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

Welcome to Chailease Third Quarter 2025 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 has finished. Now I would like to turn the call over to Vic Wang, the Project Vice President of the Chailease Holding. Mr. Wang, please begin.

Thank you. Hi. Good evening, everyone. I would like to welcome everyone to Chailease Holding's Third Quarter 2025 Earnings Conference Call. With me this evening is Ms. Sharon Fan, Head of IR, and she will open to your question 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 2025 consolidated performance review, followed by the segment review for our Taiwan, China and ASEAN operations. With no more delay, I would like to start the presentation from Slide 4. Highlights for overview of our third quarter 2025 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%, decreased 5% and decreased 8%, respectively. On a consolidated level, year-over-year credit portfolio decreased 3%. As for year-to-date portfolio growth, Taiwan increased 1%, China decreased 5%, ASEAN decreased 5% and 3% decrease on a consolidated basis. Slower-than-expected portfolio growth reflect current economic uncertainty and the company's decrease in credit appetite. Second, in the recent 2 quarters, we observed a stable new delinquent formation for China operation. If this trend continued or further improved, we may gradually resume the business momentum. Third, although this year, ASEAN's portfolio growth was impacted by decreased portfolio in Thailand, the profit was boosted by improvement of asset quality for Vietnam and Thailand as well as better portfolio growth for Malaysia and Cambodia. Moving on to Slide 6. Consolidated credit portfolio reached TWD 799 billion at third quarter end 2025 with 3% year-over decrease and year-to-date decrease. The next slide, Slide 7, show you the trend of consolidated average loan yield and cost of funds for the past 3 years. In recent quarters, we saw fluctuation in loan yield and cost of funds, mainly due to the change of foreign exchange rates. 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 2025 reached TWD 73.4 billion, representing 5% decrease compared to the same period last year as Taiwan and China decreased in revenue. On the right-hand side, the third quarter 2025 consolidated revenue was also down 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 2025 totaled TWD 15 billion and earnings per share was TWD 8.45. The year-over-year decrease in net profit was mainly driven by decreased revenue and more expected credit loss was booked for China. On the right-hand side, the third quarter consolidated net profit was down 9% quarter-over-quarter, mainly due to less tax rebate in China was booked compared to the prior quarter. Turning to Slide 10. This slide show you our credit portfolio mix and profit contribution in terms of operating region. On the left-hand side, we can see Taiwan credit portfolio increased to 58% of group total credit portfolio. China is about 27% and ASEAN is 14% at third quarter end 2025. On the right-hand side, Taiwan's net profit contribution accounts more than half at 57%. China was down to 34% and ASEAN contribute 8% to the consolidated net profit. Moving on to Slide 11. The chart on the left-hand side, cost-to-income ratio was up from 27% to 30% for the first 9 months of 2025 compared to the same period last year due to decrease in operating profit. The chart on the right-hand side, asset to equity maintained at 5.2x for the quarter compared to prior quarter. Slide 12. The consolidated ROA on an annualized basis was 2.2% for third quarter of 2025, decreased from 2.6% in 2024, mainly due to decrease in net profit this year. The consolidated ROE on the right-hand side was 12% for the quarter. The calculation for ROE exclude preferred shares. Next slide, Slide 13. The consolidated delinquency rate on the left-hand side at third quarter end 2025 was up to 4.6% from 4.4% in prior quarter. Later in the presentation, I will discuss each region in more detail. Moving to the right-hand side, allowance to loan portfolio ratio was also slightly up 0.1 percentage point to 3% compared to the previous quarter. 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 462 billion at third quarter end 2025, representing 2% year-over-year increase and year-to-date was up 1%. The slower-than-expected portfolio growth was mainly due to continued decrease in used car installment portfolio this year. The micro business installment sales and offshore USD business remain the growth driver for the year. Slide 16. This slide shows the change of Taiwan net solar asset. Taiwan's solar net asset reached TWD 60 billion at third quarter end 2025, representing 5% year-over-year increase and year-to-date was also up 3%. The growth was in line with the industry development. Next slide, Slide 17. The page presents trends of our Taiwan loan yield and funding costs. The slightly decrease in loan yield this year was mainly due to the change of product mix since second quarter of last year. Moving on to Slide 18. Revenue for our Taiwan operation for the first 9 months of 2025 reached TWD 40 billion, representing 3% year-over-year decrease due to product mix change and slower portfolio growth. The solar revenue account 15% of Taiwan revenue for the first 9 months of 2025. For the quarter-over-quarter comparison on the right-hand side, third quarter revenue was down 2% due to less solar income in third quarter due to weather conditions. Turning to next slide, Slide 19. Taiwan's profit for the first 9 months of 2025 decreased by 3% compared with the same period last year, mainly due to decrease in revenue. The third quarter Taiwan net profit was down 13% quarter-over-quarter as we booked less solar income and less nonoperating foreign exchange gains for the quarter. On Slide 20. On the left-hand side, Taiwan delinquency rate at third quarter 2025 was up 0.1 percentage point to 3.4% for the quarter. As for new delinquent amount for the quarter, it decreased from the prior quarter. On the right-hand side, recovery from delinquency and write-off amount was decreased for the quarter. Next slide, Slide 21. Allowance to loan portfolio for Taiwan was slightly up to 2%, reflecting less write-off amount for the quarter. Let's start China operation on Slide 22. China's credit portfolio reached RMB 51.3 billion at third quarter end 2025, which decreased by 5% year-over-year and also 5% decrease year-to-date, reflecting company's continued lower risk appetite given current operating environment. Turning to Slide 23. This page shows the loan yield and cost of funds trend for our China operation. We continue to manage to maintain stable spread over the quarters. The slightly fluctuated loan yield reflect the impact of foreign exchange rate changes. Next slide, Slide 24. China's revenue for the first 9 months of 2025 totaled TWD 22 billion, decreased 11% or decreased 8% in RMB term compared with the same period last year. On the right-hand side, third quarter revenue was down 4% or decreased 2% in RMB sequentially. Moving on to Slide 25. China, for the first 9 months of 2025, net profit reached TWD 5.9 billion, decreased 35% compared with the same period last year. The decrease in profit was mainly driven by lower revenue and more expected credit loss booked this year. On the right-hand side, China's third quarter 2025 net profit was down 18% sequentially as [ RMB 3.5 million ] of tax rebate was recognized for the quarter compared to [ RMB 40 million ] in the second quarter 2025. Turning to next slide, Slide 26. On the left-hand side, China delinquency ratio at third quarter end was up 0.4 percentage point to 6.4%, reflecting China's uncertainty outlook as well as decreasing credit portfolio. As for new delinquent amount for the quarter, it remained stable in local RMB currency from the prior quarter. On the right-hand side, recovery and write-off amount decreased for the quarter compared to the prior quarter. Next slide, Slide 27. China's allowance to portfolio ratio for the third quarter 2025 was up 0.3 percentage point to 4.3%. Moving to ASEAN on Slide 28. Credit portfolio at third quarter end 2025 reached TWD 114.6 billion, down 8% year-over-year and decreased 5% year-to-date, mainly due to decrease in Thailand portfolio. Malaysia and Cambodia remained as the main driver -- main growth driver for ASEAN operation this year. Let's turn to next slide, Slide 29. The left-hand side, ASEAN's revenue for the first 9 months of 2025 totaled TWD 10.8 billion, grew 4% compared to the same period last year. On the right-hand side, ASEAN's third quarter revenue was also up 0.3% sequentially. Moving to the Slide 30. ASEAN's first 9 months of 2025 net profit reached TWD 2 billion, increased by 47%, mainly due to less expected credit loss for Thailand and Vietnam this year. On the right-hand side, ASEAN's third quarter 2025 net profit was also up 21% sequentially, also due to less expected credit loss for the quarter. The next slide, Slide 31. On the left-hand side, ASEAN delinquency rate at third quarter end was up 0.1 percentage point to 5.3% compared to prior quarter, mainly due to increased delinquency rate in Thailand. On the right-hand side, ASEAN's allowance to portfolio ratio for third quarter was slightly down to 3.9%. And this also bring us to end of my presentation for today. Now I would like to turn the call to operator to open the line to questions. Jason?

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

So China asset quality again. I think when you say that it has been stable delinquent amount in RMB terms, can you talk about the formation ratio and how the new delinquent formation ratio was in third quarter compared to second and also compared to first? And also at the Chinese call, the second question related to this is, I think there was some comment regarding [ vintage ]. So can you refresh? Last we heard was that the first half vintage this year is better than first half last year. So any update on that?

Okay. Regarding the new delinquency formation for our China for this quarter -- actually, if we calculate the absolute amount, it's around like TWD 1.19 billion for this quarter compared to previous quarter, it's like TWD 1.18 billion. So we think this is quite stable. And -- because for this year, so far, we didn't grow the portfolio. And -- so the portfolio maintained quite stable. So this new formation probably can indicate that the formation rate is already stabilized for -- at least for the past 2 quarters. And regarding the vintage, our CEO mentioned that we continue to monitor the default rate or new delinquency occur for the new disbursement batch. If we compare from January to September this year, among all those new disbursements, how much got default, the default rate already has some significant improvement compared to the same period of last year, which is like January to September of 2024. So this is a very early indicator or the leading indicator that we -- right now, we are continuing to monitor. So -- but it's probably still too early to say that it will lead to the continuous decrease of the new delinquency amount or delinquency ratio is also related to our portfolio growth trend. So yes, that's about these 2 numbers.

Okay. Final question is on the October number. So very strong profit number. Can I check what is the provisioning ratio right now for China? Is it still close to 4%, 4.5%? Or has it reduced in the month of October?

Yes. For China, provisioning expense still remained quite similar level quarter-over-quarter or month-over-month. For the better October bottom line performance is more because of the lower OpEx and provisioning expense for Taiwan operation.