Fubon Financial Holding Co., Ltd. (2881) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to Fubon Financial's 2022 Full Year Financial Results. At this time, all participants will be normally not. Questions will be taken at the end of this presentation. This call is being recorded. [Operator Instructions] Now I'll hand the call over to your host, Ms. Amanda Wang, the IR Officer of Fubon Financial Holdings. Ms. Wang, please begin.

Thank you. Welcome, everyone. Thank you for joining Fubon Financial's 2022 results call today. And Amanda Wang from Investor Relations. There will be 2 sessions in the call today, including Fubon's performance review and followed by the Q&A host by President, Mr. Harn and the senior management team. So please turn to Page 4 of the presentation. In year '22, Fubon financial and business development has been gone as stable as you can see here. The overall EPS reached part amount now standing to 14. And the earnings remain strong, specifically from Taipei Bank net record high. And for online, that's the second highest in record better market curation. In the meantime, for strategic perspective, we completed the merger between Fubon Holding and Jih Sun Holding, which is the first merger case in Taiwan. In the industry front, we also gained recognition from several important global institutions, including DJSI, MSCI, et cetera. In Page 5, business performance by subsidiaries, as you can see here. Fubon Holding's net profit, which was down 67% year-over-year and mainly hit by the capital market and also the COVID related policy. But meantime, that we continue to make the financial holding FYP in Taiwan. In Fubon Life, the business remains robust. And net profit is top 1 among large peers while the premium in FYP and RYP led top 2. Back of the large-part market, our investment return continue decent while our capitalization also remains strong at equity to asset ratio of 5.7% before any reclassification. And as you may aware that we announce the reclassification starting from beginning of this year and on a pro forma basis, that will bring our equity to asset ratio to slightly over 7%. In Taipei Fubon Bank, the earnings growth are driven on back of the asset growth, that's up by 7%. And the overall net profit reached a record high. One of the key growth drivers on the wealth management that we can see the AuM continued to grow by 10%. And typically, the momentum or overseas, the market is strong.  Okay. And let's move on to Page 6 in Fubon Insurance. In Fubon Insurance net loss was nearly TWD 40 billion, mainly due to the COVID-related policy. Precisely, if still such factors and the profit actually will be a net positive 1 of TWD 3.47 billion. And as we see the COVID-related policy will be a major adjustment going forward starting from next week. We expect the performance in P&C will gradually to resume normalization. And the overall business momentum in insurance remains decent with a premium growth of 5.9%. Market share remained top 1 in the market. The investment return also been at 3.49%. In Fubon Securities, the profit TWD 2.7 billion last year was declined mainly due to the -- some markets decapitation. While we see the synergies or we see the securities we bring as a new growth driver going forward. In even, the net profit overall speaking, as we just reached to you that we also see the first 2 months, our earnings gradually to some normalization in the first 2 months of net profit is TWD 7.3 billion. In page 8, profits by subsidiaries that we can see Taipei Fubon Bank and Fubon Bank Hong Kong delivered growth of over 20% and over 40%, respectively. And for the rest, show a decline, which we will share with you more detail in the following pages. And in Page 9, in terms of assets, our holding company prospectively is pretty much stable, while the book value decreased mainly on back of the total markets [indiscernible]. The net worth actually would increase by TWD 70 billion if we factor in FHC reclassification of Fubon Life, that will be about $5.65 increase on per share basis. In a table below, as you can see, the capital level in the holding company level remain quite strong and also across the subsidiary except for P&C. The RBC is negative 1 mainly because of the COVID policy. And the capitation plan is ongoing, and we plan to make the announcement after the board resolution in April. In Page 10, ROA and ROE pickup points for your reference. And if we can move on to Page 11, the market position across major subsidiaries, as you can see, remains a strong one, critically in line by insurance that we are sole capturing and in the bank and securities is also in a leading position. In Page 12, in terms of the business outlook across the operations, firstly, in Fubon Life. From the underwriting perspective, we expect the product call the market lead and also the reduction for IFRS 17. And on the China development, we'll continue to focus on our internal ones and complement by the external channels. And in Fubon Insurance, we continue to keep a strong leading position, and we expect the digitalization with wine the better service experience for our customers. And while the risk management will be quite a top priority, specifically after the COVID policies events. In the [indiscernible] public space, Taipei Fubon Bank key highlights firstly is to address its asset and liability structure in order to expand its net interest margin performance.  And on top of that is that the fee income momentum from the wealth management and also from the collaboration with the Costco from the credit card issuance that we expect to further expand our retail business franchise. And also equally important is the merger with the recent bank that will bring us a new group of the customer and the business opportunity. In Fubon securities, the focus also is in the merger integration with Jih Sun securities. The business base expansion, there will be a focus and also a capital utilization will be also a focus for us. And in Page 13, overall perspective of the holding company, we do see the opportunities in front of us is, firstly, the post-COVID, the overall restriction easing and the new business acuity come along with that. And equally important is that we see the ESG and important initiatives, and therefore, how to utilize our financial expertise to foster our clients and needs in the low-carbon business model as well as our internal transformation will be a focus. And the challenge, obviously, that we can see the capital markets remain volatile, the interstate movement. And in facet we do see the macro uncertainty. So internally, we see the client customer base management will be critical where we see opportunities from the mergers as you see, the launch of the Costco affinity card and also the FinTech application, all of these angles will bring us new growth drivers. And some of more mid- to long-term perspective, we continue to look for strategic expansion opportunities. And we -- and therefore, we continue to focus on Taiwan and Asia market. In Page 14, on the increase of the low-carbon strategy, the performance we can see here is that the green finance outstanding increased by 6% in year '22. And we also further increased our target for 25 by 14% on base of the decent growth momentum. And we also get the approval from SBTi regarding improvement of carbon reduction goal that is reduced emission by 42% before year 2030. And you can also see the actions that we deliver cross subsidiaries in the page on your SBTi. Okay. So let's move on to Page 16 in Fubon Life. Total Life total premium declined by 23%. The FYP declined 16% and also renewal premium came down. Renewal premium mainly due to the paid-up of the regular pay policy. While the FYP pretty much is a similar pattern as the market, which actually declined even further at about 26%. In Page 17, if we further break down the FYP composition, the regular paid and single pay product, actually, we can see the percentage is increased year-over-year. But the FYP still declined mainly due to the impact from the COVID and also the more volatile capital market. In Page 18, the regular paid traditional life policy increase. And therefore, we can see the FYPE ratio increase and also the VNB to FYP margin also improved. The FYPE overall be delivered a little bit of decline of 2% that compared to the market decline of 5% abate outperform. In terms of the VNB to FYP, this continues to be our key focus, and we expect this margin will continue to improve over time. In Page 19, in terms of channels, FYP by channels, the internal ones continue to be our key focus, that contribute over 70%, including the Tied agent of 40% and Taipei Fubon bank contributed another 33.7%. And we can see our performance both outperformed the industry. If we compare to the industry's bank assurance, there's a decline of 15%. ARPU bond is increased and also the bank assurance over speaking is a 36% decline in the market. Also base decline is a smaller equity. In terms of the bankers ranking or speaking in Fubon Life retain in the industry. In page 20, we move on to the investment portfolio. The migration, as you can see here, mainly is from the domestic equity, the propulsion received that reflects, #1, is the realization of the capital gain. And also #2 is the model market impact as the capital markets drop down. Over speaking, our cash position is on the higher end in terms of the percentage, and we expect that will help us to seize the market opportunities going forward.  And a further breakdown in overseas fixed income. In Page 22, we can see that pretty much a stable one in terms of the advertise and also by region for distribution. In Page 22, the investment income composition, we can see the majority comes from the recurring investment income and it grew by over 17% year-over-year that reflects a higher interest rate market and also total income increase from domestic equity. The overall investment return in the bottom of this table of 4.48% compared to before hedge of a slightly lower of 4.47%. The respect our FX management is doing well. In Page 23, the hedging portfolio -- on your right-hand side, you can see that the proxy hedge, i.e., the other currencies, the contribution of 4.7% is increased compared to previous quarter that mainly is due to the international funds that flow back to Asia and therefore, appreciation in Asian currencies is quite strong in Q4 last year. The FX loss in Q4, if you look at the upper left-hand side, it's mainly due to the appreciation of NT dollars. And specifically, in November, we have a 4% appreciation and followed by another appreciation in December. So we do have a more serious hit in Q4. But for a full year perspective, we still see a net gain of 2 bps. In terms of recurring return, both before and after hedge basis improved year-over-year. And in Page 24, the cost of liabilities actually only increased by 1 bp in spite of the market rate hike. And we continue to keep a positive spread between cost of liability and investment returns. And therefore, the recurring return versus the -- for even point, you also see a positive one. And in Page 25, the online balance in Fubon Life shows improvement in Q4. And the December end shareholder equity to asset ratio of 5.7%. That's before the capitation and on a pro forma basis, if we factor in such factor will be 7%. And in Page 27, please move on to Taipei Fubon Bank section. The interest income growth is a key growth driver on side of that is the loan growth of over 6%. Fubon fee income is a decline that reflects the capital market volatility and therefore, a lower wealth management as well as the credit card business strategy that we continue to expand the market coverage. For the investment side also delivered a strong one, including the treasury and also the investment side. And that brings our total revenue up and show record highs as well as the net profit. In Page 28, if we further break down the loan growth, the retail growth of 5%, slightly higher than the corporate loan of 6.6%. And in Page 29, we can fully see the breakdown in the corporate loans, where the NP dollar is stronger at 8% growth compared to the U.S. dollar lending at about 2%. Dollar SME growth is about 6%. And as you may be aware, the definition we modify the time to be in line with the [indiscernible] affairs definition so that the market can use a similar definition for comparison. In Page 30, the mortgage growth shows a 9% growth. That is slightly higher than the market of about 6% growth. While the personnel and secure loans is slightly kind that respect to factors. One is that sellout loans for the labor customers kind of lending stopped starting from year '22. And also, we adjust our strategy in Personal secure loan more towards your enhancement angle, and therefore, the tickets per case also came down. While looking ahead, we expect the performance in the personal and secured loan in terms of the volume and also the margin to see a greater improvement. And in Page 31, in deposit perspective, we see growth of over 9%, including NT dollars of 11.5% and foreign currencies at 6.4% growth. And the difference in terms of the growth that pretty much reflects the loan growth momentum that we just briefed to you. And also in the meantime, it's like we try to enhance our loan-to-deposit ratio over time.  And the deposit growth here also reflects the market preference as we observed that the interest rates increased and also the volatile capital markets that bring up demand for deposits. And in Page 32, in terms of the spread and margin, the net interest margin maintained stable at 1.04%, and loan to deposit at 1.5%, that is slightly down by 2 bps compared to a year ago. And the reason behind this trading down pretty much is because of - the foreign currency loan growth is more moderate and also the time deposit percentage increase as well as the rise of the deposit rate. And looking ahead, in year '23, we aim to adjust the assets and the liability structure that encoding to enhance our foreign currency LDR and also to enhance our loss structure as well as deposits, while the investment side will also increase our investment portfolio to enhance our net interest margin. In Page 33, in terms of asset quality, overall taking are stable, and we can see that the NPL ratio of 0.19% end of December, that is slightly up compared to a year ago, mainly due to some specific pace in overseas branches. But your lower right-hand side, the provision in Q4 increased that many also reflects specific cases. So over speaking, we still expect as the quality will remain stable. In the following page, we can see the credit card performance. The active card also spending both will outperform the market while per card spending on a monthly basis, Fubon continues to keep at the highest among the top 5 holders the asset quality remains high. In Page 35, the fee income was down partly because of the wealth management fee and also because of the credit card expense from the growth of the card spending. And as you can see in Taiwan, the card-based situation is easy in Q4. So both the domestic and also the overseas spending shows a meaningful increase in Q4 and therefore, the rebate on that of these spending was higher, and therefore, starting from January this year, we start to make some adjustments in the rebate program, which we expect the credit cards are being contrary to resumilization. And on the wealth management side, as you can see that there is some decrease in the fee income side, while the AuM actually continues to grow at 10% Y-o-Y. In Page 36 that we see the overseas branches shows strong revenue recovery, including a revenue of over 40% up and also net profit of nearly double that's on back of our Vietnam, Hong Kong and Singapore branches, performance in lending and also from a better asset quality performance. And the following page is Jih Sun Bank. The net profit interest grew by 1.6x. So as we can see that even though the integration is ongoing, that the performance actually still remains strong. Further synergies that we expect going forward was further to enhance the same teams franchise and also market position. In page 38, if we further see some key indicators, the loan deposit pretty stable loan, while the margin increased by 21 bps Y-o-Y. That's mainly contributed by the trading accounts from these securities customers that actually accounts for nearly 50% of the Jih Sun Bank deposits in NT dollars. And the overall asset quality performance, as you can see in the lower right-hand side remains stable with NPL ratio improvement. And in Page 40, in Fubon Insurance. The presence momentum remains decent with a 5.9% premium growth. Market share remained leading position. Fubon net loss of nearly TWD 40 billion, mainly is on back of the total net retention loss of nearly TWD 60 billion in COVID policies. What starting from next Monday in 20th of March that the COVID policy will be going to a new category that is not counted as the one that we have to reimburse for infection. And we expect the overall impact from the COVID policy for gradually to show stabilization. And if we look at our underwriting performance again, if we exclude the COVID related policy, the combined ratio actually will be around 92% and also the underwriting profit actually will grow by over 37% year-over-year. And on top of the COVID policies impact, we continue to focus on the risk control and also digitalization transformation going forward, specifically in our Fubon Insurance operations. In Fubon Securities in Page 42, the profit down by 61% many are back of the market turnover decline. And so as you can see the Fubon Security as well as Jih Sun security about how the revenue and net profit have declined. And going forward, we saw a merger with the 2 security companies expect the synergies to deliver to enhance the overall capital market position. And in Page 44, the Fubon Bank (Hong Kong), the loan and deposit growth momentum both are strong. They reflect our liquidity management and also the asset expansion strategy. While the major market increased by 13 basis points, less mainly on back of the acceleration of the Hong Kong rate hike starting through our second half, and that brings up the net profit increased by over 40%. Other asset quality continues to improve. And Page 45, in Fubon Bank (China). The balance sheet here is relatively conservative. And so we are adjusting our lending strategy and also reduce the so the U.S. dollar deposit that is more of a high cost. And the margin-wise, therefore, came down by 11 basis points Y-o-Y. And if we look at the PBoC, on the other hand, that the PBoC data, you can see from appendix in this presentation. Actually, it still shows about 7% of growth. That mainly comes from the swap cost improvement and also the momentum from the online lending also shows some growth from a full year perspective. While the net profit still delivered a big decrease of about 16.7% down. That's mainly because of the provisioning cost increase. And the reason behind that is, one, the definition for NPL for the online lending, we further stringent to 60 state overdues compared to originally of company's overdue. And secondly, we also see the economic downturn come along with the COVID impact, and therefore, the provisioning increase. Now the overall acquired NPL ratio, coverage ratio still maintained at a stable level. So this is at the end of the reading today. And net, so we will open for the Q&A and host by the President of Fubon Financial Holdings Company, Mr. Wey-Ting Harn. Thank you for your attention.

[Operator Instructions]

Looks like my colleague has done a good job.

We'll have the first question is from the Jaime Huang of JPMorgan.

Yes. First question is, I probably missed in the Chinese session, but could you remind you again what's the Fubon portfolio accounting breakdown of Fubon Life after your boundary classification, what's the percentage in amortized coating, also in OCI, we respectively. And the second question is on bank. Have you observed any improving momentum on your swap revenue in second half last year or fourth quarter last year? And how should we expect that part of the revenue momentum into this year?

Let me answer the first question. Based on the -- I said before on the reclassification, the OCI cost constitute around 60% to 70% of our total bond portfolios. But after the reclassification, the percentage increased up to the 70% to 80%.

Okay. Just on gross revenue. Last year, we have about double-digit growth on second half last year. But this year, I think because of the interest rate hike in the Taiwan, U.S. dollar gets good and bigger. So we believe there is a flat formation and there's a bigger opportunity.

So when you're talking about the new likely to expand by 3 to 5 basis points this year. It doesn't include the impact from swap revenue, right?

No. Okay. If we don't get any further questions, then we'll call the meeting off. Okay. Thank you for your participation today. This is probably the shortest investor meeting I had in my life so far. Okay. So thank you very much for your participation. If you do have further question to ask after the meeting, please contact my other colleague. We will be more than happy to answer the question raised. Okay. Thank you.