CITIC Limited (267) Earnings Call Transcript & Summary

Okay. Thank you very much for the question. So -- and you have two questions. The first is about the interest margin. So you have three small questions there. So I'd like to answer with one sentence. So the net interest margin dropped a lot last year. And this year, we are under pressure, but we are confident in stabilizing the job of the net interest margin. So I'd like to answer your questions in the following respects. The first in -- we see that -- so we see the decrease of 19 basis points in 2019. And last year, we reduced by 21 basis points. So we are under a lot of pressure. But in terms of the trend, we see that the decline of the net interest margin has been changing. So in Q3 -- in Q4 last year, so in Q1, it's 2.13 fairly has been reduced by 9 basis points. And in Q3 and Q4, it is 2.1 -- 2.01. So we see this is the change in the net interest margin. And so the reasons causing the decline of the net interest margin. The first is the loan business because of the decline of the pricing of loans, but the trend is stabilizing the whole year. So the interest rate is 4.99%, a decrease of 32 basis points, and it has caused the net interest to degraded by 20 basis points. So because while we are responding to the pandemic last year and to stabilize the economic development, so we have released a series very low-cost loans. And we also are subjected to the lagging impact. And for the new loans issued in the last year, so we have issued corporate loans of -- so we have the basis points decreased by 4.6 and increased by 5.3. So increasing it by -- increasing the basis points. So for the new loans, the pricing is quite good. And we have this optimization of the institutions. For example, the consumer loans has been increasing. And for credit cards, it's going to exceed 8%. And we see the revenue of loans is stabilized. And certainly, for the capital cost is very important because while we are in the market of declining of the interest rate, so it is very difficult to maintain this decline trend. So we are going to control the cost as the top priority of our work this year, especially for the high priced. For example, the institutional life, the deposits and the large value deposit, we put them under management. And for the sub-branch, we have developed subbranch-specific rules and goals. So we are going to make a very strict regulation of the application, the approval of loans so that we can control the cost of deposits. In the meantime, the management will dig deeper into the operation of our small and medium-sized clients. So they will be a top priority this year because the loan revenue is higher and the financing cost is lower. So thirdly, with the improvement of the asset quality, which means that the NPL, the troubled loans are decreased in terms of the amount and the ratio. So for the low interest and the zero interest assets are declining, which will help us to improve the net interest margin. We are confident this year that -- so this decline in trend will be stabilized and the changes of the net interest margin will outperform the average in the market. I want to highlight that because we pay a lot of attention to the interest margin. But it is not our only goal, so in addition to the RMB 4.89 billion loans and we have RMB 2.33 trillion investment, which is -- Which has a lower revenue than the interest-bearing assets. But because the investments -- some of the investments are the light capital investments, so we can seize the market opportunities, so that we can have some noninterest income, especially currently. So we see that the demand for finance is not revived in the market. We are going to enhance our investments. Sometimes, it can bring down the net interest margin, but it will contribute to our revenue. So that's the answer to your first question. We -- generally speaking, we are confident to stabilize the decline of the net interest margin, which is a priority of our work. The second question is about that -- about the quality of the asset, including the real estate business. So last year, for CITIC Bank, we have improved our quality of assets. It is a general improvement last year. So we have made the announcement. And you can see from the data that the NPL and the troubled loans for the large caliber indicators and the expected loans have been realized a decline in the ratio and the amount -- and the full NPL ratio has been decreased quarter-by-quarter. And that's the first time that we have achieved this dual reduction in both indicators in 11 years, and we were going to maintain this trend in Q1 this year. And we have enhanced our resistance. Mr. Cao have introduced the coverage rate, which has been increased to over 180%, up by 8.4 percentage points. And in the annual result, we didn't mention the specific data, but I would like to introduce you that for our quality asset, they are becoming ever more solid, so which means that we have the asset with solid quality. So for all the -- for this, we have reduced. So we are downgraded those overdue loans for over 60 days to the NPL level and -- but the -- it has been -- and for the 60- and the 90-day over overdue loans will be reduced by 2 percentage points. And the last year, we have the newly increased NPL ratio has been reduced by 19.1 billion, reduced by 0.58 percentage points. So for the loaning -- for the loan business has been reduced by 0.63 percentage points. So the data I provided has reflected that the quality of the assets have been developing to a better direction. Behind the data are the improvement of management capability. For example, the optimization of business, the retail loan last year has exceeded RMB 2 trillion. Because the NPL retail loan is lower than 1%, we will stick to this strategy of improving the good outcome. And for risk control capability, we have had a systemic improvement according to the effective risk control policy to improve future development. And also we have differentiated the credit and authorization mechanism. We also had the dedicated reviewer system. And also the post investment management system, you can see that last year, the revenue of subsidiaries had a big growth, which contributed to the industry segment. The current economy in China, if we look at the domestic economy, it is still very weak for further growth. Coupled with the impact of the pandemic and the geopolitical courses, there are still many uncertainties. The improvement of high-quality asset is still a pressure, but we are confident at the management team. We try to manage our own business well, and we are confident that the high-quality assets will be a very good outcome through all efforts we made. And last year, we have seen a tipping point for the improving of high-quality asset in our group. Just now you also asked about the exposure of real state business. We had data in our report. The overall exposure is [ 38.8 billion ], reduced by almost 12%. So from the category perspective, the exposure on credit rate is less than RMB 400 billion, to be exact RMB 377 billion. The -- for the real estate loans, the security insurance extension, we had a decrease of risks. And our own opinion is that the macro policy is turning for the better in the future. And all the real state market and businesses have differentiated operation capability and revenue, and there are still risk for liquidity. So at CITIC Bank, we had certain pressure, especially over the last 2 years, as you all heard about the concentration of real estate loans. Over the last 2 years, our management team has made a decision and taken various measures to manage the NPL of real estate business, which is higher than the corporate loans, but the pressure is decreasing. So the efforts and the exposure is measuring. And for the property projects that are mainly located in Tier 1, Tier 2 cities accounting for 98%, the percentage in Tier 1 cities is more than 58%. Also 99% of our property projects had the very sufficient guarantees, and we also had thorough preparations for all the property projects. According to our estimation, we had all thorough preparation for the real estate business. So issuance of credit in the property market is still very prudent and cautious. And for the existing property projects, we will strengthen the management for the newly added loans. We will exercise strict access policy to control the risk very well and make sure the very sound and healthy growth. Thank you very much.

Just now, Mr. Wang Guoquan shared with us the impact of real estate business on the CITIC Bank. I want to add one more point. For CITIC Group, apart from the relation with the real estate business, the CITIC Bank, also, we have the -- we have the CITIC urban development and operations, CITIC Pacific Properties, and they are directly engaged in real estate business. Secondly, financial services related to state, mainly CITIC Bank and CITIC Trust, other industrial enterprise under CITIC, I want to share with you the performance of the CITIC Pacific Properties and Trust. We had a very healthy financial operation. We did not undertake any high level of business model. And for CITIC Pacific Properties, we focused our investment project in Tier 1, Tier 2 cities. And we mainly focus on the depreciated proposition in choosing property projects. And for -- we will follow the plan to focus on the project operation. On top of that, for CITIC Limited, we had a 10% equity in the CITIC overseas subsidiary, which is an outstanding subsidiary with very sufficient returns every year. And CITIC Trust follow the requirement of regulators, while optimizing the product structure. We also actively adjust the risk preference and the project structure to improve the quality of projects we've undertaken and reducing the written exposure of property projects. The risk exposure has decreased 59% from the high point in 2019. In 2021, we had a further decrease of 33% of risk exposure. The risk exposure has been reduced dramatically, and the overall risks are well controlled. We also rely on the power of the market to defend the interest of all the matters.

Now let's welcome the next question.

My name is Huang, Yuehan. First of all, I want to congratulate CITIC Limited for achieving great performance. I have 3 questions. The first one is about the price changes of bulk commodities. I want to ask about the main impact from the price changes of bulk commodities. The second question is about iron ore. In 2022, what is the expected fluctuation of iron ore price? What are the impacts on the advanced material? The third question is about carbon neutrality. I know CITIC Limited has had huge progress on this carbon peak neutrality. What are the measures taken at the group to reach the dual carbon target?

Thank you very much for raising the question. The question you raised is of a great concern to the management team. The environment in the market is very difficult, just like the climate and weather of enterprise management, which should respect the laws of the market, not to be overconfident nor ignorant. We should also fully understand and use market risks. We know fairly well what's happening in the market. As for the year 2021, the impact of commodity price changes on CITIC Limited is mixed with opportunities and challenges. But overall, the good news outweighs the bad news. And the opportunities outweigh the challenges. First of all, the advanced materials segment benefited significantly. The subsidiaries in the segment fully seized on the opportunities during the upward market movement in the first half year and managed the risks during the high market shocks in the second half of the year. The iron ore business of Sino Iron project, the crude oil business of CITIC Resources, the steel products of CITIC Pacific Special Steel and the overseas equity mining investment of CITIC Metal have all achieved good operating results. Secondly, the cost of the advanced manufacturing segment was under pressure. CITIC Heavy Industries and CITIC Dicastal gave full play to their competitive advantages in the industry structure and strengthened the ability to dynamically manage the raw material supply chain to promote core transfer to the end users, while vigorously carrying out special efforts to cut costs and increase efficiency to actively absorb the impact of higher raw materials and ancillary parts. Thirdly, the headquarter's market risk management capabilities was put to the test. In the second half of 2020, we conducted a comprehensive review and optimization of our market risk and derivative business management system, process and systems in 2021. We launched the construction of a comprehensive risk system. 2021's severe fluctuations in the commodity market put tremendous pressure on our market risk management and also verified the success and effectiveness of our system and management mechanisms. We will always keep our respectable part and do our market risk management work prudently. And also we will fulfill our responsibility to investors and shareholders with all our hearts. In the first quarter, the price of iron ore remained high. In 2022, the iron ore price for the whole year will be lower than the year 2021 on the average basis. But in the short term, we expect the price will be fluctuated at the very higher level. As for CITIC Limited, we see both opportunities and challenges, and the opportunities will outweigh challenges because our high-quality iron concentrate market is in high demand. And the Sino Iron will be very stable in the market. And the price fluctuation of iron ore will be important to CITIC Metal. The risk management, these will be -- all the risks are challenges to us, but we have the capability to control all the risk and impact in the reasonable level. And for the CITIC special -- Pacific Special Steel had a higher premium in the market. And the impact from the iron ore prices can be controlled. CITIC Dicastal has incorporated risk control into our overall system. We will stick to the systemic thought and try our best to play out the advantage as a financial think tank. We attach the importance to the Ukraine situation with the unexpected impact from the COVID. We will utilize the upper stream and the lower stream of the supply chain as well as other measures like derivative business to control the risk from the market in an effort to make sure the stable operation and production. As for the carbon peak neutrality, CITIC Limited practice the [ 3 new 1 ] increase deployment. We will follow firmly on the green development path. Last May, we organized the seminar on the pathway to carbon peaking and neutrality and announced that CITIC Limited would strive to achieve carbon neutrality by 2050 and carbon peaking by 2025. In 2021, we have carried out the following work. First, we released the 2 increases and 1 decrease low carbon demand strategy. The 2 increases reflects that finance provides financing solutions for low carbon industrial transformation, while industry takes the responsibility to amplify the low carbon effect of the industrial chain and ecosystem. And 1 decrease reflects that we will reduce our own stock of high carbon business and high environmental impact investment and actively promote low carbon transformation. Secondly, we have compiled the white paper on carbon peaking and neutrality actions. We have carried out the carbon emission verification and comprehensively mapped out our own carbon emission, on the basis of which we have prepared an action plan that can be operational and effective. Thirdly, we have played the role of amplifier in the industrial development and booster for green finance. In our business practice, we have made full use of our advantages as an integrated company to reduce carbon emissions in our own production and operations through energy substitution, energy efficiency improvement, green power and other measures, and promoted the reduction of emissions in the value chain through green industry, green finance and green products. And we believe that under the guidance of carbon neutrality pathway on green and low-carbon enterprise should have the following features, low carbon or even net zero carbon emissions operations in the production process, a business model that balances environmental and economic benefits that helps reduce carbon emissions in the whole society through the industrial chain. This will be the direction of our continuous efforts. In the future, we will strive to become a banner for state-owned enterprises who contribute to carbon peaking and neutrality goal, and a model for the capital market to practice ESG responsibility. Specifically, in terms of environment, we will achieve full coverage of low carbon emission operation of industrial subsidiaries and environmental efficiency standards for all businesses of financial subsidiaries. In terms of society, we will take green and the low-carbon development as the focus of social responsibility by SOEs in the new year and drive the transformation and upgrading of the industrial chain. In terms of corporate governance, we will realize the integration of environmental and economic benefits and become a leader of green and low carbon economy. In 2021, we will implement the 2 increases, 1 reduction, low-carbon development strategy and white paper on carbon peaking and neutrality actions to promote green and low carbon businesses as a new growth driver for CITIC Limited. Thank you.

And I would like to welcome the next question.

I'm [indiscernible]. I have 2 questions to ask. The first is about CITIC Metal because last year, you've made the announcement of spin-off listing, so I would like to ask about the progress. And I would like to ask the next question about the leverage ratio, and I'd like to ask you about the opinion on the asset liabilities and what's the plan for the future leverage ratio.

Thank you for the question. And this question is also concerns the market valuation management reform of CITIC Limited. If you see, CITIC Limited is a typical comprehensive conglomerate group with diversified businesses, varied and rich business models with domestic and overseas business process and a relatively complicated business and organization structure. For our analysts and investors, it can be a test for you, and we have caused some inconvenience to you. So when the market valued us using the net asset valuation method, there was a serious information asymmetry, and many of our valuable and the promising assets and businesses did not receive the attention they deserve, which was one of the direct causes of the long-term undervaluation of CITIC Limited. So the headquarter, so the empowering value of our corporate headquarters, the business segments and subsidiaries has also not been recognized by the market for a long time, especially the integration of the -- on finance and finance business, and we see that the analysts and investors have given us a too high discount factor for diversification. I'd like to take this opportunity to appeal to analysts to spare more time to communicate with the management. And while we are developing a good fundamental for the company, we are going to increase the transparency and to adopt the targeted systematic measures to promote the market value management reform, so that the market valuation can be improved. And we will continue to promote the spin-off listing of high-quality subsidiaries, including CITIC Metal Group, CITIC Metal as one of CITIC Limited's most important industrial subsidiaries. Actually, CITIC Metal is a high performer within CITIC Limited. And CITIC Metal has a very stable management team with outstanding entrepreneurial spirit and management capabilities. For a long time, CITIC Metal has been based on the 2 main businesses of commodity trade and mining investment, focusing on refining and strengthening special raw materials and new materials, such as niobium, copper, iron, aluminum, titanium dioxide and high-quality chromium as well as other types new and specialty materials. It attaches great importance to scientific and technological innovation, and so a lot of bottleneck problems, which has contributed to the stable supply of metal materials important to the country. And we should say that it has core competitiveness. In the last year, it achieved an operating income of CNY 110 billion, and the net profit attributable to parent company of CNY 1.7 billion, and China Securities Regulatory Commission formally accepted CITIC Metals a share member with IPO application in December 2021. And the company is now providing feedback on the CSRC's questions. If things go well, CITIC Metal is expected to land on the Asia main board market in 2023, and we hope the time line can be brought forward. After the IPO, CITIC Metal will release its intrinsic value as well as to boost the valuation of CITIC Limited as well as to improve the share prices of CITIC Limited. So we welcome you to continue to attach your attention to the IPO application of CITIC Metal. The next question will be answered by [indiscernible].

So in 2021, CITIC Limited's asset liability ratio was 89%. After excluding banking business, it was 59%, down by 1 percentage point from the end of 2020. So compared to the high level over the last few years, actually, it has been decreased -- dropped from 4.4x to 3.2x. And for the CITIC Limited has had a great importance to the leverage ratio, which has been decreased from 4.4x from the beginning of the year to 3.2% -- 2.3x. This is a very good performance, so this is actually outperforming the average level in the market. Since its listing, CITIC Limited has attached great importance to leverage ratio, especially after 2016. We have made a systematic planning and management of the liability -- of the leverage ratio. Especially, we made it into a scale resource to put it under management. And we have promoted this renovation and reform. And the -- we have introduced the reform plan 1.0. Last year, we've introduced the centralized reform management plan, 2.0, and we continue to implement this integration of finance businesses and to reduce the leverage ratio. So our business have been optimized by the liabilities. Last year, it has been dropped by more than CNY 38 billion due to the central -- the internal centralization of funds and to reduce the leverage ratio. In the meantime, over the last few years, we've redoubled our efforts to manage the subsidiaries, especially for the interest bearing liabilities and smallest to include it into assessments. And in the performance assessment system, we have attached a very high value to it. So this is very important to the development of CITIC Limited. We highlight of the high-quality developments. In the future, we believe that our control and the management of leverage ratio will be improved, and we will continue to introduce the plan 3.0 to control the leverage ratio, so as to deliver longstanding results. And we're going to adopt better measures to control leverage ratio, so as to control it within a reasonable scope.

Dear investors and analysts, due to time limit, so we're going to ask the last analyst to ask a question.

So dear management of CITIC Limited, so I'm from Tokio Marine, and I'd like to thank the invitation for attending to this briefing. I have 2 questions that I would like to ask the management so just now. So the first question is about the financial holding company. Just now, we said that in the future, the priority is to develop the 3 core companies as one of the core competencies, wealth management. So I would like to ask that in the future, what are the strategic planning for wealth management and for the plan for fintech? And over the last year, the commodity price has been revised, so I would like to ask that. So what are the highlights of Sino Iron in 2021? And what is the development plan for this year?

So the first question for [indiscernible]. Thank you very much for your question. And so financial -- CITIC Financial Holdings is indeed that we hope that in the future, so it will do a solid job in wealth management, no matter it is mechanism institutions or planning. So as you know, the wealth management potential is very large in China, no matter for the middle-income populations or the total amount of the people with middle income. So we say that wealth management is a very important market segments. And for CITIC Financial Holdings, we have 5 subsegments, or we call it 5 subsidiaries. It has an asset under management of CNY 6.7 trillion. And we have 143 clients. So we have a very good basis to continue to improve and to develop our wealth management business. So our plan is for CITIC Financial Holdings is going to implement the optimization of financial services and to -- so we are going to follow the requirement, the rule of law and to prevent against risks, so that we will give a play to the role of the think tank as -- so as we will integrate our resources and advantages to provide the assistance and support to our customers. So first, we are going to optimize the think tank and the services -- the consultancy services to our clients. Secondly, for the product integration, supply and channel integration, we are going to build a systematic open product system to bring together the good quality products selected by fintech. Thirdly, we are going to improve the quality of our services. We are going to integrate the subsidiaries, our channels, our customer acquisition and combine the different scenario subsidiaries to build a closed loop of services to provide this across the cycle of wealth management in an integrated manner, which will contribute to the common prosperity of the country because the wealth and the increase of the value and the maintenance of the value of the wealth of the clients can also contribute to common prosperity. And fourth, we are going to enhance our basic capabilities because we have all the -- so we have the financial subsidiaries as the top performance in the industry, and they have a lot of top talents. And we would like to bring together the talent -- the top talents to provide good service to our clients. We would like to build such a team to provide good quality services and to shift from intermediary institution to a consultancy provider. So actually, this is a strategic planning for CITIC Financial Holdings in terms of technological investment in order to realize the planning, no matter for bringing together risk management or the related transaction management or the customer data-based wealth management. These all rely on the technology. So in the CITIC Financial Holdings, we proposed the idea of empowerment through fintech. We will build the 1.0 version digital integration project and promote the infrastructure sharing, data resource sharing, management application, interconnection and user experience and interconnecting central. So we will strengthen intelligent control, break the glass door among lines, departments and the subsidiaries integrate the financial technology resources of the group and its subsidiaries and incorporate with outstanding enterprises in the industry, and build open and integrated capabilities. We will provide intelligent wealth solution. Now I'd like invite Chairman Chang to answer the next question.

Thank you, the analysts. I will briefly answer your question. In 2021, the IO market is very promising, but the beginning of the year is a very higher price and then declined moderately. With the impact of COVID-19, the CITIC Sino Iron management team managed the operation very healthily. We have altogether 3,000 employees without any COVID cases in our Sino Iron, and the operation is very smoothly. This is the first highlight I want to emphasize. Number two, over the last year, based on what we have achieved over the previous year, we had a record high in production, which can be reflected in the effective operation rate in the factory. Also the energy consumption declined year-on-year. And the efforts on cost reduction efficiency improvement are reflected in better results and performance. Sino Iron projects, through years of aspiration in the market, we are still the biggest, the concentrate powder provider. We had maintained the #1 supplier in the iron concentrate powder. Also in Australia, we have -- we are the biggest producer and supplier of concentrate powder. And also like analysts introduced in West Australia with the concentration of big enterprises, according to the ranking of export value, we are the top 10 exporters in Western Australia. We were ranking #9 last year. And also in last year, we had accumulated more than 100 million tons of iron concentrate powder. In this perspective, this is the outstanding result through years of preparation and efforts. From the operating revenue perspective, our profit and cash flow last year were very healthy and also achieved record high. In 2022, Sino iron will strive to sustainable development. First of all, this year, we want to solve the risk issues since the project was established. And also last year, we received the -- another 1 billion tons of licensing, which is a solid foundation for the prosperous future. This year, we hope that the land issue and many other left-over issues can be resolved gradually. Secondly, we will continue to improve production efficiency through technical research and breakthrough to pave for the future sustainable growth. The work from this year will be carried out in -- during the impact of pandemic, and all the management team at Sino Iron had accumulated experience. And I believe we will continue to work for the good performing result in the year 2022.

Today, we have received so many questions. And just now, the management team reminded me that we can allow for the one last question.

Distinguished leaders, I'm [indiscernible]. I have one question. The development target of [ 10, 100 and 10 million ], what is the contribution from each subsidiary?

Thank you very much for the question. You shared the interest of many other analysts. For the management team, we believe that strategy is one commitment. Under the leadership of the Board of Directors, we will move forward with the implementation of the strategies. I want to share with you several perspectives. Number one is the [ 553 ] strategy, which enjoys solid foundation. In CITIC Group, everyone knows the [ 553 ] strategy, and it has become a shared pursuit and guidance for actions of every individual in the growth. [ 553 ] strategy has a good start. In 2021, we had a very good kick start and had a very fast growth. We also had good progress in laying foundation. In terms of laying foundation, our asset continue to be optimized. And the NPL and liability ratio have been controlled at a very healthy range. And our operating capability is improving. In terms of deployment, we had entered into NPL management segment, become a biggest shareholder of [indiscernible]. And also this year, we hope to maintain the faster growth. At CITIC Group, our target this year is to realize the 10, 100 and 1,000 target. That's the target we set for ourselves. 10, 100, 1,000 is the target proposed for the CITIC Group. Number three, we will continue to stick to the finance and nonfinance segment in order to prepare for the implementation of [ 553 ] strategy on financial sector. The CITIC Financial Holdings has created many new possibilities for the future development in this segment. Our target will be moved up to the building of a world competitive financial holding company during the 14th 5-year plan. We hope the net revenue of the financial sector will be higher. For nonfinancial sector, we will continue to concentrate on the solution of bottleneck technology, the stability of the supply chain, transformation of emerging business segment and also expand the dual circulation. During the 14th 5-year plan, we do not set the percentage of finance and nonfinance segment. Just now, Guoqiang shared with us the 70-30 or the percentage of finance and nonfinance segment. As for me, myself, as the first Chairman of CITIC Financial Holdings, I believe that financial business need to make more contribution. For nonfinance segment, we need to be more precise, to be at the upper stream of the value chain and increase the profitability and reinforce each other, so as to create more value for all investors. Thank you.

Today's results briefing has come to the end. Thank you, all the management team and all investors. If you have any follow-up questions, please feel free to communicate with our team. Thank you very much. Thank you.