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

Thank you for joining Fubon Financial's Year 2024 Analyst Meeting. Let's start from Page 5. The business highlights in the holding company, we can see the EPS and net profit, both top among Taiwan's holding company peers. The total assets up by 8.7% and net worth up by over 18%. The net profit hit record highs in subsidiaries, including Fubon Life, Taipei Fubon Bank, Fubon Securities and Fubon Asset Management. In Fubon Life, its net profit of over TWD 102 billion is also top in life insurance in Taiwan. Its business momentum is strong with the top 2 position in first year premium, total premium and first year premium equivalent, while investment return of 5.48% that hit a record high. In Taipei Fubon Bank, it reached over TWD 30 billion net profit, while net interest income and net fee income, both are key drivers. In Fubon Securities, its net profit of TWD 10 billion above, that's a record high. In Fubon Insurance, the net profit of over TWD 3 billion is a turnaround, while its market share of over 23% that keep it as a market leader. In Page 6, the net profit and also the EPS shows sequential increase over the past 3 years. In Page 7, the net profit from all major subsidiaries shows growth. And specifically, the growth rate from Fubon Life, Taipei Fubon Bank and Fubon Securities is high. In Page 8, the asset scale reached over TWD 12 trillion, while the net worth continued to grow at 18% year-over-year. The capital position for the holding company and across subsidiaries all shows a strong level. In Page 9, the ROA of 1.3% and ROE of 17% that shows a sequential improvement over the past 3 years. In Page 10, the market position across our major business lines in life insurance, bank and securities that shows our strong market position in Taiwan market. In Page 11, when we look into year '25, the business focus in -- firstly, in Fubon Life that we see the product mix transition will be critical, which will be more towards the long tenure, protection, and regular paid products. While the sales channel, including the internal and external ones are important to solidify our market position. While on the investment side, we aim to maintain a positive spread. In Fubon Insurance, we aim to continue to improve our risk management on products and also operation. In Taipei Fubon Bank, the optimization of the branches that we believe will help to enhance the overall value. And on the digital side, we launched a new mobile app, Fubon+ in November '24 that will offer a more comprehensive service across Fubon's platform, and we hope to further improve the customers' experience. In Securities, we aim to expand our market position, specifically in brokerage and wealth management. In the meantime, we are preparing for a new digital trading platform to further integrate our trading services. From the holding company perspective, in Page 12, we list down some challenges and opportunities. While we see the financial market will continue to be volatile and uncertainties remain, we continue to carefully monitor risks and seize opportunities. Where we see opportunities come from the wealth management, the cross-sell and the ESG front, sustainability and digitization. In Page 13, we specify the ESG strategies and also our actions so far. So firstly, on the decarbonization, we have the green finance amount that reached TWD 2.5 trillion. And in Taipei Fubon Bank, we are the first one to help our corporate clients in green energy purchase. While in Fubon Life, we also recognized for the 7 years with the Buying Power Award. And in Fubon P&C, Fubon Insurance, we have loss prevention service, a service that reached over 661 cases in year '24. In the area of empowerment, we upgrade our employee stock ownership trust program. And in the digitization front, in Taipei Fubon Bank's AI anti-fraud model, which is named Eagle Eye, we formed alliances with over 30 banks that together, we received several awards and also patent. In the connection front, Fubon Museum that started from May '24, we have over 200,000 of visitors throughout the year. In the meantime, we are advocate in education promotion that we have participants of over 4 million people to join events hosted by Fubon in various topics. And Page 14, the ESG award and recognition will be for your reference. Let's move on to Fubon Life in Page 16. The first year premium grew at 16.5%, mainly due to the growth of the participating product. And our regular pay and total premium shows growth and both are higher than the industry average growth. In Page 17, the product mix, we already tried to transform toward high-value products for several quarters and specifically in the regular pay protection product. And we can also see the regular pay contribution now reached 58% of FYP in year '24. While the foreign currency policy also increased, now reached 41.2% of FYP. We can see that the U.S. dollar's participating policy is the main contributor. In Page 18, the FYPE grew over 25%, and that mainly comes from the regular paid protection product. And the VNB growth of over 18%, mainly on back of the product mix adjustment and also the sales of the regular paid. In Page 19, in terms of the channel, the balanced growth in bancassurance and Thai agent channel continues. Both contribute over 40% of FYP, while our bancassurance sales volume is the top in the industry. And we continue to focus on the regular pay products. So you can see the right-hand side, the FYPE from various channels shows growth. In Page 20, in the investment portfolio, we see the increase of the return specifically from domestic and overseas equity that both shows over 20%. That reflects the realization of capital gains and also from the private equities investment. While the increase in the cash position that allows us some room for further asset allocations going forward. And in Page 22, in terms of the investment income, the return side, both before and after hedge and FX, we see the increase in the bottom of this table on back of the realization gains from equities contribution. While the recurring investment income slightly increased by 0.9%, that mainly reflects the decline in cash dividends contribution as investment strategy is more focused in growth stocks. In Page 23, the composition in the hedge, we can see hedge ratio reduced, and that's mainly in response to the market changes. And therefore, the recurring hedge cost in the upper left-hand side that shows some decrease in Q4 and down to 152 basis points. The U.S. dollar appreciation that reflects FX gain, you can again see the Q4's data of 56 basis points. While the recurring return in the lower left-hand side, that hedge show a decrease on a year-over-year basis, mainly reflect a full year recurring hedging costs still increased. In Page 24, the positive spread widened, as you can see, the investment return reached 5.48% and cost of liability down to 3.14%. And therefore, the positive spread reached 2.34%. While the spread between breakeven point and recurring return after hedge, still a negative one, mainly reflect the rise in recurring hedging costs. In Page 25, the unrealized balance, we can see it came down mainly due to the realization of capital gains. While the shareholder equities increase also reflects in the equity to asset ratio increase up to 11.4%. And Page 26, as we know, the adoption of IFRS 17 is upcoming in year 2026. We see the fundamental of Fubon Life's business actually remain unchanged. Firstly, it's regarding the transparency. We see the profit source actually will be better. And secondly, the new regime will show the liabilities reflect at the current rate and assumptions. A new item, CSM, contractual service margin, that represents the present value of the estimated profit that will be gradually released into profit. And while on the asset side, there will be a cancellation of overlay approach and also there will be a reclassification of financial assets in the opening account. And therefore, the source of the profit upstream will also include the realized gains of the FVOCI stock that booked in retained earnings. That will be an important indicator to the investment community's assessment for dividend outlook. So we prepare for a regular update going forward in -- starting from year '26 to the investment community. In Page 27, in response to the upcoming IFRS 17 and also the Taiwan-ICS Adoption, we continue to adjust the product mix, specifically from the sales of regular pay policies and also the launch of the participating policies ahead of the new regime adopt. And the participating policies, now actually already accounts for over half of our first year premium. And going forward, we also expect to see a lower capital requirement under Taiwan ICS in the meantime to accumulate CSM. While on the capitalization front, the track record of our investment performance and also the profit ahead of our peers for several years, that will be positive to accumulate our capital. And the capital structure that we issued sub debt in total from year '23 to '25 in total so far will be around TWD 100 billion. That will be also a supportive factor for our capital position. In the long run, we aim to keep the Taiwan-ICS ratio to be 150% or above. And next, let's move on to Taipei Fubon Bank. In Page 29, the total revenue was up by 17%, while we can see the NII up by 8% and fee up by 37%. That reflects both wealth management and credit cards. In Page 30, the retail loan grew quite strongly at 14%, higher than the corporate growth of 8.7%. The total loan growth up by 12.4%, which is higher than Taiwan market average. In Page 31, the corporate loans growth in terms of foreign and local currency, we can see the foreign currency grew higher speed at over 19% while the SME is also a key focus area for us that grew at 13.8% that again outperformed the market average growth. In Page 32, the mortgage grew at 13.3%, while we see the home equities growth enjoyed a higher one. And the consumer unsecured loan is another spotlight that we see over 33% growth delivered in '24. In Page 33, the overall deposit in Taipei Fubon Bank grew 11%. That's driven by both the NT dollar up by 9% and the foreign currency at 16%. And we can see the LDR, both NT dollar and foreign currency shows improvement, while the demand deposit as a percentage of the total deposit, both in NT and foreign currency declined. In Page 34, the NIM in '24 is 1.15%. That's slightly up year-over-year that reflects our NT dollar loan rate increase and help to offset the impact from the U.S. rate cut. While the loan-to-deposit spread down 11% year-over-year mainly reflects a higher increase in time deposits. And while, on a quarter-over-quarter basis, NIM down by 3 basis points, and it mainly reflects a higher repricing impact from the U.S. dollar's rate cut. In Page 35, the asset quality, both the NPL, non-performing loan and also coverage ratio remained benign. The NPL of personal unsecured loans, you can see slightly edged up, but it started to improve in Q4. The quarterly provisioning cost on the lower right-hand side shows some increase in the quarterly number of '24 that mainly reflect the general provisions increase on back of the loan growth. In Page 36, in the credit card business, we see the active cards and spending both shows increase. That mainly reflects the Costco's affinity card contribution and also the spending momentum accelerate in Taiwan and also overseas. While the monthly per card spending in the lower left-hand side bar chart, you can see down slightly, that mainly reflect the active cards increase and also a lower monthly per card spending in insurance payment. In Page 37, the fee income has a very strong growth at over 37% growth. Wealth management is a key contributor. We can see the insurance and also mutual fund sales are both strong, while the credit card fee up by 68%. In the overseas branches, in Page 38, the revenues and the net profit both shows a decent growth on back of the loan growth and also stable asset quality. In Fubon Securities in Page 40, its net profit of over TWD 10 billion is up by 42%. We see the market momentum is strong, while our revenue across major business lines also shows a meaningful growth. In Fubon Insurance in Page 42, the written premium shows 11% of growth, while the personal line reached 63% contribution of premium and commercial line contribute another 37%. The net combined ratio of 87% that again shows improvement that reflects our business structure and risk management enhancement. In overseas banking operations update in Page 44. NIM is up by 13 basis points in Fubon Bank, Hong Kong. This mainly reflects our cost management from the higher growth, specifically from the retail segment and also the increase both in the financial assets volume and also its yield. That drives our net profit up by 15.6%. In Page 45, in Fubon Bank China, the scale in deposit and loan both grow steadily, while the NIM up by 44 basis points, which is quite strong, mainly because of the loan mix structure improvement. Its net profit also increased quite meaningfully, mainly reflect its NII revenue and also the bond capital gains. In the meantime, it's a lower base in year '23 as the general provisions requirement for the loan growth and also a higher reserve rate requirement. It's asset quality, you can see the NPL ratio is well below 1% in '24, and we aim to maintain a stable asset quality. So this is the end of the presentation. For more information, we welcome you to contact the Fubon IR team. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]