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

Thank you for joining Fubon's First Half Analyst Meeting. In the briefing today, we'll start with an overview of the first half results. Please turn to Page 5 of the presentation. Firstly, regarding the business highlights. The holding company's net profit and earnings per share both top among the holding company peers in the market, while the total asset is above TWD 11.9 trillion. The strategic move, Fubon Asset Management completed its merger with Jih Sun in April. In Fubon Life, the profit is top among the peers in Taiwan, while the premium is #2 in the market. And in spite of the market volatility, the total investment return still reached at 3.76%, while the capital position remains solid. In Taipei Fubon Bank, the net profit is a historical high level for the same period and up by 20% year-over-year. That is supported by the net interest income and also net fee income saw double-digit growth, while the asset quality remains stable. In Fubon Securities, the net profit was down by 18.5% as the market daily turnover came down. While the profit still remains solid at top 2 in the market and the major business lines, market share also remained at top 3. In Fubon Insurance, the profit was up by 18%, mainly supported by the premiums growth of over 9% and also the underwriting result strength, especially from improvement of the claim ratio. In Page 6, the holding company's net profit and EPS shows a decline trend in first half that mainly reflect the currency fluctuation and also the capital market volatility. While in Page 7, the net profit across the subsidiaries in the banking side and also Fubon Insurance, all delivered growth, while the Fubon Life, Fubon Securities came down. That mainly reflect the currency fluctuation and also the capital market volatility. While in the meantime, the market share for the major business lines was well maintained. In Page 8, the assets slightly increased up to TWD 11.9 trillion, while the net worth came down 12.9%. That reflects also the currency fluctuation, the capital market volatility and also the cash dividend distribution. In Page 9, the ROA and ROE also is a decline trend in first half, while the absolute level of ROA at 0.85% and ROE at 11.63%, that still remain at a solid level. In Page 10, regarding the ESG's development, we made a progressive goals announcement regarding the decarbonization in investment and underwriting. We aim to exit from thermal coal-related industry by end of year 2030 and also exit from the unconventional oil and gas-related industries by end of year '40. And regarding the transparency's progress, we made Fubon Asset Management to start the first publication of sustainability reports in this year. And also for TCFD report, we have Fubon Securities to publish its first one also in this year. While in the Green Finance perspective, we continuously to increase and the outstanding reached over TWD 2.55 trillion as of end of June. And next, let's move on to the first subsidiaries, Fubon Life. In Page 12, the premiums, including first year premium and also the regular premium, total premium all delivered positive growth, and we ranked top 2 among peers. In Page 13, the first year premium shows a 13.1% year-over-year growth. And as we focus on higher CSM product strategy, so specifically in the regular pay and the protection products are our growth focus. And as you can see, the regular-paid contribution also increased to 63.2%. And another focus is in foreign currency policy that also grow up the contribution up to 49.5% of FYP. In Page 14, the FYPE grew over 17% on back of the regular-paid product strategy, while the VNB grew at 7.3% as we adjust the product mix and also the regular-paid participating policies sales. In Page 15, in terms of channels, we have around 70% of the FYP delivered from the internal ones that include Taipei Fubon Bank and also tied agent. And in the tied agents specifically, we see a meaningful growth of over 29% year-over-year, while the bancassurance contribution in FYP also top in the industry. On the right-hand side of the FYPE, the growth also quite well balanced across channels, specifically from bancassurance and tied agent. In Page 16, in terms of investment, the investment return from domestic and overseas equity is a highlight -- if we compare Fubon's annualized return of over 20% compared with the market that the TAIEX was down 3% and the more outperformed one in the U.S. NASDAQ Index is 6% up. This year, as of June, we can see Fubon's result significantly outperformed the benchmark. And therefore, the cash level reached a higher level at over 7%, and that allow us to dynamically to adjust allocation going forward. While the investment return from real estate turned normalized in first half as we experienced some valuation losses in Q1 '24 from overseas investment properties. In Page 17, the overseas fixed income allocation basically is stable, that focus in investment-grade corporate credit and financial bonds. In Page 18, the composition of the investment income. We can see the recurring income is slightly up first half year-over-year, specifically from the contribution of the domestic stock dividend. That's more of a timing effect, while we expect the full year's contribution from dividend income will be around flat to slightly up. And the challenge for the first half is the very strong NT dollar appreciation against U.S. dollar by about 10% year-to-June. And therefore, we have FX-related losses increased quite meaningfully in first half, while the currency movement recently has turned stabilized. And the overall investment return before hedge and FX that's at 6.24%, which is a year-over-year increase, while the total return came down to 3.76%, mainly from the currency losses. In Page 19, again, on back of the U.S. tariff and also the trade policy uncertainty, the foreign currency losses make significant NT dollar appreciation and therefore, the hedging cost increased. That including hedging costs and FX gains that reached 389 basis points. While in the FX reserve, we gradually build it up. In June, it's around TWD 51.6 billion and further increase to TWD 54.2 billion in July. And recently, in August, we have reached TWD 65 billion around that level. And we aim to continue to accumulate to strengthen our hedging flexibility. And going forward, we continue to take a dynamic approach to adjust the hedging position to manage both the risk and also the hedging costs in the long run. In Page 20, in terms of the spread, we delivered a positive one between the cost of liability of 3.11% and investment return of 3.76%, while a negative one between recurring return after hedge, that is 2.36% and breakeven point at 2.53%, while the level is improving from a year-over-year basis. In Page 21, the unrealized balance came down due to the market fluctuation and also the realization of capital gains. While the equity-to-asset ratio as of June was 9.9% and it further increased to above 10% in July. And the RBC is also well above at over 400% in June. In Page 23, let's move on to Taipei Fubon Bank. The total revenue was up by 11.3%, supported by the NII and fees, while the overall loan growth, deposit growth, both grow above the market average growth momentum. And also the NIM shows improvement year-over-year. In Page 24, the credit balance overall speaking, was up by over 8%. That is mainly driven by the retail loans of 12.3%. The corporate lending also up by about 5% to 6%. In Page 25, the foreign currencies in the corporate lending book grew over 9%, 9.7%. That's mainly driven by the large domestic corporate and also overseas syndication. While in the NT market, among corporate loans, the SME segment remained spotlight that increased over 12.7%. In Page 26, the retail book, the mortgage was up by over 10%, mainly driven by the home equity, which accounts for 37.5% of the total mortgage book. And another spotlight is the other currencies, specifically in the unsecured consumer loans that grew by over 40%. In Page 27, from a deposit perspective, the overall deposit outstanding was up by 7.2%, while the foreign currency deposit is the key driver, specifically from the foreign currency demand deposit and the contribution now reached over 35%, as we can see from the lower left-hand side chart. In Page 28, the margin. The net interest margin up by 4 bps in first half and loan to deposit spread also up by 10 bps. The quarter-over-quarter performance both shows 5 bps increase in NIM and loan to deposit and the improvement mainly reflects a higher foreign currency demand deposits contribution. In Page 29, the asset quality of Taipei Fubon Bank shows a very benign trend as we can see the NPL ratio, coverage ratio and NPLs across the product lines. In Page 30, the credit cards active numbers reached 5.76 million, while the card spending shows a slightly decline, mainly because of the deferred payment of the personal income tax by 1 month in this year. While the asset quality NPL ratio for the credit card remained benign. In Page 31, the fee income was up by 14% that with a double-digit growth across the major business lines. And specifically, the wealth management increased by 12.6%, that's driven by the insurance and also the mutual funds sales. While the credit cards fee up by 14.2%, that comes from a higher overseas card spending and also adjustment in card benefits. In Page 32, the contribution from overseas branches, net revenue slightly up. We see NII and fees actually up by 7%, but it's offset by the decline of the trading and derivative-related income. While the net profit slightly down by 2.3%, mainly from specific provision. In Page 34, we move on to Fubon Securities. The net profit down by 18.5% year-over-year in the first half, mainly due to the TAIEX trading volume down by 17%, while its net profit ranked top 2 as the trading and also the other revenue stayed stable that offset the decline in the brokerage revenue. The market share of the major business lines remain at top 3. And next, let's move on to Page 36 for Fubon Insurance. The direct written premium was up by 9.4% with the market share at a top of 24.4%. The net combined ratio continued to improve, and it was down to 82.1%, mainly driven by a better net claim ratio as we see the commercial fires claim ratios improvement trend. In Page 38, we move on to Fubon Bank Hong Kong. The loan balance was up by 11%. That's supported by the lending with the bank's peers, while the deposit balance was further up by 19%, mainly driven by the retail deposit. The profit improvement supported by the growth of the balance sheet and also a lower provision, while the net interest margin was down by 7 bps, mainly on back of a lower market interest rate. And in Page 39, Fubon Bank China shows the loan balance was strongly growth at 26.4%, mainly driven by the retail loans. And the deposit was up by over 3%. That's focused on the currency mix adjustment by growing the RMB and reducing the USD deposits. And on back of the adjustment in the loan and deposit structure, the net interest margin was up by over 120 basis points in first half this year. And net profit also supported by the bond capital gains, while the asset quality of the bank remained stable. So this is the end of the presentation. And if you would like to ask questions, please access Fubon's website in the Investor Relations under the Q2 2025 Analyst Meeting's web page. And you may type in the questions and the management team will respond in the live meeting session. Or alternatively, please feel free to contact us at ir@fubon.com. Thank you.