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

Thank you for standing by, and welcome to Fubon Financial's 2023 Annual Financial Results. [Operator Instructions] And this call is being recorded. If you have any objections, you may disconnect at this time. And now I will hand the call over to your host, Ms. Amanda Wang, IR Officer of Fubon Financial Holdings. Ms. Wang, please begin.

Thank you, and welcome, everyone. Thank you for joining Fubon Financial's year 2023 results call today. I'm Amanda from Investor Relations. And there will be two sessions in call today, including Fubon's performance review and followed by the Q&A hosted by the President, Mr. Harn and the senior management team. So for now, please turn to Page 4 of the presentation. As you can see, the Fubon's year '23 result, in '23 it's quite robust. In terms of the profit, we again, top among the holding companies for year -- the 15th year and net profit also ramped up. From subsidiaries performance, Fubon Life also is among the top in life sector. While Taipei Fubon Bank reached its record high and the Securities is the second highest in its earnings record. In terms of business expansion, we complete the merger in the bank sub and also securities under Fubon and JihSun consolidation that help us to expand our product offering and also the services network. In terms of the customers' size, we also further expand on the Costco affinity card initiative. And in overseas market, we also achieved a few new areas, including in Fubon Bank China, we acquired Citi's mortgage portfolio. In Taipei Fubon Bank, we have a new branch application in Australia and India. And also in Fubon Insurance, we apply for a new sub of reinsurance business in Malaysia and is already in operation in year '24. And next page highlights among our major four subsidiaries. In Fubon Life, the earnings strength comes from its underwriting performance. We are top 2 in premium performance and in investment return we also achieved a decent level on back of the recurring return before hedge improved, while its capital position remained decent. In Taipei Fubon Bank, the profit reached its historical high and mainly from its core earnings, including NIM, NII fee income, while it's a trading treasury operation also grow. The customers expansion that reflect in its wealth management fee income growth and also credit card business, we are now #2 in terms of active cards. In Fubon Insurance, the full year result is a net loss, while in mainly due to the COVID-related impact, but already gradually decline starting from April that we report among the earnings. And in the investment return in Fubon Insurance also reported a decent level of 3.6%. In Fubon Securities, the profit growth on back of the capital market strength as we can see, the TAIEX trend up. And next page, in Page 6. The profit growth and also EPS growth continue in year '23 and first two months of this year, we also see ourselves in Taipei Fubon Bank and Fubon Security reached its record high for the first two months of the year. In Page 7, again, if we look in year '23 result again, the growth mainly from a few areas, including Taipei Fubon Bank's revenue growth, Fubon Insurance earnings improvement from P&C as the COVID impact fade away and Securities and Fubon Hong Kong's earnings growth. While the pressure comes from Life that we can see the hedge cost increase and capital gains coming down and also Fubon Bank China on back of a NIM decline and also provision expense, we can see more detail later. In Page 8, the balance sheet expansion continues in the holding company. The net worth increase is more significant, that is over 40% growth. While we see the growth continue in the first two months of this year, which we see a preliminary result for February end of its book value is over TWD 50 billion compared to over TWD 800 billion end of year '23. And following page in ROA and ROE also shows growth year-over-year. In Page 10, the market position across the top -- the major four subsidiaries that we can see continue to be quite decent. While the Fubon Life continue to be on solid #2, Fubon Insurance that's still in top 1 across major business lines. In terms of Fubon Bank, the major business market share all reached 5% or higher market share, while its credit cards, active cards grow more substantially. And Fubon Securities, also among top 2, top 3 upon the merger with JihSun Securities. In Page 11, as we look forward for this year's business outlook, in Fubon Life, we see the opportunities from the transition into IFRS 17 adoption preparation. We are more focus on the regular-paid and protection products that already delivered in year '23 results and that will continue to be the focus in year '24. And on back of that, we focus on our multiple channels relationship, both internally and also externally. In Fubon Insurance, we aim to sustain the leading market position while the risk management is on our top priority. In Taipei Fubon Bank, the spread performance is the priority and the fee business potentials from the cross-sell in wealth management and also from the credit card are both critical in our fee growth source. While in terms of our channels optimization both online and offline, both domestic and overseas, that will be our management focus. In Securities, on back of the strength of the daily turnover these days, we will further expand our strength in brokerage business and also to explore further in wealth management opportunities. And we take a bigger picture from the holding company perspective in Page 12, we see that externally, the growth opportunities from IFRS 17 adoption actually would deliver the growth opportunity across our subsidiaries in Fubon. It will help us to grow further in the regular-pay and protection type of product. While the challenges remains -- remains there, including the inflation, interest rate outlook and also the geopolitical situation that still gives us quite a few uncertainties. While we see that Fubon's strength that we have our internal growth opportunity, specifically from the customer base expansion that give us the potential to further explore. And if we look at our customer base, that we have quite a decent base now. We are talking about over 14 million of customers that is over half of Taiwan's population that will give us a growth potential and also the digitalization opportunity. And another opportunity to grow from Fubon's track record is that through the M&A and also strategic alliance that will continue to be our growth potential as well. In Page 13. From the ESG achievement that we would like to share with you the honors that we win across holding company and also subsidiaries. And in the following page, more concrete achievements that we would like to also share with you, I think, across the strategies we deliver, the concrete achievement. And also from a green finance that we not only achieved our target in year '23 and also we further add new goal in year 2030 to reach a higher level. Okay. And Page 16 regarding Fubon Life. The premiums performance, as you can see, is still a decline in terms of total premium while it's pretty much echo how the markets look like. And the FYP also is a similar case as Fubon declined by 11% and the market also declined by about 13%. Okay. In Page 17, if we look deeper into the mix. In fact, we grow further into regular pay product and lower the percentage from single pay. And that's the key reason why the FYP amount came down in Fubon Life. But that actually give us a higher VNB and FYPE's growth. If we look at Page 18, FYPE grew 47% (sic) [ 42% ] and VNB 24%. That drives the VNB to FYP ratio further increased up to 21.8%. And in Page 19, we can also see in terms of the sales channel, the tied agents now contribute nearly half of FYP, that is 47.5%. The contribution from bancassurance, if we rank across the industry, actually, we continue to keep our #1 market position. And from FYPE perspective in the right-hand side chart, across each channel, we can see the number -- the sales one, the FYPE amount actually all grow across all channels, while the bancassurance including internal ones and external ones, put together, the growth rate is over 60%, that is quite strong. And in Page 20 in the investment side. In terms of the allocation, the cash position remained relatively decent level and we continue to adjust actively in response to the market condition while the increase year-over-year, we can see the equity position is also the main area. In fact, it reflects both the increase in valuation and also a percentage -- the allocation. Follow overseas fixed income, which accounts for the bulk of the asset allocation. In Page 21, we can see the detail here. The mix is pretty much stable. And in Page 22 from the investment income perspective. Firstly, the total asset grow is about 5%, while the contribution of the investment income, largely from the recurring income, that also echo the higher rate environment and also the dollar appreciation, while the challenge comes from the hedge cost and also the fixed income performance and capital gains from the equities side. So the total investment return in the bottom of this table came down to 3.79%. And in Page 23, the hedge cost, we can see the upper left-hand side. In terms of the FX gain and loss, it actually has a big swing in Q4 last year, mainly on back of the expectation of the rate cut in Q4 and also the dollar weakened while the full year basis, Fubon Life remained FX gain for the full year. Okay. And the CS and NDF cost, which is the recurring type of hedging costs that remain high as the interest rate spread between dollar and NT is still at a wide level. So the recurring return before hedge actually shows improvement year-over-year in your lower left-hand side chart, while the after-hedge basis came down on back of the hedge cost increase. And in Page 24. The spread performance between cost of liability and investment return, Fubon Life remained to deliver a positive spread of about 64 basis points, while the breakeven point versus the hedge -- after hedge recurring return turn slightly negative one on back of the higher hedge cost. And in Page 25. The unrealized balance, we see improvement year-over-year and it narrowed down by end of '23 down to TWD 13.3 billion. And we also see a further improvement trend year-to-date and that going to turn to a positive level and that also drive up our book value. The book value end of '23 already shows quite meaningful growth compared to a year ago, so equity-to-asset ratio up to 9.8% end of '23 and equal further up to over 10% as of February this year. And next section regarding Taipei Fubon Bank. The revenue growth of over 16%, the strong growth comes from the -- across business lines. The NII grew over 8% comes from both the margin expansion and also volume growth while the fee income increased by nearly 40%. The wealth management and card business both contribute and the treasury also grow quite meaningfully as well. And the following page in Page 28, the loan volume growth is about 7.9%. That is higher than the market average growth of about 4% to 5%, while the corporate and retail at about equally a strong level of about 8% above. In Page 29, the corporate banking business that we can see the foreign currency loans strength of over 13% year-over-year growth. While the SME is also another spotlight that grow over 11%. And in retail business, in Page 30, the mortgage growth of 8.9%, again, we outperformed the market growth of about 7% while the consumer business, including credit card and unsecured consumer loans, both grow at double digit. And next slide, in Page 31. The deposit outstanding is about 5.7% growth. The cost ratio in NT's book is quite doing quite well that further increased to 61.6% of the total NT deposit. While the foreign currency is on the contrary of stay down to 37% and that mainly reflects the higher rate environment of USD. But in the meantime, it's that the utilization in the bank also improved. As you can see in the lower right-hand side, the bond investment and also loans accounts for over 75% of the foreign deposit. In Page 32, as a result, we can see the margin enhancement year-over-year. In year '23, it was up by 9 bps, okay, on back of how we just report the loan growth and also foreign currency utilization. While quarter-over-quarter basis, it came down largely also due to the foreign currency deposits. But if we look at the NIM, including the SWAP revenue, actually, the NIM still expands on a quarter-over-quarter basis and also on a full year basis, also up by 18 bps. Okay. In Page 33, we can see the asset quality remain outperformed the market average in spite of -- on back of the margin improvement. And credit card business, in Page 34, the active card and also the card spending both shows outperformance compared to market average, while the monthly per card spending at slightly down by 2% to 3% that mainly reflects the significant growth in the active card number of over 60%. While the absolute level, we can see still remain at a decent level. And in Page 35, the fee business that grows nearly 40% year-over-year, mainly comes from the wealth management growth of 30% and meaningful growth from the credit card fees. In Wealth Management business, you can see across business lines deliver growth and most significantly the bancassurance revenue, which accounts for over half of the wealth management fees. And in Page 36, the overseas branches contribution in revenue. We can see the growth is quite meaningful at over 66% while the net profit also grew by over 50%. And that, as a result, contributed 24.5% of Taipei Fubon Bank's total net profit. Next section regarding Fubon Insurance. In Page 38, the business grew 7.7% and the performance, excluding losses from wealth, the COVID-related policy actually is quite strong. If we look at the combined ratio, is further enhanced down to 89.4%. And the underwriting profit actually will grow by over 40%, both from the personal line and also the commercial lines. And the COVID policies actually give us a lesson to learn and what we have been focused on post this impact is more careful in the business selection and we have overall review and risk control and digitalization transformation. In the Securities business, we have a very strong market in Taiwan's TAIEX performance. And we also see the daily turnover further enhance year-over-year. And even year-to-date, first two months this year up to -- over TWD 400 billion daily turnover that help us to see the earnings strength. And upon the merger between Fubon JihSun, they give us a bigger platform that will help us to explore further business potential going forward. In Page 42, regarding Fubon Bank Hong Kong. The deposit growth of 11% and loans at 3%, very flat that we take a strategy of liquidity management more actively under this very high environment. And the net profit growth of over 40% in bank that mainly reflect the margin expansion of 30 bps, okay, while its asset quality remains stable as we can see the NPL and coverage ratio here. And the last page here is Fubon Bank China. The loan balance grew quite decently over 20%. That mainly reflect the increase in its retail business. While its net profit was down mainly comes from two reasons. One is the NIM contraction on back of rate cut in RMB and also the increase in USD's deposit costs. And the second factor is the provision expense, mainly on back of the acquisition of the mortgage assets and also the rise of the provisioning ratio regulatory requirement is the key reason. And overall speaking, is asset quality, remain at a stable level, as you can see, the NPL ratio flat and increase in its coverage ratio. And this is the end of the briefing. And next, we would like to open for Q&A that hosts by the President of Fubon Financial Holdings, Mr. Jerry Harn, and thank you for your attention.

Thank you, Ms. Wang. And ladies and gentlemen, we are now in question-and-answer session. [Operator Instructions] We'll have the first question from Jemmy Wang From JPMorgan.

Two questions for me. First one is on Taipei Fubon Bank. We see the OpEx growth was over 20% last year, even higher than the revenue growth. I understand there was some one-off issues. So how should we look at either the cost income ratio or OpEx growth in 2024? For Fubon Life, could you provide some color in terms of the VNB in 2023? How much was contributed by the participating policies? And if we look at your CSM internally, the contribution from the participating products, is that quite similar to the contribution to VNB?

Okay. Yes, on the cost income ratio. First question is on the OpEx for 2023. Yes, there's some -- mainly from two factors. One is the merger with JihSun Bank that will have a onetime increase on the -- especially on the [ stat ] expenses from the merger. Another factor is the launch of the co-brand card with Costco, that's another big factor caused the increase of the OpEx. And we will not foresee these two factors to increase further again in this year because the merger is completed. So and this merger in fact won't happen again in 2024 significantly. The other one is on the Costco card expenses. Depending on the indoor consumption of the credit card, that portion will be the major part of the OpEx credit card business. And for the cost income ratio last year, it's slightly over 50%. But for this year, I think without this onetime settle and the increase of the revenue, we foresee the cost income ratio will come down less than 50%. Participation product to VNB contribution.

Yes. The contribution of our participating product to VNB is around 20% last year.

But is there any rough guidance on the contribution to CSM?

CSM, should be the similar percentage. We don't have the number right now. Could we provide you later?

Yes, sure. No problem. Thank you.

[Operator Instructions]

Any more questions?

Ladies and gentlemen, we are now in question-and-answer session. [Operator Instructions]

If we don't have any more questions, then we'll keep the meeting short for today. We'll get back to Jemmy on the participation products, CSM contribution later. Yes. Okay. Then we'll call the day off for now. Thank you very much for your participation. If you do have any questions that you would like to ask after this conference call, please feel free to call us directly. Thank you.

Thank you.