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

Good morning. My name is Luke, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2023 Conference Call. [Operator Instructions] FHipo released its earnings report on Friday, October 27. If you did not receive the report, please contact FHipo's IR department directly and they will e-mail it 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; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating 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 third quarter 2023 results. I would like to start by addressing FHipo's performance and achievements during the quarter. During the past quarter, FHipo achieved a net income of MXN 270 million with an estimated distribution per CBFI of MXN 0.68. Considering market price, the yield per CBFI was 17.4%. At the end of the third quarter, FHipo achieved solid results in terms of profitability. Our return on equity grew 352 basis points compared to the third quarter of 2022, reaching 11.4%, while return on assets reached 7.3% in the third quarter compared to 4.9% in the same period for 2022. The financial margin for this quarter was 48.6%, remaining stable when compared to the 47.8% in the second quarter of '23. These results reflect the effort made by the management team, and we affirm our commitment to continue working responsibly and diligently to meet our profitability objectives. During the last 12 months, we have experienced an annual growth of more than 60% in the mortgage portfolio through YAVE and KREDI originations. We also seek to mitigate the risk of floating rates as far as possible. Therefore, as of the third quarter of 2023, 76% of total consolidated debt is at fixed rates considering our sub coverage structures. This remains in line with our commitment to maintain a stable debt structure that translates into financial stability. Having said that, now I will hand the call over to our COO, Jesús Gómez, who will discuss our portfolio breakdown. Chuy, please go ahead.

Thank you, Daniel, and good morning, everyone. I would like to continue by discussing the breakdown of our mortgage portfolio for the third quarter of 2023. As of September 30, 2023, FHipo's consolidated portfolio reached 76,000 loans, totaling MXN 23 billion. Compared to the third quarter of 2022, these figures decreased by 11% and 8%, respectively. These declines are mainly explained by the portfolio's natural amortization. Our loans come from our partnerships through several origination programs such as Infonavit Total, Infonavit Más Crédito, Fovissste, YAVE and KREDI. The latter 2 are more recent partners which have shown exceptional growth in previous quarters. The average loan-to-value ratio at origination closed the quarter at 78.13%, a slight increase of 13 basis points compared to the third quarter of 2022, while the payment-to-income ratio increased to 24.4%, an increase of 54 basis points compared to the third quarter of 2022. As of the third quarter of 2023, our portfolio continued to meet the company's expectations, reaching 93.25% in consolidated terms. When considering portfolio balance at origination, the NPL ratio stood at 4.9%. Our portfolio remains diversified as KREDI and YAVE's portfolios continue to grow, now representing 8.7% of our total consolidated portfolio. The breakdown of our portfolio is as follows: Infonavit Total, MXN 7 billion; Infonavit Más Crédito, MXN 11.6 billion; Fovissste, MXN 2.4 billion; YAVE, MXN 1.8 billion; and KREDI, MXN 197 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 comprise the largest part of our portfolio, representing 12.4% and 11.3%, respectively. Regarding our partnerships on origination programs, our portfolio is comprised as follows: Infonavit Más Crédito represented half of our portfolio, standing at 50.4% of the total. Infonavit Total pesos represented 17.2% of the total portfolio. Infonavit Total VSM, which are minimum wage index loans, totaled 13.2%. The Fovissste portfolio accounted for 10.5% of the total portfolio. The YAVE portfolio stood at 7.8%, showing an important increase of 2.9 percentage points compared to the previous year. And finally, KREDI's portfolio comprised 0.9% of the total. As always, we continue to monitor the performance of our portfolio, and we're confident that our risk return strategy will continue to yield positive returns. I will now hand the call over to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results.

Thank you, Jesús, and again, good morning, everyone. I will continue by going through our diversified sources of funding. As you can see, our funding structure continues to be well diversified, which is crucial to maintaining our financial stability and resilience through the persistent challenging economic environment. Our funding sources include securitizations, short-term debt, short-term unsecured bonds, revolving facilities. As always, we have maintained a conservative approach to mitigate risk and bring sustained profitability to our investors. During the third quarter of 2023, our consolidated debt-to-equity ratio remained stable at 1.6x, in line with our risk management guidelines, and our on-balance debt-to-equity ratio at 0.6x, an important result given our leverage strategy that has been proven to be successful under economic -- challenging economic conditions. So we remain confident that this places us in a favorable position to take advantage of new opportunities that bring value to the company and our investors. On Slide 12, regarding the asset quality of our portfolio, our NPLs and our allowance for loan losses. As we can see, we closed the quarter with a consolidated expected loss coverage of 1.37x and a consolidated NPL coverage of 0.7x. These ratios reflect our commitment to continue optimizing the company's performance through a conservative risk management strategy. Moving on to Slide 15, and here, we will go through our financial results for the quarter. The interest income amounted to MXN 339 million. This income slightly decreased when compared to the same period of the previous year, mainly due to a smaller portfolio balance as a result of the natural amortization of the portfolio. The interest expenses for the quarter were MXN 174 million. This expense remained practically flat when compared to the second quarter of 2023, and while comparing it to the financial expense of the third quarter of 2022, it increased by 17.4%, which is mainly explained by the higher interest rates. However, considering the current market conditions, we remain efficient and prudent in our debt management. The financial margin for the quarter stood at MXN 164.9 million, representing 48.6% of the total interest income and 48.8% on a cumulative basis for the third quarter of 2023. The allowance for loan losses for the quarter was MXN 83.9 million. This positive figure is mainly explained by the portfolio performance during the quarter and the effective collection efforts of the primary servicers of the portfolio. The valuation of receivable benefits from securitization transactions, driven by the net income generated under the equity residuals of our securitization transactions, resulted in MXN 139.8 million, higher than the amount reported for the third quarter of 2022 and also from the previous quarter. The administrative expenses for the quarter were MXN 116 million, and with this, the net income for the quarter resulted in MXN 270.8 million, higher than the amount reported in the previous year. Considering the outstanding CBFIs of the date of the report, this results in a net income per CBFI of MXN 0.717 and in an estimated distribution subject to the current distribution policy of MXN 0.681 per CBFI, higher than the amount reported in the previous quarter. If we move to Slide 16, as we highlight some of the key metrics, the financial margin for the quarter, as mentioned before, reached 48.6% and the return on equity, 11.4%. These figures reflect our strong commitment and approach to optimize FHipo's profitability following a solid risk return strategy, which has characterized us since our inception. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before the Q&A session.

Thank you, Ignacio. We're proud of the results achieved so far in the year, which are aligned with our objectives. And looking forward to the last quarter of the year, we're excited to selectively and conservatively keep seeking growth opportunities for our portfolio while maintaining an efficient leverage strategy. Although the market conditions continue to pose challenges, we are confident that with our resilient, robust and successful business model, we will continue to bring positive results to our investors. I would now like to hand the call back over to the operator to start the Q&A session.

[Operator Instructions] Our first question comes from the line of Martín Lara. Please state your full name and company name and ask your question.