Fideicomiso Irrevocable F/2061 FHipo (FHIPO14) Earnings Call Transcript & Summary

Good morning. My name is Juan Pablo, and I will be your conference operator. [Operator Instructions] This is FHipo's Fourth Quarter 2022 Conference Call. [Operator Instructions] FHipo released its earnings report on Friday, February 24, after market close. If you did not receive the report, please contact FHipo's IR department directly, and they will email to you. Please note that this call is for investors and analysts only. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Jesús Gómez, Chief Operating Officer; and Ignacio Gutiérrez, Chief Financial Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. I'm pleased to announce FHipo's fourth quarter and full year 2022 results. I would like to start by addressing FHipo's performance and achievements during this year. During 2022, we continued to navigate through an uncertain challenging macroeconomic environment, mainly resulting from high inflation and interest rates. Despite this, we managed to report strong results as we kept implementing FHipo's fundamental strategies to increase profitability and improve investors value by demonstrating the adaptability and the strength of our business model. We continue to focus on diversifying both our mortgage portfolios and our funding sources while securing competitive rates that add value to the company. The annual net income for 2022 was MXN 923 million, a 21% increase compared to the MXN 763 million reported in 2021. The estimated distribution was MXN 2.3 per CBFI, representing FHipo's highest EPS in the 8 years of history and reflecting the company's solid assets and its ability to generate strong returns for investors. Now as shown in Slide 4, I would like to highlight the following achievements for the quarter. FHipo's successful financial liquidity and leverage strategy are evident in our reduced exposure to floating rates. As of the 4Q, only 17.5% of our consolidated debt was exposed to floating rates, benefiting the company in the current high interest rate environment. Given the high net income per CBFI, our 4Q ROE reached 10.4%, a substantial increase from 4.4% reported in the 4Q of 2021. Moreover, our financial margin has been significantly increasing for the past couple of years from 31.3% in the 4Q of '20 to 47.9% in the 4Q of '21. And finally, to 56.8% in the 4Q of 2022. FHipo's accumulated distribution for 2022 increased 24% compared to the number reported in '21. These results demonstrate FHipo's resilience in a challenging macroeconomic environment and its unwavering commitment to continue delivering value to investors. I'm pleased to announce that in the 4Q of 2022, we began acquiring mortgage loans from our new origination partner, KREDI. KREDI is a financial technology company that provides borrowers with a quick and secured loan in the medium residential segment. KREDI, along with YAVE, provides a competitive advantage to FHipo and is expected to expand its mortgage portfolio, further improving margins and profitability to our company. Through KREDI, we will continue to create value in both our investors and to Mexico's mortgage market as we will expand our portfolio going forward. Now I hand the call over to our COO, Jesús Gómez, who will discuss our portfolio breakdown. Jesús, please go ahead.

Thank you, Daniel. Good morning, everyone. Thank you for joining us today. I would like to continue on Slide 6 to discuss the breakdown of our mortgage portfolio for the fourth quarter of 2022. As of December 31, 2022, FHipo's consolidated portfolio comprised 83,519 loans amounting to MXN 24.7 billion. This represented a decrease of 10.5% and 8.8%, respectively, relative to the fourth quarter of 2021. This decline is mainly explained by the natural amortization of FHipo's portfolio. Our loans come from our partnerships with several origination programs such as Infonavit Total, Infonavit Más Crédito, Fovissste, YAVE, and more recently, our newest origination partner, KREDI. The average loan-to-value, payment-to-income ratios remained without significant changes over the last 12 months. Loss in the fourth quarter with a loan-to-value of 78.03% and a payment-to-income of 24.3%. As of the fourth quarter of 2022, our performing portfolio continued in line with the company's expectations as it accounted for 94.3% in consolidated terms which implies an NPL ratio of 5.7% and 4.7% relative to the balance of origination. Our portfolio is even more diversified than before as we added KREDI to origination programs. The breakdown of our portfolio is as follows: Infonavit Total, MXN 8 billion; Infonavit Más Crédito, MXN 12.9 billion; Fovissste, MXN 2.4 billion; YAVE, which is our main origination program currently, it's MXN 1.4 billion; and finally, KREDI, our most recent origination partner, MXN 18 million. Moving on to Slide 7. We can see how FHipo's portfolio continues to be geographically diversified across all 32 Mexican states. The state of Mexico and Nuevo Leon comprised the largest share of our portfolio, accounting for 12.7% and 11.3%, respectively. In relation to our partnerships and origination programs, our portfolio is broken down as follows. Infonavit Más Crédito represented more than half of the entire portfolio with 52.2% of the total. Infonavit Total represented 18%. Infonavit Total VSM or minimum wage index loans reached 14.4% of the consolidated portfolio. So VSM represented 9.8% of the total portfolio. YAVE increased from 2.5% in the fourth quarter of '21 to 5.5% in the fourth quarter of 2022. And finally, KREDI represented 0.1% of the total portfolio. As always, we continue to monitor the performance of our portfolio, particularly in the current macroeconomic environment. I will now hand the call over to our CFO, Ignacio Gutiérrez, to discuss the financials for the quarter.

Thank you, Jesús, and again, good morning, everyone. I will continue the call, go through the diversified sources of of funding on Slide 10. Our funding structure remains well diversified and includes securitizations, short-term unsecured bonds and revolving warehousing facilities. During the fourth quarter of 2022, our consolidated debt-to-equity ratio stood at 1.8x, down from 2x in the fourth quarter of 2021. Our on-balance debt-to-equity ratio was 0.6x, 0.1x lower compared to the 0.7x reported in the fourth quarter of 2021. As part of our leverage strategy and the optimization of resources of funding, we incurred the amortization of several on balanced financing structures, which mainly explains the decrease reported in our debt-to-equity ratio. On Slide 12, I'll go through the asset quality of our portfolio, our NPLs and our allowance for loan losses. We continue to maintain a solid allowance for loan losses with our consolidated expected loss coverage standing at 1.42x and our consolidated NPL ratio standing at 0.73x. Moreover, our consolidated NPL ratio stood at 4.7% considering portfolio balance at origination and at 5.7% considering current portfolio balance. On Slide 15, I will take you through our financial results for the quarter. Total interest income amounted to MXN 351.5 million, a 4.4% increase compared to MXN 336 million reported in the fourth quarter of 2021. The interest expense for the quarter was MXN 161.1 million representing a 4% decrease compared to the MXN 167 million reported in the fourth quarter of 2021. As mentioned before, this decrease is mainly explained by the amortization of certain liabilities and by improvements in the spreads of our credit facilities. Moving on, the financial margin for the quarter stood at MXN 190 million, representing an increase of 12.9% when compared to the MXN 168 million reported in the same period of last year. The allowance for loan losses for the quarter was MXN 53 million, in line with the amount reported in the fourth quarter of 2021 of MXN 52.1 million. The valuation of receivable benefits from securitization transactions, driven by the equity residuals of our securitization transactions generated an income valuation of MXN 189.1 million. This figure was higher than the one reported in the fourth quarter of 2022, mainly -- in 2021, mainly due to the inflation effect over the VSM denominated portfolio. Net income for the fourth quarter of 2022 stood at MXN 249.5 million. On an accumulated basis, as of December 2022, the net income was of MXN 923.4 million, an increase of MXN 159 million when compared to accumulated net income reported in 2021 of MXN 763 million. Considering the outstanding CBFIs as of the date of the report, the net income per CBFI or earnings per share for the quarter stood at $0.648 and the net income per CBFI subject to our current distribution policy at $0.615. Before we go to the next slide, it's important to mention that we reported our highest ever annual income per CBFI of MXN 2.39, reflecting the quality of FHipo's management team and portfolio. As seen on Slide 16, the last slide, the accumulated financial margin for the full year of 2022 stood at 56.8%, increasing by 8.92 percentage points when compared to the figure reported for 2021. And finally, the accumulated return on equity was of 9.3%. With this, I will now turn the call back to our CEO, Daniel Braatz, for some closing remarks before the Q&A session.

Thank you. I would like to end by saying that we are proud of our fourth quarter and full year 2022 results and look forward to 2023. FHipo will remain it's -- maintain its conservative and focused approach to seek out profitable mortgage loan origination opportunities, enabling the expansion of its margins and the generation of attractive returns for the company and its investors. I would like to hand the call back over to the operator and start the Q&A session.

[Operator Instructions] We would like to take this moment to thank you for joining FHipo's Fourth Quarter 2022 Results Conference Call. Our first question comes from the telephone line ending in 8563. Please state your company name and ask your question.

Can you hear me?

Yes, we can hear you.

I have 2 questions. This is Martín Lara from Miranda Global Research. The first one is how do the KREDI portfolio in the medium term? And the second one is if you could explain the gain on the valuation of the [indiscernible] towards [indiscernible]? If it only has to do with inflation effect? And what can we expect going forward?

Sorry, what was the first question? We cannot hear you. You're pretty far from the phone.

Okay.

Hello? Hello? If we can move on to the next question, operator, please?

Yes, we can move on. We can come back to your question, Martin, if you can -- if you still have a question. [Operator Instructions] We have not received any further questions at this point. So that concludes our question-and-answer session. I would now like to hand the call back over to Daniel Braatz for some closing remarks.

Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest and questions in FHipo, and look forward to speaking with you soon. Thank you.

That concludes today's call. You may now disconnect. Thank you.