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

Ladies and gentlemen, good afternoon. Thank you for coming to the Q2 investor conference call of KGIH. We will have President and the CFO of the KGIH as well as the Presidents of subsidiaries talk about their strategies followed by Q&A session. In that fashion, we will invite investors and analysts to raise questions. Online questions are also available. [Operator Instructions] And I'll pass the floor to the President, Paul.

Ladies and gentlemen, investors, friends from the media, good afternoon. Welcome to the meeting today. Today, we are going to talk about the investment and the results of the first half of 2025. As you all know that the TWD appreciated sharply in a very rapid way and that was very rarely seen. This affects KGIH and the financial industry. Therefore, the performance in the first half of this year compared with the same period last year went short of expectation. However we are not finding excuses. But excluding the FX effects, the appreciation has not been so sharp, then for example from 33% t 30.6% today, then our performance as well as the subsidiaries performance excluding securities, which were very similar to last year. Other subsidiaries have seen significant improvements. And I'll pass the floor -- I'll ask Jenny to talk about this in depth. Why I'm talking about this, because I want you to know every subsidiary, including the financial holding. We are promoting the One KGI strategy. At the end of last year and in the beginning of this year, we achieved our targets. Today, I'd like to change the style. I will pass forward to Jenny and then ask the President of subsidiaries to present the highlights as well as performance. And at the end of the session, I will come back to talk about One KGI performance as well as our highlights in the later half of this year. Thank you.

Thank you, Paul. Analysts, investors, friends from the media, good afternoon. I will present the financials for KGIF. KGIF reported a net income of TWD 5.5 billion in the first couple of years, falling short of expectations, as mentioned by Paul due to the sharp appreciation of the NTD between April and May, and this impacted the profits of life insurance company, and the exchange rate was 29.9% in June. And the number in August returned back to 30.6%. If we are applying the August rate to June, we wouldn't have such a huge FX loss. And the overall net income of KGIH saw an improvement year-on-year. As you remember in the last session, in 2024, our net income also included -- were the best, except for the year, we disposed our buildings. And still, we see some improvement, excluding the FX effect, and indeed, during the appreciation of NTD, we are unable to recognize those as a profit in accounting terms, but it directly increase our foreign exchange reserves balance. Therefore, our shareholders' equity will be resilient -- more resilient to fluctuations. The total equity decreased due to the appreciation of NTD by 3% to TWD 3.8 trillion and the net worth decreased by 13% to around TWD 257 billion due to losses of OCI overall. Although first half profits fell short of expectation, our sales momentum and our business momentum remains. And July, the net income was around TWD 5.2 billion, and that provides us with more confidence. Turn to the next page, and I'll touch upon the performance of subsidiaries. KGI Life reported a net income of TWD 1.1 billion due to the FX losses. However, our sales policies increased by 50% year-on-year. And also thanks to the investment and dividend income, our pre-hedging regular yield -- recurring yield increased by 19 basis points to 3.67%. Turning to KGI Bank. In the first half, the net income was TWD 3.4 billion that was a 17% increase year-on-year, and it continued its growth trend with continued improvement across all business targets. Wealth management fee income grew by 31% and loan increased by 14%. Another very important indicator is the strong growth in our demand deposits. And the CASA ratio increased by 4% to 44%. And that is a higher number. And also the branch in Hong Kong opened in July and Kate, the President will share more on this. Please turn to next page. KGI Securities net income in the first half was TWD 3.7 billion due to market volatilities and also overall trading volumes declined by about 17% affecting the company's net income. However, it is remarkable and the utilization of it's capital. So it's ROE is higher than the industry average. It's wealth management business also continues to grow. For CDIB tariff uncertainties and appreciation book, NTDs impacted our position valuation, resulting in a profit of TWD 120 million in the first half of the year. However, we really did good by raising TWD 3.9 billion for fund raising and the management fee grew by nearly 30%. In the later half, we will initiate fund raising for some featured funds. And the target as TWD 12 billion. Next page. This page shows that subsidiaries capital reserves adequacy. From this, you can see all of the subsidiaries have enough and sufficient capital reserves and ICS testing of KGIL also meets regulatory requirements. This is my presentation. I'll pass forward to the President of KGI Life, Ms. Kuo.

Good afternoon. I will talk about KGI Life's achievements in the second quarter and our performance. Page 14, expanding agency force in the first half of this year or FYP reached TWD 36.8 billion. This is a 50% increase year-on-year, mainly due to our continued momentum and from different channels as well as the reintroduction of participating policies in April to meet market and channel demand. Therefore, we have created double-digit growth across every channel. And in the later half this year we will focus on investment products, foreign currency policies and participating products. For strengthened digital operation, we have fully digitized our new policy application, policy change and client services, effectively improving efficiency and enhancing the customer experience. The company tapping to the opportunities brought about by artificial intelligence, we have completely the development of AI training and established infrastructure. We also have very comprehensive AI governance standards and offer AI training for all employees. We also apply AI to different scenarios, including introducing AI Gen by coach for agents, and we also became the first insurance company to pilot an AI system -- rating system for the elderly. This service allows customers aged 65 and above to maintain extensive record and their experience will be better for investment returns and transition to IFRS 17 and ICS. In the first half, as Kuo mentioned, the TWD appreciated greatly. Our hedging cost increased accordingly. However, we were able to realize capital gain in different markets, especially in the stock market. And the later half with the easing of the exchange rate, we -- and our approval to allocate to foreign exchange reserve, we will be able to be more resilient to the impact of ForEx fluctuations. As of the end of August, the amount of reserves had exceeded TWD 32 billion, and our ForEx trading strategy will focus on reducing hedging costs and accumulating reserves. Overall, our returns we will continue to tap into market opportunities and expect our returns to rally in the second half. And for our -- we are all well prepared for IFRS 17 and ICS transition. With our capital meeting requirements, we have confidence in realizing stable profitability in the new system. Please turn to Page 15 for premium income and channel mix in Q2. The FYP increased by 50% year-on-year, higher than the industry average of 35%. The renewal premium reached TWD 59.1 billion, growing by 14% year-on-year, and that is higher than the average of 6.9%. And the total premium income increased by 25% year-on-year. For product structure, we have to continue to maintain our sales momentum. We also meet market demand. Therefore, our investment products grew by 123% year-on-year, driven by the expansion of multiple channels, our FYP across all channels increased by double digit. In the second half, we will continue to sell investment products, participating products and foreign currency policies in hopes of driving the FYP and CSM to create a more stable foundation for the company. Please turn to Page 16, VNB margin and spread. KGI Life's VNB margin, excluding investment products was approximately 30.2%, which is lower than last year due to the expansion of health insurance sales required by laws and regulation and the higher base period. In addition to sell more foreign currency products and participating products, we also cater to the demand for long-term health -- long-term care. And our COL was 3.1% at the end of Q2 and our return of investment was 2.37% due to market volatility. However, we expect our -- the number to recover in the later half. Page 17, Page 18. For asset allocation, we center around ALM and adjust our strategies according to the market in order to achieve adequate ALM and maintain robust portfolio. And on Page 17, we also see different returns for each asset classes. The total investment decreased because of the fluctuating exchange rates. Page 18. The pre-hedging recurring yield in the second quarter was 3.76%, and that was an increase of 19 bps year-on-year. Due to the ForEx fluctuations, we also -- we used the hedging tools include swaps, NTFs and proxy hedge and the cost was around 3.06%. And as mentioned, we allocated an additional of TWD 23.2 billion to the reserves. And by the end of August, the number returned back to more than TWD 32 billion. If we factor in the RBC and then in June, our RBC would have been more than 382%. KGI Life will continue to optimize its product strategy, expand diverse channels and implement robust investment strategy to create stable growth. And I'll pass forward to the President of the Bank.

Good afternoon. Next, I will talk about KGIB strategy. In the second quarter to now, the important goal is to adjust our profit structure, increase fee income; second, to utilize our capital to improve ROE. Number three, we want to expand our customer base and continue to grow our business scale. So the following are our 4 strategic pillars. Please go to Page 20. The upper left, One KGI. Under One KGI, we proactively promote customer referral with KGI Life and Securities. By integrating resources and introducing clients to one another, we strive to secure more deposit transfer and services from securities set of accounts. Through the support of the group, we have made good progress. Now 30% of new bank account opening came from set of accounts referred to us by KGIS. So this is a visible result of the One KGI partnership. Second, the lower left side, wealth management and private banking transformation. For wealth management, we made good progress in the first half, and I'm glad to say that we have obtained the wealth management 2.0 license. And we have also commenced operation on the 21st of July. This will boost our fee income. Second is the license in the Asia new Bay Area. This has been submitted to the Bank of Europe and is currently being under review. And we will continue to expand our FA team. In August, the number has exceeded 200. Furthermore, in line with the government's policy, we are also transforming our private banking and plans are already in place across our organization, product and talent. The third pillar, upper right, consumer banking ecosystem. And in July, we have partnered with the largest bookstore in Taiwan. We launched a co-branded card. And by August -- the end of August, the amount of card approval has surpassed 10,000. 80% of them are new customers for us. And among them, nearly 80% of them, in addition to credit card, they have also opened digital accounts. So we hope through our cooperation, we can accelerate our customer acquisition. Second, regarding new business, we have received the crypto custody license by the regulator, and we will start the operation soon since we are the first authorized to conduct crypto and custody business. Fourth, the overseas business. And I'm delighted to share with you that for our overseas expansion on July 21, our Hong Kong branch has officially opened. Now our most important goal is to streamline the account opening process and to have new customers coming in. We will serve institutional Taiwanese investors overseas, and we will work with KGI Asia and CDIB to leverage the One KGI synergy. After operating for a while, we plan to apply for wealth management license from HKMA. So these are the 4 important strategies that I would like to share with you today. And next slide, this is our profit performance. Due to the 4 strategies, they are all progressing forward, resulting in a very stable net revenue growth of 9% year-on-year in the first half. And I want to highlight fee income. There is a 19% increase. And this is mainly driven by wealth management income, which saw 31% growth Y-o-Y, and this is due to the expansion of our wealth management team and also the increase of our capacity. And the lower part is efficient indicators. We are very mindful of increasing our efficiency. So NIM in the first half has increased by 4 bps. And this is mainly due to the improvement in negative bond spread and also adjustment to our asset structure, resulting in an increase in loan proportion. In addition to loan, we hope that our liability can also grow along with our business growth. We focus on NPL for our lending. NPL is around 0.17%. This is about the same as the industry level, 0.15%. In addition to adjusting our NPL policies to align more closely with the industry, we accelerated the write-off of bad debt last year, and these 2 measures have further improved our asset quality. Next slide, our balance sheet. We can see our overall lending is increasing, whether it's SME, consumer loan, mortgage or large corporation, we all see double-digit growth. This is a very developed and balanced growth. And we are also mindful of whether deposits are keeping pace with this growth. We saw -- I just mentioned 30% of the customer came from KGIS referral, and this is also reflected in the significant increase in CASA ratio. So the increase of deposit mainly come from demand deposits. Next, I would like to pass the floor to the President of KGIS.

Friends from the media, investors. Next, I will talk about KGIS. Our strategy focused on brokerage and wealth management. For wealth management, in the first half of the year, we continue to expand our domestic and overseas teams, and we have recruited accountants, techs and lawyers to provide comprehensive financial and legacy planning services, offering investment consultation services to our clients. This is our goal to provide comprehensive financial services. And we also encourage the transformation of our sales team. We encourage them in branches to attain professional certification like RFA, ETFP, WMB. These consulting services is our strength in our wealth management business. And for our diversified products, in addition to structured products, ETF funds, in the second half of the year, we will work with KGI Life, and we will launch exclusive insurance products, and we will work with CDIB to launch new PE products. In addition to these products and services, we are also optimizing our systems, whether it's mid and back-end systems, we will upgrade these -- upgrade them to improve our customer experience. And we continue to enhance our O2O services. Based on customers in different regions, we will provide differentiated services. In the first half of the year, we have opened new branches for wealth management in [indiscernible]. We want to provide services like private banking. And in terms of transaction based on the needs of different customer groups, like high-frequency training, or program trading for the younger generation to regular customers, the apps that they use in their mobile phones, we continue to upgrade and optimize them to satisfy their different needs. Lastly, in our One KGI strategy, whether it's the customer referral or product introduction, we will continue to work with subsidiaries to create our group synergy. And in the second half of the year, like I said before, we will work with KGI Life on the exclusive insurance product, and we will work with CIB to launch PE products to cater to high net worth customers to satisfy their asset allocation needs. Next, our net revenue and our AUM. Jenny has mentioned this briefly in the beginning. We can see that in the first half of the year, our net revenue has decreased year-on-year. This is mainly due to 2 reasons. First, the FX appreciation of NTD and also the tariff, the uncertainty in the first half of the year, that's why the turnover in the first half of the year has reduced around 20%. And this has affected us and also the uncertainty starting from April, leading to the volatility in the stock market. For brokerage commission, it also dropped year-on-year because in the first half of the year due to uncertainty, some customers delayed their investment to the second half. That's why the revenue in the first half is lower. And on the right, we can see our wealth management business. It is growing steadily. We continue to strengthen our wealth management sales team. So in this regard, we -- our business continue to grow. And the degree is not as big as the past, but this is because of the appreciation of NTD. Therefore, our overall AUM was affected. If we exclude FX factor, our growth is close to 10% -- 9.4% actually. And for our market position, Jenny also mentioned this in the beginning. In the first half, our financial figures compared to last year is not as good. But our ROE still stands at 12% higher than the industry average. And also for our market position in the past, it's roughly the same, but for EMC -- ECM and DCM, it seems like it's not as good. But because of customers defer their investment. And in July, we can see that both ECM and DCM went back to second place, and we are confident that we will return to the leading position by the end of this year. So this is the performance of KGIS. Next, I would like to pass the floor to Anne from KGI SITE.

Friends from the media, investors, good afternoon. As you can see on this slide, our AUM, there are 2 parts. One is institutional customer, one is from retail customer. And this is for retail only. To increase retail AUM, there are a few factors. First, to improve brand visibility, we need to let more investors know us. We need to have new products, new services and to have an effective process. So in addition to visibility, we also need to have complete product line and also digital optimization. We need to be data-driven to make it more efficient. Number four is One KGI. We want to create synergy. To increase our AUM, in 2022, we launched our first retail ETF. As of now, we have 7 ETFs. We want investors to accumulate assets and they want capital gain or dividend. So we want to -- that customer understand what they are investing in. And in 2025, we launched 2 balance ETF. One is for capital appreciation, capital gain and other is for dividends. These 2 ETFs are the first balance ETF in Taiwan. In the beginning, it is quite difficult to have such product. So all the innovation that we made are for investors. So this is our mission. Because we are a latecomer, it's difficult to build our brand. So we need to continue to innovate. So this is what I would like to highlight on our retail strategy. Next slide. We first focus on the institutional investors. In the past, institutional investor accounts for 80% to 90%. But once we enter retail, now 40% are retail, the others are institution, and we want to continue to develop these dual engines. So we will continue to work hard on our retail business through our innovation, through our products and services, we can have deeper interaction. And does investors know how we utilize these products. This is what we want to bring to investors. So for retail ETF, in addition to launching new products, communicating, training investors are also important. So in April, whether it's tariff or FX due to these 2 impacts, our AUM dropped. But now AUM has climbed back to TWD 300 billion. So we do not waste prices. We need to turn it into opportunity. Next slide, ETF market is very popular. The beneficiary is around 15 million. And some of them are for retirement. Usually, homebuyers do not exceed 40%. But if we look at the AUM of ETF in Taiwan, it accounts for 48%. Will it continue to increase? So in addition to Taiwan stock ETF, we also bring overseas ETF to investors. Asset allocation is what we need to focus on as a SITE company. And this is what I want to highlight.. Next, I would like to pass the floor to CDIB, Melanie.