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 2024 conference call. [Operator Instructions] FHipo released its earnings report on Thursday, February 20, after the market closed. 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 recent 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 over to Daniel Braatz. Daniel, please go ahead.

Thank you. Good morning, everyone, and thank you for joining us today. Let us start the presentation of the fourth quarter 2024 results by describing a little bit some summary of our activities throughout the quarter. And then we're going to be also highlighting some of the results. So throughout the year, we faced various economic, political and social changes in Mexico, which posed challenges in different ways for us. Among them, Infonavit's decision to maintain a nominal balance of the VSM-denominated portfolio. Despite this, we believe that FHipo has demonstrated that this business model is resilient. Since its inception in 2014, FHipo levered its capital efficiently, initially expanding its balance sheet throughout disciplined financing. Over time, the company adapted to market conditions by optimizing its financial position, so ensuring a well-balanced structure that allows it to act quickly when attractive opportunities arise. Having said this, this is the reason why during this fourth quarter of 2024, we reported a net income of MXN 52 million, resulting in a net income per CBFI of MXN 0.14, that will be distributed according to the distribution policy on a net of MXN 0.13 per CBFI. For the full year of 2024, we reported a net income of MXN 513 million, that is a net income per CBFI of MXN 1.3 per share, and the distribution will represent an annualized yield per CBFI of 8.5% and a return on equity of 5.3%. So the financial margin stood at 50%, showcasing the ability to efficiently generate value for our shareholders. The balance of our digital mortgage platforms portfolio reached MXN 3.3 billion, marking a 4.8x increase since we started this strategy in the fourth quarter of 2021. This sustained growth reflects our commitment to the development and growth of the mortgage market in Mexico. We focused on strengthening our equity structure by prioritizing the debt amortization of our warehouse facilities, leading to a reduction in our debt-to-equity ratio of just 0.5x debt to equity compared to 1.7x as of the fourth quarter of 2019. This achievement reinforces also the financial stability and the risk management approach that we've been carrying out throughout the last years. In our credit profile, we believe we have strengthened it. Very impressive. The PCR Verum credit rating agency upgraded our corporate rating for the short-term portion to 1+/M and assigned our corporate rating for the long-term portion to AA+/M with a neutral perspective. We believe that this upgrade underscores the confidence in our capitalization and leverage levels, along with adequate profitability characterized by the company's operational efficiency. With this, I will end my section, and I will pass the call to our COO, Jesús Gómez, who will -- he will be over the breakdown of our portfolio.

Thank you, Daniel. Good morning, everyone. Thanks for joining us today. Let's move to Slide 6, where I will give you an overview of our mortgage portfolio for the fourth quarter of 2024. As of December 31, 2024, FHipo's consolidated portfolio consisted of 64,141 loans, totaling MXN 20.9 billion. This represents a decrease of 8.1% compared to MXN 22.8 billion recorded in the fourth quarter of 2023, which is mainly due to the natural amortization of the portfolio. The average loan-to-value ratio at origination remained stable at 78%, while the payment-to-income ratio stood at 24.4%. By the end of the fourth quarter, our performing portfolio was 92.2% on a consolidated basis. When looking at the nonperforming ratio with balances at origination, this was 5.5%. Our portfolio remains diversified across several origination programs including Infonavit Total, Infonavit Más Crédito, Fovissste and the digital mortgage platforms portfolio, which has grown exceptionally well and now accounts for 16% of the total consolidated portfolio compared to 10% just 1 year ago. The breakdown of the portfolio is as follows: Infonavit Total, MXN 5.5 billion; Infonavit Más Crédito, MXN 9.9 billion; Fovissste, MXN 2.2 billion; and the digital mortgage platforms, MXN 3.4 billion. Moving on to Slide 7. FHipo's portfolio remains geographically diversified across all 32 Mexican states. The state of Mexico and Nuevo Leon make up the largest portions accounting for 12.3% and 11.5%, respectively. In terms of our partnerships and origination programs, here is the breakdown of the portfolio. Infonavit Mas Credito accounts for the larger share of the portfolio at 47.1%. Infonavit Total Pesos represents 14.8% of the total portfolio. Infonavit Total VSM minimum wage index loans stood at 11.5%. Fovissste at 10.6%. And the digital mortgage platforms, as we already mentioned, it is now 16% of the total portfolio. Additionally, we anticipate a greater need for financing solutions in this sector as the Mexican government has reaffirmed its commitment to addressing the housing deficit. Given our strong capital base and financial discipline, FHipo is in a position to actively support this development while maintaining profitability. Housing remains a key priority for the government, and we are ready to participate in strategic initiatives that align with our growth strategy. I will now hand the call over to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results.

Thank you, Jesús, and good morning, everyone. I will continue by going through the different funding sources on Slide 10. Over the past 5 years, FHipo has proactively reduced its leverage, decreasing its debt-to-equity ratio from 1.7 as of the fourth quarter of 2019 to 0.5 as of the fourth quarter of 2024, as mentioned by Daniel, maintaining a stable capital base. This strategic deleveraging was a calculated move in response to economic uncertainties, including the pandemic and rising interest rates. Now with conditions stabilizing, we view this buildup financial flexibility as an opportunity to efficiently scale our portfolio should attractive opportunities arise in the market. Our funding structure remains well diversified, ensuring financial stability and flexibility. We continue to rely on a mix of securitizations, short-term bonds and warehousing facilities to optimize our capital structure and manage liquidity efficiently. Now if we turn to Slide 12. And here, we'll discuss the asset quality of our portfolio, including our nonperforming loans and the allowance for loan losses. As of the fourth quarter, our nonperforming loan ratio stood at 7.8%, and the NPL ratio of our portfolio balance at origination remained at 5.5%. We continue to maintain a robust allowance for loan losses with an expected loss coverage of 1.44x and an NPL coverage of 0.7x. If we move to Slide 14. And here, we will go through the financial results for the quarter. The total interest income for the fourth quarter of 2024 was of MXN 313 million, in line with the fourth quarter of 2023, with a slight decrease mainly due to the natural amortization of the portfolio, which was in part offset by the growth in our origination through the digital mortgage platforms. The accumulated interest income during 2024 totaled MXN 1.3 billion, while the accumulated interest income reported during 2023 totaled MXN 1.3 billion -- MXN 1.36 billion. The interest expenses in the fourth quarter totaled MXN 153 million, which implies a decrease of 6.3% in comparison with MXN 164 million reported in the fourth quarter of 2023, mainly due to debt amortization in our warehousing facilities and the effect of declining interest rates throughout the year. As mentioned before, during the last year, we continued to be prudent in debt management. And for this reason, as of the fourth quarter of 2024, the unbalanced debt decreased by 9.8% in comparison to the fourth quarter of 2023. Our financial margin stood at MXN 159 million compared to the MXN 172 million in the previous year, maintaining stable profitability levels. The financial margin for this quarter represented 50.9% of the interest income, and on an annual basis, 50.8% of the total interest income. The allowance for loan losses registered a positive result of MXN 16.3 million for the fourth quarter of 2024, reflecting the portfolio's performance during the quarter. The valuation of receivable benefits in securitization transactions had a negative result of MXN 18.2 million in the fourth quarter of 2024 and in an accumulated basis for 2024 resulted in a MXN 257 million, which represents a decrease when compared to the MXN 442 million reported in 2023. The aforementioned is primarily driven by 2 factors: the amortization pace of the portfolio backing the equity residuals since these amortization structures are closed pools by nature; and the indexation of VSM-denominated mortgages at a 0% rate, which affects the fair value of these equity residuals. The total administrative expenses for the fourth quarter were MXN 109 million. And with this, the net income totaled MXN 513 million in an accumulated basis for 2024 and in MXN 52 million for the fourth quarter of 2024, resulting in a net income per CBFI of MXN 0.14 and in an estimated distribution subject to the current distribution policy of MXN 0.133 per CBFI for the quarter. We remain focused on optimizing operational efficiencies and maintaining financial stability, ensuring that we continue to create long-term value for our stakeholders. 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. So throughout the year, we maintained a financial approach focused on maintaining an efficient debt administration, as you can see. Our portfolio composition remains stable, while our digital mortgage platforms continue to expand, further diversifying the asset base. So the strategy remains focused on discipline. With a strong balance sheet and deep experience, we are ready to scale operations quickly should the right opportunities arise in the market. We will also continue working on further reinforcing confidence in our financial strengthening and securing long-term liquidity to support our growth ambition. We are thankful for the continued trust for -- of our investors and remain committed to maintaining disciplined management and operational efficiency. I would now like to hand the call back over the operator to start the Q&A session.

[Operator Instructions] Our first question comes from the line of Martín Lara from Miranda Global Research.

I have the following questions. With respect to the valuation of receivable benefits, what can we expect from this account going forward? And what will be the impact on future distributions?

Martin, thank you for your question. I will tell you that the guidance that we can provide on the valuation for the receivables is that if you consider the total amount of valuation accrued in those receivables throughout this last year, you can project that for the future year according to the portfolio. That means that the effect on the 0% indexation on the [ VCM ] portfolio is already there. And we're just going to be basically carrying out this portfolio in the future at those same levels. And in terms of the distribution, obviously, the valuation of those receivables will return an expected distribution that I believe it's going to be similar also to what will you see this 2024 in regards of that specific portfolio. And going forward, we expect that as we keep growing the asset base with digital platforms, as you've seen, the potential returns on the stock should also be increasing.

But should we expect additional charges in the next few quarters?

Additional charge -- what do you mean by additional charges?

Or additional negative figure in this account.

No. We believe that going forward, given the fact that we do not need to consider reductions on indexation as we did this past quarter, we expect that the valuation of the receivables just keep advancing. We just need to start checking how the portfolio will also be amortizing. And depending on the amortization rate, we will define how this valuation will perform.

So in other words, should we expect a positive figure here?

Well, it depends. As you've seen in the past, our reports have a variability in the valuation. Sometimes, the valuations increases. Sometimes, the valuations returns. It depends basically in 2 factors: how fast the portfolio amortizes; how fast the debt that it's being ring-fenced with those portfolios in the securitization that is [ balanced ], is amortized as well; and how the performance of the portfolio results in terms of the reserves that we need to create on those structures. So I will tell you that it can depend a lot in how the portfolio performs. We expect that there's not going to be significant losses in those valuations more than the contrary.

We have not received any more 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 the time of everybody in this call, and we're looking forward to speak to you in the next quarter.

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