Chailease Holding Company Limited ($5871)

Welcome to the Chailease Full Year 2025 Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. For your information, the webcast replay will be available within an hour after the conference is finished. And now I would like to turn the call over to Kimberly Lian, Project Manager of the Chailease Holdings. Ms. Lian, please go ahead.

Hello, everyone. Thank you for joining us today for our fourth 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 fourth quarter of 2025, followed by the 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, highlights for an overview of our fourth quarter 2025. The summary table highlights credit portfolio performance for the fourth quarter. On year-over-year basis, Taiwan, China and ASEAN recorded growth of 1%, a decline of 6% and growth of 1%, respectively. The conservative portfolio growth reflects ongoing economic uncertainty and a weakened macro environment in 2025. At the consolidated level, the credit portfolio declined 1% year-over-year, which is also due to the challenging macro conditions. On quarter-over-quarter basis, Taiwan increased 0.4%. China decreased 1% and ASEAN rose 6%, with consolidated growth of 2%. ASEAN, as a whole achieved 6% quarter-over-quarter growth since most of our ASEAN operation continued its steady growth momentum. In terms of asset quality, to strengthen asset quality while maintained stable growth has been the focus for the past 2 years. As a result, the overall asset quality has shown clear sign of stabilization, especially in the second half of this year. Moreover, we see continued improvement trend of ASEAN's asset quality, which also drives the profit growth of ASEAN this year. Moving on to Slide 6. The consolidated credit portfolio achieved TWD 817 billion at the end of the fourth quarter of '25, reflecting a 1% year-over-year decline. We will discuss in more detail in the segment review section later. Next slide, Slide 7, illustrates the trend of consolidated average loan yield and cost of funds over the past 3 years. The decline in yields observed in the fourth quarter was primarily due to the product mix change, with continued reduction of high-yield auto loans for outsourcing refinancing services in Taiwan. Next slide, Slide 8. On the left-hand side, the consolidated revenue for the full year 2025 reached TWD 97.6 billion, representing a 5% decline compared with the prior year, driven by the lower revenue contribution from both Taiwan and China. On the right-hand side, fourth quarter 2025 consolidated revenue increased 0.4% from the previous quarter. Moving on to Slide 9. On the left-hand side, consolidated net profit for the full year 2025 totaled TWD 19.8 billion, reflecting a 12% year-over-year decline, with earnings per share at TWD 11.24. The decrease in net profit was primarily driven by reduced revenues. On the right, fourth quarter consolidated net profit rose 5% quarter-over-quarter as the impairment losses booked in the fourth quarter were lower than reported in the third quarter. Turning to Slide 10. This slide presents our credit portfolio mix and net profit contribution by operating regions. On the left-hand side, Taiwan continue to account for the majority of the group's credit portfolio at 57%. China's share declined to 28% compared with last year, reflecting slower portfolio growth, while ASEAN remains steady at 15% as for the fourth quarter of 2025. On the right-hand side, Taiwan contributed 58% of net profit. China's share fell from 41% to 33%, driven by a slower pace of profit growth this year. In contrast, ASEAN's contribution increased from 5% last year to 9% this year, supported by the strong financial performance and a faster profit growth rate than the other 2 regions. Moving to Slide 11. The chart on the left shows the cost-to-income ratio rose from 28% to 30% in 2025 compared with the prior year, primarily due to decline in the operating profit. On the right-hand side, the chart indicates the asset-to-equity ratio stood at 5x at the end of the fourth quarter. Moving to Slide 12. The consolidated ROA on annualized basis was 2.1% for the year of 2025. On the right-hand side, we see the consolidated ROE was 12% for 2025, reflecting slight decrease ROA as well as lower leverage. And just to note, this ROE calculation excludes preferred share. Next, let's look at on Slide 13. On the left-hand side, the consolidated delinquency ratio at the end of fourth quarter 2025 increased slightly to 4.8%, up from 4.6% in the prior quarter. This rise was mainly due to the decrease in the portfolio size. If we look at the delinquent amount and the new delinquency formation amount, both remained stable throughout the quarter. Later in the presentation, I will go into more details by region. On the right-hand side, the allowance to loan portfolio ratio edged up to 3.1% from 3%. 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 464 billion at fourth quarter end, representing 1% year-over-year increase, and quarter-over-quarter was up 0.4%. The impact of intentional slowdown of used car installment financing continue for the year of 2025. For the rest of the product line in Taiwan still generate moderate growth in 2025, especially with solid performance in offshore lending, including shipping and aircraft and construction-related financing products. Slide 16. This slide shows the change of Taiwan's Solar asset. Taiwan's Solar net asset reached TWD 60.4 billion at fourth quarter end, representing 4% year-over-year increase and quarter-over-quarter increase was up 0.4%. As of the end of 2025, we own approximately 4,621 solar power plant with a total generating capacity of about 1.6 gigawatts. Next slide, Slide 17. This page presents trend of our Taiwan loan yield and funding costs. We see stable funding costs in Taiwan for the recent quarters. Loan yield continue affected by the product mix change. Moving on to Slide 18. Revenue from our Taiwan operations in 2025 reached TWD 53.4 billion, representing a 3% year-over-year decline. This was mainly due to the slowdown in used car installment financing business, which also lead to the product exchange for the past 2 years in Taiwan, as we mentioned earlier. Looking at Solar income. Solar revenue accounts for 14% of Taiwan's total revenue in 2025. On the right-hand side, you will see the fourth quarter revenue was down 3% quarter-over-quarter, primarily due to the lower solar income, which was the result of less downtime during the quarter. Turning to next slide, Slide 19. Taiwan's profit for the year of 2025 was TWD 13.1 billion, decreased by 0.2% compared with the same period last year. We see positive quarter-over-quarter profit growth of 1% due to the decrease in impairment losses in the fourth quarter of 2025. On Slide 20, on the left-hand side, Taiwan delinquency ratio at fourth quarter end 2025 was up 0.2 percentage points to 3.6% for the quarter due to the decrease in the portfolio balance. On the right-hand side, recovery from delinquency was up a little for the fourth quarter. Slide 21, we see allowance to loan portfolio for Taiwan increased to 2.1% this quarter. Now let's look at China operations on Slide 22. China credit portfolio reached RMB 50.5 billion at fourth quarter end of 2025, which decreased by 6% year-over-year and 1% increase quarter-over-quarter, reflecting company's loan risk appetite given the current operating environment. Turning to Slide 23. This page shows the loan yield and cost of fund trend for our China operations. We managed to maintain stable spread over the quarter under the current challenging network environment. The trend of improving cost of fund reflecting stable LPR rate and the optimization of our funding structure for China operations. Slide 24. China's revenue for the year of 2025 totaled TWD 29 billion, decreased 12% year-over-year due to slower portfolio growth. On the right-hand side, fourth quarter revenue was up 2% quarter-over-quarter. Moving to Slide 25. For 2025, China's net profit reached TWD 7.59 billion, representing a 29% year-over-year decline. This decrease was mainly due to higher impairment losses and a fewer tax rebate compared with the prior year. The total amount of tax rebate in 2025 is approximately RMB 250 million compared to RMB 300 million in the prior year. On the right-hand side, you will see China's fourth quarter net profit rose 21% sequentially. This improvement was driven by lower impairment losses in the quarter and a stronger revenue growth compared with the third quarter. Turning to next slide, Slide 26. On the left-hand side, China's delinquency ratio at the end of fourth quarter rose by 0.4 percentage points to 6.8%. The delinquency ratio increased mainly because of the decline in portfolio balance. However, the new delinquent formation amount has been stabilized. On the right-hand side, both recovery of delinquency and the write-off amount showed a slight increase compared to the previous quarter. Slide 27. China's allowance to portfolio ratio for fourth quarter 2025 was up 0.2 percentage points to 4.5%. Moving to our ASEAN performance on Slide 28. At the end of fourth quarter of 2025, the credit portfolio reached TWD 122 billion, reflecting a 1% year-over-year increase and a 6% sequential increase. Looking at portfolio growth across our ASEAN subsidiary, Malaysia, Cambodia and Vietnam all delivered strong performance, driven solid overall growth in the ASEAN region. Turning to Slide 29. On the left-hand side, ASEAN's revenue for 2025 totaled TWD 14.5 billion, representing a 4% increase compared with the same period last year. On the right-hand side, you will see that fourth quarter revenue was up 6% sequentially, driven by continued solid growth across our ASEAN operations. Moving to Slide 30. ASEAN's net profit for 2025 reached TWD 2.78 billion, margin of 54% increase mainly because of fewer impairment losses were booked during the year. On the right-hand side, you will see that fourth quarter net profit was up 14% sequentially, supported by the continuously improved asset quality. Finally, let's turn to the last slide, Slide 31. On the left-hand, ASEAN's delinquency ratio at the end of fourth quarter decreased by 0.2 percentage points to 5.1%. We observed continued improvement in the delinquency ratio across our ASEAN subsidiaries during the quarter. On the right-hand side, ASEAN's allowance to portfolio ratio for the fourth quarter 2025 remains at 3.9%. And this brings us to the end of my presentation. Thank you very much for your time. And now I would like to hand the call back to Jason to start Q&A.

[Operator Instructions] Now we'll have the first question, Jemmy Huang, JPMorgan.

Just 2 questions from me. I think first one, can you update with us what's the tax rebate amount in 2025 and the guidance for this year? Because I recall, maybe some of the amount has been delayed recognition till this year from 2025. So any updated guidance on the tax repayment for China this year? Second question is Taiwan asset quality. If you look at the credit cost, indeed, it has been largely stable at around maybe 1.5% to 1.6% last year compared to somewhere around 2% in 2024. If we look at our current portfolio and also the network condition and then your portfolio data, customer behavior, is it I mean, direction-wise, is the -- should we expect there could be further improvement from 1.5% to 1.6% to, let's say, I think before COVID, we probably have like 1.2% to 1.4%, that kind of credit cost. Or do you think the current level will be a more normalized credit cost level for Taiwan going forward?

Okay. Regarding the tax rebate for 2025 was about RMB 250 million compared to previous year was RMB 300 million. So as we mentioned in the previous quarterly results, that this -- for 2025, there are -- because we have 2 parts of this rebate. One is related to the withholding tax -- value added tax, which is about RMB 50 million for last year, RMB 50 million for the value-added tax rebate, and this part that already stopped since October last year. So this year, probably we will only get the other portion of this rebate, which is related to our corporate income tax, yes. And for this year, yes. So probably there will be only around RMB 190 million or RMB 200 million for this corporate income tax rebate. And the second question about this Taiwan credit cost, because if you look at our last year's quarterly delinquency ratio for Taiwan and asset quality performance, actually, you can see year-over-year, we see quite obvious improvement of the Taiwan asset quality for 2025 compared to '24. So that's the reason why our credit cost for Taiwan has been improved to 1.5%, 1.6% compared to previous one, which is 2%. And going forward, I think because for the recent -- like recent 1 or 2 quarters, actually, the delinquency -- new delinquency formation is kind of stabilized or a little bit improved. So, so far, I think, probably we can say there's a highly chance that at least, we can maintain similar credit cost for Taiwan for this year. And also, we will try to have more improvement, and there should be some opportunity for this improvement. But so far, for the past recent quarters, probably we haven't seen a very significant sign of a very significant improve. But however, yes, we will see, at least, it can be maintained.

Next, we'll have Alex Leung, UBS, for questions.

Sharon, I have 3 questions. Number one is on the Chinese -- the Mainland China's asset equity. So in the Chinese section, when you mentioned that from a vintage perspective, the 2025 vintage is running at about similar formation ratio versus 2022, right? So I recall in previous earnings call, I asked you how much better is 2025 compared to your 2024 vintage. So just want to get an update of what that number looks like. Currently, is it still similar like 20% to 30% better than 2024? Or can you give us a more kind of accurate estimate here? Second question is about your Taiwan interest rate spread outlook. So it appears last quarter, the drag from OA channel used car has continued. So just wondering, what's the current exposure to the OA channel used car? And how much longer do you expect that spread pressure would continue this year? And then lastly, I noticed, on a group level, your OpEx, including employee costs, appear to show a pretty sizable Q-on-Q decline. Employee costs down by 17% Q-on-Q. So that appeared to be more than seasonal. So can you give us some more color in terms of what's going on here? Is it due to some cost-cutting or layoff initiatives that should -- should we expect the improvement to be continuing? Or is it just one-off?

Okay. Let me answer the simple question first. Your last question about Q-o-Q decrease of the OpEx mainly related to the headcount-related expense. It's more about we kind of reversed the bonus accrual number. So it's a onetime adjustment because last year, obviously, we didn't achieve our original like target volume. So we have some reverse of this bonus expense in the fourth quarter. So that's the adjustment. So it's not -- no layoff or head count reduction program related to that. And the spread outlook for Taiwan, because we will -- we still have around TWD 24 billion for this OA outside agent used car financing business. So -- but we will continue to like have some -- because we totally stopped to do the new business for this product. So this portfolio will continue to trend down. And that's the reason why because of this product mix on our balance sheet on the product mix. So this blended -- Taiwan blended yield will continue to have some pressure -- downside -- downward pressure. And -- but I think the scale is much narrowed compared to previous 2 years or last year. So probably in the near term, we still need to wait this outside this OA used car financing issue to totally resolved. We will continue to see more clear sign of this blended yield to pick up. That's the Taiwan yield outlook. And for the China asset quality, I think if you look at the year-over-year comparison, 2025, we have quite significant improvement in the provision expenses, which actually decreased year-over-year. And in terms of the credit cost, probably it is decreased from 4.5% to -- no, reverse? Yes. So last year, we still see, in terms of the ratio-wise, probably credit cost still increase. However, the total bad debt expenses, this already shows some -- the growth rate has decreased a lot. Like if I -- if we look at the year '25 bad debt expense for China compared to the 2024, it increased by 19% in terms of the amount increase. If you look at the previous year, like 2024 versus 2023, actually, it's like almost doubled. So this is also reflect that you can see our new delinquency formation continue to have a signal of this stabilization or even a little bit improvement. So -- but we need to wait until we have go back to a better growth momentum. It was started to show this ratio decrease. So if we look at the new business volume related -- I mean, the new -- the delinquency amount contributed to the new business volume for the recent 3 months versus the -- I mean, the previous, if we look at a 3-month basis comparison, as our CEO mentioned in the Chinese session of this result call, it's improved like 14%. So this is also quite promising. And because we just passed the Chinese New Year long holiday, so we will see if this February monthly results also confirm the similar trends, that -- then we will have better confidence that this improvement of the improved new delinquency formation will continue, will be more sustainable yes.

Next one, Michael Zhang, Citi.

Sharon, just 2 questions. The first one is on the Taiwan -- a follow-up question on Taiwan business. Could you remind me what's your average yield on this auto financing business? And if we still expect we will wind down the auto financing business, which should have higher credit cost? Why should we expect a stable credit cost in 2026? If we wind down this auto financing business, then I think naturally, we should expect some kind of improvement in current credit cost? And then the second question is on the loan growth trend for 2026. I think the management guided for single-digit growth for China and Taiwan in 2026. Could you just comment on what would be the trend like in the first half versus the second half? Do you expect loan growth to remain under pressure in the first half? And then most of the growth will be back-end loaded in the second half? Or how should we think about the loan growth between first half and second half?

Okay. Actually, for the loan growth, for last year, we do see some pickup, very clearly pick up for ASEAN operation, most of the ASEAN operations. And Taiwan and China, probably we can only say is kind of stabilized. The pickup is not significant. So that's the reason why actually for this year, probably we will expect to grow our ASEAN except Thailand, probably with double digits, still can deliver double-digit like growth. And for Taiwan and ASEAN, probably can have a little bit better growth compared to last year, probably like single digit that based on our past quarter -- past 2 quarters kind of growth trend. That's for the portfolio growth. And for this Taiwan credit cost, because this used car financing that we start to do through the outside agent, although it's -- we charge higher price. However, we also pay higher commission and set aside higher provision credit cost. So net-net, from the return point of view, like ROA also, actually, it's quite similar to the other product line. But from -- if we only look at the yield line, it will drag the blended Taiwan yield or spread to come down. And although this impact already gradually decreased compared to past 2 years, I think going forward, the negative impact will become more and more smaller. So that's -- so right now, the credit cost performance is more related to the other product line. And actually, it's also quite stable. So that's the reason why, as I mentioned earlier, probably for this year, Taiwan credit cost, we can use the current credit provision level as a baseline. And hopefully, if we can see some macro economy turnaround or further improvement of the asset quality, then we -- there is a chance that we can further decrease the overall Taiwan credit cost.

[Operator Instructions] Okay. Then Kimberly, we don't have further questions at the moment.

We can end the call, Jason. Thank you.

Yes. Thank you. And ladies and gentlemen, thank you for your participation in Chailease conference. You may now disconnect. Thank you again. Goodbye.