last year, above 5%. And also Malaysia, only like 1.3% of the delinquency ratio for the most recent quarter. So it's more because of the Thailand weaker performance drag our overall ASEAN performance. So if we exclude Thailand, actually the other ASEAN asset quality also perform -- show some sustainable improving trend.

Okay. And then second one is on spreads in China. I noticed that you mentioned that spreads on constant currency basis in China should be -- what did you say? What did Kimberly say in line with your expectation? But can I confirm, is the spread on a constant currency basis, flat Q-on-Q or not?

Yes. Actually, if we exclude that FX impact, the spread is quite maintained.

Okay. Okay. And so then Taiwan, as it relates to spread, then excluding this auto portfolio shrinkage, spread is also largely flat, q-on-q?

Yes. I -- because this -- the yield line and the cost of funding line for Taiwan presentation is the blended number. And in Taiwan, we have so many different product lines with different pricing level, different credit cost level. So we give -- we assume different like credit cost and will have different price. So for every single product, actually, we didn't change the pricing, most of the price has been up hold quite well. But because of this used car, the problem, used car product line still has some impact, although this negative impact should be greatly decreased over time. But right now, still have some impact to this blended yield number. So actually, if you look at the spread, just deducted this yield by this cost of fund, you can see there's a little bit increase actually. Yes, although it hasn't really back to the last year's level yet. But compared to previous quarter, there's a little bit of improvement. But we should say it's quite maintained.

Okay. Good. And then finally on growth outlook, et cetera. seems like early sign of stabilization in asset quality. So I'm assuming there is no big target for this year and also with the currency doesn't help. So what are we looking for? I know there's no target, but if stability comes in the credit side, the credit quality, then what kind of -- realistically, what kind of portfolio growth can we see at the group level?

I think let's talk about China first. For China, if we can see this -- improving of this asset quality can continue and probably sequentially, I mean, quarter-over-quarter, we are able to back to a bit of a better growing mode because the first 2 quarters of this year, actually, the portfolio is declined, right? If we only look at the third quarter, the next quarter compared to previous second quarter, probably there is a possibility that we can we can generate some growth. There is some possibility. But it really depends on how our asset quality can continue to perform Yes. we will see and closely monitor this asset quality. But for the whole year growth, I think probably we should wait for like another half year or some quarters or so yes. And for Taiwan, there's still some chance to have a little bit growth overall. Yes. Although for the first 2 quarters, there is slight decrease. It is quite flat, but we still have 2 quarters to go and management still want to maintain like keep the target for us to work. Yes.

[Operator Instructions]. Next one, Alex Leung, UBS.

Sharon, so I just have a quick one on your used car financing in Taiwan. So it has been shrinking, right, and has been a drag on the portfolio. So I'm just curious on that particular product line that you plan to bring it down to by year-end, right? So what exactly -- how much exactly does that product line taking up your Taiwan portfolio Q2? So how much of Taiwan book should we expect to be shrinking from now to year-end?

For this product, actually, we have separated into 2 different departments by different customer acquisition channel. The trouble one is only related to we leverage the outside agent to a customer. So that car right now still accounts for 5% of the Taiwan book, Taiwan portfolio and it's already shrink by around 40% compared to last year. And I think it's quite clear management want to gradually like reduce this part of the portfolio down to 0, but it will take some time because the average duration for that product is about 3 to 5 years. Yes. But the other part also used car financing is more we're using direct sales team to promote the similar product. That part actually will continue the operation. And that part also accounts for like of the 7% of the Taiwan portfolio. So that product will continue to grow based on our growth target. Yes. So roughly, that's the used car financing portion.

So if I can do a quick follow-up. On -- there's another product line by operator for Taiwan, right, used to make up another 5% of the Taiwan book. So how is that product line going, going forward? Will it also be bring to 0 or just business as usual? And then second -- yes, yes. So the second question is about your ASEAN growth. Also should we expect maintaining your earlier growth guidance for ASEAN?

For BNPL, there's no change at all. It's our traditional kind of consumer installment financing business. We've been doing that for like 20-something years and still can generate average Taiwan growth rate like around 10%, right now accounts for like 5%, Yes, another 5% of the Taiwan book. So that part, we will continue with no change. And for the ASEAN growth this year, as we present in the slide because the -- Thailand still has no sign of the like recover the macro economy and our asset quality. So probably, if we exclude Thailand for the rest, we still can generate double-digit growth but Thailand accounts for more than 40% of the total ASEAN in terms of portfolio side. So probably all in all, net-net, we will have quite flat growth for ASEAN this year. However, because if we do the year-over-year comparison, Thailand, although it didn't grow much this year. However, compared to last year, we already have some improvement of the credit cost. Yes, because last year is the first year, we see the fast growth of the delinquency ratio. But right now, the pace -- the growing pace already kind of stabilized, and we maintain similar like I mean we can reduce year-over-year the impairment loss. So in terms of the profit contribution, profit growth still can be expected.