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

Good morning, everyone. My name is Andrea, and I will be your conference operator. [Operator Instructions] This is FHipo's Fourth Quarter and Full Year 2023 Conference Call. [Operator Instructions] FHipo released its earnings report on Friday, February 23. 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 statement 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 today 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 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 2023 results. I would like to start by addressing FHipo's performance and achievements in the following slide. During 2023, we faced various challenges in our country characterized by volatility and elevated interest rates. Our journey through challenging conditions has reinforced us to commit to operational excellence and allow us to emerge with very positive results despite these challenges, demonstrating our ability to maintain profitability and how strong our business is. By focusing on delivering our mortgage portfolio and funding sources as well as securing competitive rates, we have created significant value for the company. Now as shown on Slide 4, I would like to highlight the following achievements for the quarter and full year. Throughout the year, FHipo showed a strong performance culminating in a net income of MXN 199 million during the fourth quarter, which considering the outstanding CBFI's results in a net income per CBFI of MXN 0.53 and an estimated distribution subject to the current distribution policy of MXN 0.50, resulting in a return per CBFI of 13.6% annualized considering the current market price per CBFI in the market. Our accumulated earnings per CBFI for 2023 reached MXN 2, marking the second consecutive year in which earnings per CBFI exceeds this amount. This is in line with our expectations and our strong financial position. In 2023, we experienced an annual growth of 71% in our origination through the Digital Mortgage Platforms. Digital Platforms now represent a significant portion of our total portfolio, reaching over 10.4% by the end of 2023. This expansion strategy not only diversifies our offering but also enhances risk mitigation and innovation. The portfolio originated through this platform significantly surpassed the company's expectations and has shown substantial growth, reflecting our commitment to the development and expansion of the mortgage market in Mexico. The financial margin for this quarter was 51%, an increase of 2.6 percentage points when compared to the 48.6% reported to the third Q of 2023. This highlights our ability to consistently deliver results despite market fluctuations. Our operational flexibility has been essential in achieving these results, allowing us to quickly adapt to changing conditions, optimize our cost of debt and effectively manage our exposure to floating rates. This agile approach continues to reinforce our commitment to generating long-term profitability for our investors. Now I will hand the call over to our COO, Jesús Gómez, who will discuss our portfolio breakdown.

Thank you, Daniel, and good morning, everyone. I would like to continue by discussing the breakdown of our mortgage portfolio for the fourth quarter of 2023. As of December 31, 2023, FHipo's consolidated portfolio reached 74,000 loans, totaling MXN 22.8 billion. Compared to the fourth quarter of 2022, these figures decreased by 11.4% and 7.5%, respectively. These declines are mainly explained by the natural amortization of the portfolio. Our loans come from our partnerships with several origination programs such as Infonavit Total, Infonavit Más Crédito, Fovissste and Digital Mortgage Platforms. The latter being our most recent partners, YAVE and KREDI which have shown exceptional growth in the past year. The addition of these partners has significantly contributed to aim our strategy to diversify and grow portfolio through digital platforms with long-term horizons, ensuring stability and alignment with our growth objectives. The average loan-to-value ratio at origination closed at -- the quarter at 78.15%, a slight increase of 10 basis points compared to the fourth quarter of 2022. The average payment-to-income ratio was 24.4% for the fourth quarter of 2023, an increase of 7 basis points compared to the previous year. As of the fourth quarter of 2023, our performing portfolio continued to meet the company's expectations, reaching 93.2% of consolidated terms. When considering the portfolio balance at origination, the NPL ratio was 4.94%. Our portfolio remains diversified as our digital platforms portfolio continue to grow, now representing 10.4% of our total consolidated portfolio, indicating our successful expansion and diversification strategy. The breakdown of our portfolio is as follows: Infonavit Total, MXN 6.8 billion; Infonavit Más Crédito, MXN 11.3 billion; Fovissste, MXN 2.4 billion; and Digital Mortgage Platforms MXN 2.4 billion. The influence of Digital Mortgage Platforms origination is rapidly catching up, indicating a strategic pivot towards leveraging these platforms for future portfolio expansion. This growth underscores our commitment to long-term financing and innovation in origination, allowing us to adapt and evolve in a rapidly changing market. 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, with 12.4% and 11.4% of the total loan portfolio, respectively. Regarding our partnerships and origination programs, our portfolio is broken down as follows: First, Infonavit Más Crédito represented 1/2 of the portfolio, standing at 49.7% of the total; Infonavit Total Pesos, represented 16.9% of the total portfolio; third, Infonavit Total VSM, which are minimum wage index loans totaled at 12.7%; fourth, Fovissste portfolio accounted for 10.3% of the total portfolio; and finally, the Digital Mortgage Platforms' portfolio accounted for 10.4%. As always, we continue to monitor the performance of our portfolio, and we're confident that our risk-return strategy will continue to give -- yield positive results. 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 going through our diversified sources of funding. During the fourth quarter of 2023, our consolidated debt-to-equity ratio stood at 1.5x, down from 1.8x in the fourth quarter of 2022, and our on-balance debt-to-equity ratio stood at 0.5x compared to 0.6x reported in the fourth quarter of 2022. This change, mainly due to a portion of amortizations in our warehousing facilities. Our leverage strategy has proven to be efficient throughout the challenging economic environment, and we remain confident that it places us in a favorable position to take advantage of new opportunities that bring value to the company and our investors when we face more favorable economic conditions. On Slide 12, regarding the asset quality of our portfolio, our consolidated NPL ratio stood at 4.94%, considering portfolio balance at origination and at 6.81% considering the current portfolio balance. Regarding our NPLs and our allowance for loan losses, we closed the quarter with a consolidated expected loss coverage of 1.41x, and a consolidated NPLs coverage of 0.71x. This cautious stance not only demonstrates our commitment to securing against potential losses but also strengthens us and our financial resilience, ensuring that we are well prepared for the uncertainties in our operating environment. Moving on to Slide 15. And here, we will go through our financial results for the quarter. The total interest income amounted to MXN 336.7 million, a 4.2% decrease compared to the fourth quarter of 2022. This decrease was mainly due to a smaller portfolio balance as a result of the natural amortization of the portfolio. The interest expense for the quarter was MXN 164.3 million, a 2% increase when compared to the MXN 161 million reported in the fourth quarter of 2022. Despite facing high interest rates throughout the year, we remained efficient and prudent in our debt management. The financial margin for the quarter stood at MXN 172.4 million, representing a 51.2% of the total interest income and 49.4% on a cumulative basis for 2023. We consider that our financial margin remains solid and in line with the figures reported in the first 3 quarters of the year. The allowance for loan losses for the quarter was MXN 4.9 million. This figure reflects the performance of the portfolio during the quarter and the collection efforts of the primary servicers. The valuation of receivable benefits from securitization transactions, driven by the net income generated under the equity residues of our securitization transactions was MXN 122.4 million, remaining in line with the reported on the third quarter of 2023 of MXN 139.8 million. The administrative expenses for the quarter were MXN 92 million. And with this, the net income reached MXN 199.8 million in the fourth quarter of 2023 which considering the MXN 376 million outstanding CBFIs, results in a net income per CBFI of MXN 0.531 and an estimated distribution for the fourth quarter of 2023, subject to the current distribution policy of MXN 0.505 per CBFI. On Slide 16, as we highlight some of the key metrics, the financial margin for the quarter as mentioned before, reached 51.2%, and the return on equity 8.36%. With this, I will now hand the call back to our CEO, Daniel Braatz, for closing remarks before the Q&A session.

Thank you, Ignacio. We are pleased to end another year on a positive note and look forward to 2024. Our prudent approach has ensured a solid financial standing with a strong balance sheet and lower leverage. That constantly improved FHipo's profitability. In 2024, we have strategically positioned the company to capitalize on financing cost conditions become more favorable. This will allow us to leverage and grow consistent with our goals of expanding the origination through Digital Mortgage Platforms and forming strategic partnerships to grow our mortgage portfolio. We'll closely monitor interest rates to take advantage of favorable conditions and actively reenter the market, maximizing our competitive advantage. Despite the electoral challenges in both Mexico and the United States, the potential for growth is significant given the low mortgage penetration in the country and demographics. As always, we thank you for your trust, and we remain committed to generating long-term value for all of our shareholders. I would now like to hand the call back over to the operator to start the Q&A session.

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

This is Martín Lara from Miranda Global Research. I have three questions. The first one is, what is the NPL ratio of the portfolio generated by the digital -- digital platforms? The second one is, where do you see the main indicators in 2024, including portfolio growth, asset quality and margins? And the third question is, what was the reason behind the 16% increase in expenses?

Martín, thank you for your questions. Let me start from the last one. The change on expenses that you see, you need to look at it on an annual basis. We have certain seasonality in terms of cost expense. There were certain costs that were being [ dragged ] until the end of the year that we paid down by December 2023. But if you look at it on an annualized basis, you will see that at the fourth quarter of 2022, our total expenses were MXN 387 million. And by the end of the fourth quarter of 2023, we ended up with MXN 377 million. Actually, the total costs of the company were lower this year. In terms of the next year proposed growth, I would tell you that we are planning to keep at least financial margins, cost expenses and obviously, operating costs as a percentage of total interest revenue according to last year. We're planning to be a steady state in terms of potential results or indices. It will depend on the strategies that will be carried out if you see a variation in a positive way. I cannot give you more detail on that. And in terms of growth, we are expected to keep growing our digital platforms strategy potentially between MXN 1 billion to MXN 2 billion for this year, and it will depend as well on the number of digital platforms that we work with. We're expected to launch an interesting strategy this year as well. But I think that is something that you will be looking at potentially in the third Q of this year. And finally, on the NPL ratio, the NPL ratio for the digital platforms is less than 5%, and we expect that to keep constant. And actually, as we have seen in our internal analysis, the NPL has been decreasing consistently as we keep adjusting our eligibility criteria going forward with these platforms that it's very flexible and very agile to do so.

[Operator Instructions] We have not received any further questions at this point, so that concludes our question-and-answer session. Thank you. 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 contact our team if you have any additional questions or concerns. We appreciate your interest in FHipo and look forward to speaking with you soon. Thank you.

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