KGI Financial Holding Co., Ltd. (2883) Earnings Call Transcript & Summary

All Presidents and the subsidiaries are all here. And later, they will talk about the 2024 highlights and 2025 directions. We will have Q&A session after the report. And professional investors will ask question first. Now I'll hand over to our CEO, [ Paul Yang ].

Investors [indiscernible] continue from our last year's presentation, we shared our group development strategy. Today, we'll follow the same framework to report on the operational results in 2024 and our direction in 2025. And afterwards, the CEOs from the subsidiaries will talk about the highlights of their achievements and the 2025 directions. Last year, I talk about the targets. There are 3 targets: accelerate business growth and enhancing the financial performance. And the third one is upholding a consistent dividend policy. I'll talk about the first one first, and CFO will talk about the second one. Regarding the dividend policy, previously, I have shared with you if you still have questions, I can answer your questions in the Q&A session. We adopt to accelerated growth in the group. We adopt One KGI strategy and integrate digital transformation. In terms of One KGI strategy, we strengthened internal resource and service integration, and enhancing the sales capability and wealth management capabilities to expand the management scale of assets and build long-term shareholder interest. The whole spirit of One KGI is to integrate the resource and services for all the subsidiaries of under KGI, allowing customers to feel that we are one team, one brand, whether they come from the bank securities or insurance. So the customers feel that by choosing KGI, the financial needs can be handled here at once. That is on slogan you care what you care, you do changes for digital development. We're also adopting the One KGI strategy. We established corresponding digital development plans, and this allow subsidiaries to integrate the digital frameworks and introduce AI to provide services to customers. And the KGI app is a leader to lead the subsidiaries and by adopting AI to drive the productivity and also increase the awareness of AI product. In terms of One KGI, in 2024, we had some highlights. First, we established [Technical Difficulty] secondary [indiscernible]. After we integrated our brand, we utilized a pension strategy to integrate the services, and the subsidiaries can share the performance and serve customer better. We established the one-on-one online official head count to provide support for customers. And secondly, in terms of resource sharing, we designed an incentive mechanism to allow subsidiaries only to share resources. In 2024, we completed 6 pilot branches in Taipei, central [indiscernible] and through this mechanism can actually boost sales and also boosting AUM growth. Starting from April 1 this year, we will start to promote the One KGI mechanism. Under One KGI, in 2025, we have 6 goals. The first one to continue to increase the proportion of long-term relationship clients. The Security, Life and Bank, life insurance and security, they have a large-scale customers. But we still have room to grow the customer base and to better serve the customers in multiple subsidiaries. And secondly, to double the ratio of KGI Security clients using KGI's account settlement to further drive the growth of demand up in KGIB. And thirdly, to integrate KGI Life and KGI SITE to boost the ILP sales and can meet the diverse needs for customers' investment needs. And number four, we will fully support KGI SITE sales to boost the AUM growth. And number five, leverage CIB to create a customized alternative investment to establish the foundation for the ultra-high net worth customers and we can extend personal wealth commitment to families to close generation to meet their needs. And number six, extend the One KGI policy to overseas branches. For example, KGIB's Hong Kong branch will collaborate with KGIS branch in Hong Kong. Core of AI application and development that is the data computation in terms of platform technology to build the degradation and algorithm. We developed all AI technology and knowledge [indiscernible] internally. We also build an infrastructure required by AI and inverted infrastructures. In terms of data, we introduced a smart finance development built a big change to use enterprise knowledge and to train KGIS [indiscernible]. We will develop different AI applications [indiscernible] we leverage AI assistance to boost the productivity. Internally we will leverage business application to provide digital services and optimize customer experience. For example, to build a One KGI financial service, including old CRM dashboard and to integrate customer information to provide precision marketing and customer experience and provide a comprehensive view to improve the management of customer and also build AI talent is the most important thing, but also change the organization structure to centralized power of digitization. [indiscernible] of application in AI in 2024, we operated 3 main targets and first, we introduced an AI assistant in our office to provide a real-time data analysis and report information in for generation and allowing our employees to focus on high multitask and we also, which against the digital [indiscernible] to more automation to customized customer experience, including mobile claim and mobile application and account opening both in bank and securities [indiscernible] to digital infrastructure build a big data environment. We transform to a data-driven business model. In 2025, our focus in 5 items. First, we'll continue to deepen digital transformation and build the KGI apps, digital green and cross trained talent also AI talent, embed AI in our corporate culture. We will train more proactive AI assistant to provide more precise information to our customers and also provide precision marketing to drive sales and improved with AI fraud detection to identify and we will pilot a digital asset custody for crypto currencies, and this is a pilot project allowing institutions and finance clients to safely transact the cryptocurrency and also want globally enhance the growth transaction efficiency. And number five, we will deepen the digital platform before [indiscernible] in a single platform we can see customers list the information to integrate data client to enhance the efficiency [indiscernible] continue to enhance the digital infrastructure, integrate digital tool and marketing tools and provide One KGI service based on our customer service strategy. Now I'll hand over to our CFO.

Thank you, Paul. I will report on KGI's financial performance. In 2024, our platform profit increased 77% to TWD 32.6 billion. That is the second highest profit in history. But the historical high is due to the onetime disposal of the old building. So in terms of operation, 2024 was a record high year. The realized OCI also increased TWD 19 billion. Our net worth increased 17% and it grows to TWD 3 trillion. In terms of subsidiaries, KGI wise net income is TWD 22 billion, marking a double growth year-on-year mainly driven by investment income and lower hedging cost. In terms of sales of policies, we continue to expand our business. In terms of own channels, we achieved more than 40%. The self-single pay product also accounted for more than 40%. Next KGI Bank. The net income is about TWD 5.6 billion. The 2024 loan growth requested more provision. If we look at the pre-provision net income grow [indiscernible] 20%. The retail and corporate loan, the momentum remains strong. It's almost 20% year-on-year and fee income grew nearly 40% year-on-year, and the wealth management growth achieved more than 0%. The first 2-year wealth management momentum was still strong, and income already grew 30% in the first 2 months. The overseas strategy of KGIB, we plan to launch the Hong Kong branch in May. That is the first overseas branch for KGIB and the detail will be covered by Wei later in his report. For KGI Securities, the net income is TWD 10.1 billion in 2024 and KGI is good at utilizing capital. The ROE in '24 stood at 16.3% that is surpassing the industry average. The [indiscernible] business ranked top 2 in the market, even though the brokerage ranked second, it contributed outstanding fee income in the company. We started to build wealth management business in previous years. In recent years, we see more than 50% year-on-year growth consecutively. Next is CIB. The profit is TWD 700 million mainly influenced by market fluctuations. However, in 2024 developed AUM commitment, we see a good result. The 6 new asset management products totaling TWD 18.9 billion compared with the past, it is a good result. In addition, [Technical Difficulty] collaborating response [indiscernible] commitment and great investments is also -- we also see good results and that is [indiscernible] and subsidiaries. The capital adequacy ratio is still under regulatory requirement. [Technical Difficulty] were not impacted and that [indiscernible]

Investors, friends from the media, good afternoon. I will first talk about our strategy. In 2025, we focus on prudent ALM. First, we will expand our business scale. All channels are well prepared to face market challenges, and we have also seen some initial results. Second, we will launch participating policy. This is a product that is very familiar to us. We will provide it to our customers to satisfy their needs. Second, we want to increase our ROI. I believe all of you agree that since Trump took office again, market volatility has increased. We need to see opportunities accordingly, and we have adopted the new FX reserve scheme. We will continue to accumulate our reserve pool to reduce our FX risk. And we will continue to strengthen our digital operation. We very much value our customer service experience. We will use different digital tools to improve our service quality. Last is the transition to IFRS 17 and Taiwanese ICS. We are highly confident that next year, after the transition, we will maintain a stable management. Next, for premium income, we continue to focus on the development in all channels. Our total premium reached TWD 174.5 billion, up 9% Y-o-Y. On the upper right, this is our FYP mix. Midyear last year, we saw the market demand for single-pay product and interest-sensitive annuity. Therefore, we have launched such products accordingly. Therefore, the percentage of such product has increased from 35% to 46%. And for FYP, it reached TWD 58 billion, up 10% Y-o-Y. And because the decrease of regular pay, therefore, FYP was down 5%. Next, for our VNB, it grew around 2% to TWD 19.9 billion. And our VNB margin slightly decreased. For our investment last year, our ROI is 4%, and our CLL stands at 3.09%. The spread has increased compared to last year. And for VNB margin and persistency ratio, it remains the same as 2023. And for our investment portfolio, we remain prudent, and the percentage remains pretty much the same. Domestic and foreign stock increased slightly. Therefore, our overall ROI stands at 4%. Next slide. Our pre-hedging recurring yield will drop a few bps to 3.8% because we focus on total return. We will just focus on dividend income. Therefore, it dropped 6 bps to 3.8%. And for hedging cost due to a rate decrease in the U.S. and NTD depreciation, hedging costs decreased to 1.09%. Our hedging ratio is 70% by the year-end last year, but now it has decreased. We will remain flexible to try to maximize the efficiency. And for FX reserve, just like what I said, we used the new scheme. And by the end of last year, our reserve has reached TWD 30.7 billion. And this year, due to the depreciation of TWD, the number has increased. Next, I will pass the floor to the President of KGIB, Wen.

Good afternoon. I will then talk about KGIB strategy. Through the guidance of financial holding, we will cooperate as one of the subsidiaries. We will continue to expand our scope and accelerate our growth momentum. I will focus on our 4 strategy. First, One KGI to enhance group synergy. Group synergy is our advantage with many One KGI projects ongoing. We will continue to strengthen customer referral to expand our retail customer base. So regardless which channel customer comes in, they can experience comprehensive financial services. In addition, due to active securities trading, referrals to settlement accounts between the bank and debt securities is a key One KGI task. At the same time, we will work with KGI Life to launch an integrated retirement trust, allowing customers to effectively plan and transfer assets, while continuing to grow resources within the group. Second, for the growth of wealth management, our goal is to acquire customers and to increase our overall AUM through branches, securities, physical channels and group-related digital channels, we will expand our customer base, focusing both on physical and digital platforms. And for wealth management team, we will continue to expand our team of FA and savings advisers. We also launched a university intern program. We continue to expand our customer acquisition and wealth management team. We will also apply for wealth management 2.0 license in response to FSC's initiative to make Taiwan an Asian asset management center, while expanding our product and service range for high net worth customers. For our ecosystem for consumer finance. For credit card, in addition to dual currency card we launched last year, we will continue to work with partners to introduce credit cards for specific scenarios, and we will work with international players to offer cross-border remittance. In addition, we will focus on the business regarding virtual currency asset custody-related business. We will also optimize our digital account carry to connect financial and diverse application scenarios, linking digital deposit with low remittance, security settlements to enhance customer stickiness and provide a more comprehensive digital experience. Fourth, for overseas business expansion. Hong Kong branch is now in its final preparation stage, expected to officially open in mid-May. This is an important location for our overseas market. KGIS and KGIB have long established operations in Hong Kong. So we will work closely with them. We want to utilize and harness group resources and licenses to develop integrated local businesses. And we will also apply for wealth management license to further develop private banking and high-end wealth management services. For financial figures, the net revenue is TWD 16.1 billion, up 7% Y-o-Y. It is mainly due to the growth in loan and deposits and increase in fee income. Overall fee income, Jenny talked about this. I won't go into the detail. For the spread and NIM, it is at 2.02% and 1.3%, down slightly from 2023. This is because of significant loan growth suppressing our spread. This is within our expectation. And for asset quality, it remains stable after accelerating consumer loan write-off at the end of last year. The 2 figures have now returned to previous levels. For loan and deposit overview, loan growth is around 19% and for -- there are double-digit growth in both consumer and corporate loans. Next, I would like to pass the floor to William from KGIS.

Investors, friends from the media, good afternoon. Next, I will talk about the performance of KGIS and our strategy moving forward. Moving into 2025, KGIS will maintain the same approach as last year. We will continue to focus on brokerage and wealth management businesses. We continue to optimize people, product, service platform to boost wealth management business momentum. Last year, we were the first in the industry to launch professional ETF consultant certification. And by the year-end, around over 800 employees have now been certified as financial adviser and over 100 FA, almost all of them, they have transferred from the bank to the securities. So nearly 1,000 people together with our expert teams, including legal, tax, investment, inheritance experts, together with our consultants, they work together to provide service to our customers. For our trading app, we launched AI assistant. We are the first in the industry to do so. We offer reading function to provide a human-like reading function to meet Taiwanese investors' needs for U.S. stock investment. We also integrated real-time NASDAQ stock quotes and product information into our mobile trading platform. For program trading enthusiasts, we provide real-time U.S. stock quotes, API connections. We are also the first security firms in Taiwan to do so. Last year, we partnered with UBS partner an international financial technology company to build a financial planning system. It will go live this year. We integrated internal information to empower frontline agents to provide real-time world-class portfolio management services. We strengthened [ O2O ] integration services. If you have the opportunity to pass Dunhua N. Road, we opened a branch there in Tianmu, different from traditional security branches, there are no lobby. There are no agents. It's just like entering a private bank. This is especially designed for residents in Tianmu. We focus on financial planning. The atmosphere in the branch is private, quiet, it's not noisy. It is suitable for financial planning. And going forward, we will launch such branches throughout Taiwan. And we use data analytics and AI technology to create precise digital human-like services. Of course, this is never ending. We will continue to integrate more function into our platform. We also actively manage digital media to provide our research results to different age groups. And for overseas expansion, we continue to expand overseas sales team. By now, we have seen some initial results. We want to build a regional financial planning platform. And under One KGI strategy, we continue to deepen our collaboration with the Bank and Life Insurance. Next slide. We can see that our full year results, net revenue up 34% Y-o-Y. The AUM and related revenue from wealth management has also grown drastically. And this year, our goal is also quite high. Lastly, as you can see, our KGIS full year profitability and business performance, just like what Jenny said, we are market leaders in different areas, we will continue to maintain such leading position and our ROE reached 16.3%. We will continue to work hard through the guidance of financial holding company, we will be able to provide better results this year. Next, I will pass the floor to Anne from KGI Bank.

Dear investors and friends from the media, good afternoon. Now I'll talk about KGI SITE's strategy and our results. So the most important thing for SITE is that we want to increase our AUM. In order to do that and also in response to Taiwanese investors' needs, if we look into the market of asset management starting from 2018 to now, among all the providers, the most critical market is ETF. At this earliest point, ETF market it was driven by our corporate investors. So we develop and counter it with our corporate customers. But later, we've seen great momentum coming from retail customers. So we have increased our ETF AUM in order to -- we're also going to sustain our service quality to corporate investor as well as establishing our stance in the retail market. So in order to build the retail market and to increase our competitiveness, we've launched the first Taiwan stock ETF in 2022. And as of last year, we've already launched 6 ETF tailored for retail customers. In order to build our retail business, we need to focus on brand to focus on product and service, and we also need to provide customers with whatever they need in an agile way. We also need to continuously strengthen that front. So in order to retail ETF scale, we have to increase our market influence. As earlier, Paul also mentioned that One KGI has done a lot of things and had a lot of strategy. We are also going to leverage this group One KGI strategy to strengthen our image among the investors. Secondly, we also believe that innovation in ETF is very important. Starting from October 2022, when we launched our first stock ETF, we've also launched 4 other ETF in stocks and also in bonds. In this year, we're also going to launch new products. Just to share with you as we innovate our products, we are doing the very hard work. And also in terms of digital optimization, we are also going to leverage the power of our group and also invest more in AI, so that our employees are equipped and empowered by AI. And under One KGI, KGI SITE's role is very important. We need to provide products that our investors need. So our role will be a product provider. As you can see here, we started off from the corporate front. In 2024, we entered the retail market. As of last year-end, our total AUM onshore is close to TWD 300 billion, ranked #7 in the market. Last year, our AUM row grew by 41%, which is higher than the industry average. We will continue to work on that. And if we look at the asset management business in Taiwan, you cannot be -- you cannot compete with other don't do retail business. You also need to focus both on corporate and retail because Taiwanese investors has very strong demand for ETF. Therefore, KGI SITE's work very hard to establish that front and to do more to satisfy customers. As of Q4 last year, our -- the average growth for ETF, the industry average was 6.4%, while we are standing at 7% and our beneficiary also is standing at a 40% growth. Our number of beneficiary grew from 10,000 to almost 300,000. We will continuously work for more beneficiaries. On the right chart, this is the number of ETF RSP contracts. One of our ETF, number of -- there are currently 270 ETFs in the market. So although we launched this in last year, but we were able to rank in top 10. And that reflects that we are able to provide ETF products for our customer as their retirement -- as one of their retirement plan. And thank you for your time. And now I hand over to Melanie for KGIB.

Dear investors and friends from the media, good afternoon. Now is the report on the operation status and our outlook. We aim to be the private asset provider or alternative investment provider with a foundation in Taiwan and a global presence. In 2024 and 2025, we adhere to 2 principles. One is accelerate the growth of asset management scale; and two, is to increase the proportion of stable income. Since embarking on the transformation into an asset management manager in 2013, we had a AUM of TWD 1.6 billion, and now we grow to TWD 44 billion. And in 2024 alone, it further grow to TWD 59.3 billion, up 35% year-on-year. Currently, our investment scale has reached TWD 95.5 billion. Our asset management business can be discussed from 3 fronts. One, as a professional investment institution in Taiwan, Taiwan plus VC and PE investment is our foundation, and there are 4 main pillars. First, in the innovation business. Our AUM was TWD 8.9 billion by the end of 2024. In 2024, we also established a cross-border innovation fund focusing on start-up in Taiwan and Japan. The current scale is approximately USD 75 million, and it will increase to USD 100 million by 2025. And second is the health care investment. The AUM was -- is TWD 4.3 billion. We're now planning to launch the third fund with a scale of TWD 5 billion. Thirdly, new infrastructure, we specialize in digital and energy transformation investments and the scale is planned to be at TWD 6.9 billion. In 2024, we completed the green energy generation platform in Tai Energy and Network Data Center, and there are more projects ongoing for 2025. And lastly, our foundation, the Taiwan Group business, the AUM is TWD 12.1 billion. In 2024, we established the Innolux II and the 10 semiconductor funds, investing in the advanced hardware manufacturing, IT design and semiconductor supply chain in Taiwan, Europe and U.S. And we also launched a new SKM funds, which will close into 2025. In addition, in 2024, we also completed the final closing for the Taiwanese business succession and transformation fund and the final closing for Taiwan Business Fund. And the second front is our global investment layout. And in order to enhance the stability of investment return, we have been investing in private credit since 2020. The size is currently at TWD 3.4 billion, focusing on financing projects with real estate as the underlying assets in Asia Pacific and the U.S. And since there are favorable return, our average annual perform rate is 11.6%. We are going to launch a new fund in allowing qualified external investor to participate. And second, based on our extensive footprint, we're often invited to do co-investments. In 2024, we work with well-known international chain brands in Japan, leading the global SaaS company and AI data processing companies, which are really -- generally accessible to regular investors. And also to echo the Asian asset management center vision, we're also going to launch a new fund allow external qualified investors to participate. And thirdly, as Paul mentioned, we want to provide customer investment services. At the corporate level, we aim to become the venture capital partner for enterprises, making investment an important tool for corporate development strategies, including M&A, strategic investments and acting as a scout for corporate external industries. And at the personal level, we aim to assist family offices in managing private asset investment and help them achieve succession, develop professional expertise in younger generation through investments. Next page presents the related private investment products launched by us. In 2024, we have completed 8 funds within U.S. dollar, NTD and RMB and the asset management scale increased by TWD 18.9 billion. This year's focus is health care free and a curated PE co-investment fund and global private credit fund. And the next 2 pages are for your reference. And in the last page is our focus for 2025, which is to execute under the One KGI strategy to provide asset allocation of ultra-high net worth globally. Private assets are increasingly becoming a focal point of interest. And this is also a field that we have been cultivating for years. We can select from the best opportunities from home and abroad. And through the group's channel and the wealth management 2.0, we allow local and ultra-high net worth powered by investors to participate, which include private equity, private credit, infrastructure, health care and other investment opportunities. These assets have a lower correlation with public markets, so they can avoid volatility, and we can generate excess investment return through our professional team. We also have deep understanding of our Chinese investors. We can provide them with tailored investment that are shorter in cycle and offer a certain liquidity, allowing investors to have more diverse, transparent and suitable asset management services and investment options without fully relying on foreign companies. We are going to provide services that can meet the level of the Wall Street. That will be all for me, and I'll hand over back to our CEO.

Thank you, Melanie. now we'll enter our Q&A session. We invite corporate investors to raise their questions and please tell us your name and who you are representing. [Operator Instructions] ICS first.

For localization, ICS is at a very high level. If market remains the same, for the next 15 years after the transition period, we can maintain the ratio above 150, and for IFRS? For CSM, every year, we can release over TWD 10 billion. Next, I will talk about product strategy. We will focus on protection products. And starting from last year, in response to market demand, we have launched financial planning products. And in 2025, we will continue to launch -- to promote interest-sensitive products. We will provide comprehensive product lines. We will offer ILP, and we have seen some initial results.

And secondly, through our prudent evaluation in Q2, we're going to return to the participating policy. And before we did our name change with China Life actually launched our first participating policy. It was also the leading brand in the market. And the reason why we decided to return back to the participating policy market, there are 2 reasons. First is that we see the demand is growing. In order to respond to the customers' diverse need, we're going to provide them with a more comprehensive product line. And in terms of bridging with the new mechanism, and since the market has diversified, we believe that this product line will increase our -- help us increase our CSM and it will be a boost to our transition.

For stocks moving forward, because there are no overlay, it will have a big impact on our balance sheet. Second, for unrealized loss and gain for bonds because rates remains at high, so it's still underwater. And for stock, we have unrealized gains. By the end of last year, our unrealized gain is over TWD 10 billion. This is my answer. Thank you.

Regarding the dividend policy, I will explain to you in this opportunity because I was often asked about this. So I will answer this question at once. Our dividend policy for the company, it should be consistent and stable. And you asked about -- did you ask about ratio or amount? I talked about payout ratio because the base of dividend is EPS. That is our direction. But in terms of policy, the amount may differ every year. The value generated from the previous year and the percentage will be maintained at the company as the growth capital in the future and a certain percent will be pay out to the shareholders. In terms of policy, we will maintain a consistent policy. As for the percentage, you can see different companies have different dividend payout design. They will consider 2 factors. The first one is the revenue mix of the company, the volatility. This is one consideration. The second one is growth opportunity. And capital is really important for the financial industry. Also talent is important as well. But -- and financial institution cannot continue to grow without capital. So this is a balancing act. We need to consider what percentage is reasonable to pay out to the shareholders and what percentage retained at our company. Our team will discuss with the Board recently. After approved by the Board, I will inform you. And this number will be our long-term target. That's the first -- that's the second. And the third point, in the market value generated from the previous year and payout to the shareholders, there may be in different ways, could be cash, cash dividend or stock dividend or cash buyback. In overseas, there are cash buyback. I understand domestically, you prefer cash dividend. But in terms of tax, cash dividend is the least. Actually stock buyback is the most efficient method. But our team respect the participation from the investors. So we will pay our dividend in cash, but we will not exclude to pay stock dividend. In the past decade in CI in China development period, we'll pay cash dividend 100% that is before KGI Life joined the group. The capital is quite substantial. We didn't want to grow the capital. So we paid cash dividend. And now after KGI Life joined the group, our capital and revenue compared with other holding companies is meeting the industry benchmark. So we still have to issue our dividend, but we don't want to spend divided capital too much. So we will primarily pay in cash dividend and in [indiscernible] we will pay stock dividend.

If there's no question from the media, I will ask question from JPMorgan online. He want to ask the NIM forecast and loan growth for bank this year. A lot of questions online is related to KGI Life. We'll jump to the next one. We heard the news that KGI Financial is trying to buy anti-bank. What is your response? What is anti-bank your potential M&A target? As a matter of policy, we will not respond to any grower in market. The second question it is entitled potential M&A target for us? In the previous investor conference, I already shared with you, it is a relatively small-scale subsidiary in the group and that is really important for our future growth and, especially now promoting One KGI strategy, and the number of branches for our bank, it may impact the growth. So actually, we've been actively searching potential targets. So we're not only looking at time. We also whilst prepared if there's no M&A opportunities, how can we grow? We have 50 branches now and we're [indiscernible] applying [indiscernible] we establish more branches, but it will take time. But the benefit is currently the impact in events and there will be less cost in the branch. It is good for us if we can launch M&A. But if no, we can still grow. If there's good opportunity, we're happy. But if there's no opportunity, we're not satisfied with the scale of the KGI team. And so we will [indiscernible] growth. And we don't have more questions. Our management team will stay here and exchange with all of you. That's all for today's investor conference. If you have more questions, you can contact our IR team. Thank you for joining and our management team will take a picture.