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

Welcome to join Fubon's result briefing today. We'll start with an overview of the first 9 months result. The holding company's net profit and earnings per share both ranked the top among Taiwan's financial holding companies. In terms of assets, it exceeded TWD 12.4 trillion, while the net worth was about flat year-over-year. In Fubon Life, the net profit was TWD 47.8 billion. The premium's performance on ranked top 2 in the industry, while the investment return that reached 4.23%. In Taipei Fubon Bank, the net profit was over TWD 29 billion that hit its historical high for the same period and with a double-digit growth in NII and fees. In Fubon Securities, the net profit was TWD 7.6 billion. Although it decreased 10% year-over-year, that mainly due to the trading volume coming down in the market. But sequentially, we see the market turnover was up in Q3 and Q4. In Fubon Insurance, the net profit was TWD 5.1 billion. That is quite a meaningful increase of over 48% year-over-year with its combined ratio shows a sequential improvement. In Page 6, the 9 months net profit fell compared to the same period last year. And in the meantime, if we look at the preliminary net profit of the first 10 months, that reached over TWD 108 billion with an EPS of TWD 7.51, that further narrowed down the gap with the earnings performance in previous years. In Page 7, in terms of profit by subsidiaries, the bank -- Taipei Fubon Bank continues to rise its new highs for the same period. And the same for the overseas banking arms also deliver quite meaningful growth. The Fubon Insurance, P&C arm profit also grew steadily. While Fubon Life is the largest source of the profit contribution, impacted by the capital market performance and Securities decreased largely reflect the impact from the market daily turnover. In Page 8, the total asset of the holding company reached over TWD 12.4 trillion. That is an increase of 5% and the equities of the parent company is about TWD 943 billion. The following page, ROA annualized basis, is about 0.9% and annualized ROE is about 12.8%. In slide Page 10, in terms of the stability initiatives, we would like to highlight that Fubon Financial Holding again selected as 1 of the top 500 sustainable company by Time Magazine. They rank Fubon in top 4 globally among the financial institutions and top 1 among Taiwan's private financial holding companies. Next, let's move on to Fubon Life. In slide Page 12, the momentum of an Life premium remained positive. The 9 months FYP increased by about 5.2%, the renewal premium up by 6.4% and that drive the total premium to increase by about 6%. And that rank the company top 2 in the industry in all 3 indicators. In Page 13, the new product portfolio continued to adjust towards CSM accretion. The proportion of the regular pay increase to about 62%. While the proportion of the foreign currency policies also increased to slightly above half at 51% of FYP. It mainly comes from the USD participating policies contribution, no help to match on the asset and liability side. In Page 14, FYPE that better indicate the regular pace of sales momentum, we can see the increase by about 8.3%, and therefore, the FYPE to FYP ratio increased to about 46.9%. While VNB only up by 0.8%, mainly reflect the high base effect from the sub-selling effect of the protection policy last year. While in the meantime, we continue to push for regular pay and foreign currency. In Page 15, in terms of the channel development, over 70% of the FYP comes from internal ones, including Tied Agent Fubon Life and Taipei Fubon Bank. The regular pay focus is across channels, which drive the simultaneous growth of FYPE. In Page 16, the investment portfolio, we can see the realized equity capital gains in a timely manner and outperform the market performance, both in Taiwan and overseas equities portfolio. The cash level is at a higher level, which will be dynamically adjusted according to the market condition. In the following slide, in the fixed income portfolio, investment grade continue to be the focus, incorporate and financial bonds. In terms of region, North America is the core and followed by Europe and APAC. They try to strike a balance between risk-adjusted returns and also the duration management. In slide Page 18, the investment income, we can see the recurring income is close to the level of the same period last year. The dividend income increased 15% that reflect the increase in Taiwanese stock dividend. However, due to the appreciation of the NT dollar and also market fluctuation in the first half, so total investment income actually decreased year-over-year. The return on after-hedge and FX basis was 4.23%, that was lower compared to last year, mainly due to the currency movement. Starting from second half, as all the FX gains are booked into FX reserve instead of the P&L. So the investment return will be 4.8% if the FX gains were reflected under the same basis in the first 9 months as it was in first half '25, as we show in the footnote under the table. In Page 19, since the second half of the year, the U.S. dollar has stabilized and also FX reserve new system is in place that help to accumulate the reserve balance. And meanwhile, the recurring return improved to 2.42% after hedge basis, and we expect the recurring CS hedging cost should continue to improve. In Fubon Life, we aim to increase FX reserves to strengthen its resilience against exchange rate fluctuation, while Fubon Life will continue to adjust its hedging structure dynamically. In Page 20, the investment return and cost of liability maintain a positive spread in the first 9 months of this year. However, the recurring basis of return compared to a breakeven point, still shows a small negative 1 mainly due to the impact of the recurring hedging cost in the current level. With the decline in recurring hedging costs going forward and also the product structure adjustment, we aim to have the interest rate spread to gradually improve. In Page 21, the recovery of the financial market led to the improvement in the unrealized position on the financial asset. And specifically for the equity investment portfolio are carrying unrealized gains. And as of the end of September, the net asset value to the total asset of Fubon Life was about 11.4%. And while the capital position remained decent, and RBC was about 400%. And next, let's move on to Taipei Fubon Bank. In slide Page 23, the overall revenue increased by 11%. And among them, the NII increased by 11.5%, mainly due to the expansion of the balance sheet scale and also the net interest income -- net interest margin's increase. While the net fee income increased by over 13%, mainly driven by wealth management and credit cards. In slide Page 24, the credit balance increased by about 9.9%. Both the corporate and individual loans at double-digit growth, while the government-related loans is more volatile. In balance of the personal loans that also exceed TWD 1.3 trillion while the corporate credit exceed to more than TWD 1.1 trillion. In Page 25, among the corporate lending, the foreign currency credit increased by about 15.4%. And driven by the demand of the local major large corporate clients and also the overseas syndication business demand. In Taiwan dollars credit in the corporate front, increased by about 12%. And specifically, the SME increased by over 13%, that accounts for about 39% of the institutional banking loan book. In Page 26, the mortgage book increased by about 7.4%, which is largely driven by the home equities business by about 24.5% year-over-year to meet customers' flexible capital needs. And the personal loans increased by 35.6%, that unsecured credit increase by over 44% that benefit from the digital marketing and also the optimization of the online application. In Page 27, the overall deposit increased by 5.9%, while the NT and foreign currency deposits both grow. And driven by the increase of the CASA account, the NT's book of CASA increased to about 61% of the NT book while the foreign currency also up to about 32%. While on the right-hand side, the LDR of both NT and foreign currency improved supported by the growth of the loan book. In Page 28, the net interest margin was about 1.19% for the 9 months, that is an increase of 4 basis points year-over-year, supported by the loan deposit spread increase of 12 basis points. And on a quarterly basis, the loan deposit spread in Q3 is widened by 6 basis points compared to previous quarter. While the net interest margin was only about flat, mainly reflect the treasury book is coming down and also the rate cut in the USD. In Page 29, the asset quality remains stable in Taipei Fubon Bank, while overall -- overdue ratio remain at a very low level. The coverage continues to be strong. And also the indicators shows Fubon's outperformance compared to the industry average. In the credit costs, the annualized basis for the 9 months is about 17 basis points. While in Q3, we see the allowance reserve for specific corporate cases that result in Q-o-Q's increase in provision cost. In Page 30, the numbers of active credit card is stable, while the card spending up by 3.6% on back of the overseas consumption. While the NPL in credit card business also remained quite benign at 0.19%. In Page 31, net fee income increased by about 13.2% for the whole bank and the growth is across the board. And the main contributor from the wealth management and credit cards. The wealth management revenue increased by about 11.8%, while the bancassurance and mutual funds contribute the most. In Page 32, the overseas branches performance in net revenue down by about 4.3%, mainly reflect the decline in swap revenue in Hong Kong branch. While the net profit down by 13%, that also reflect the increase in the provision for specific cases. While overall speaking, the growth of the overseas branches that will continue to expand from a long-term perspective. In Page 34, let's move on to Fubon Securities. As the average daily turnover of Taiwanese dollar market in first 9 months came down, the net profit in Fubon Security also declined by about 6%. While other income increase mainly reflect the interest income and underwriting related revenues. In terms of market position, on the core business, you can see the rank among top 3. While Fubon Security continue to enhance its market position specifically to optimize its digital service and also to expand the wealth management business. And next, let's move on to Fubon Insurance. In Page 36, the premiums continue to grow, both in personal and commercial lines. In terms of underwriting profit, the net combined ratio was further improved down to 83%, mainly come from the improvement in the loss ratio. While the expense ratio pretty much remains stable. That reflects the optimization of the business structure and also the risk selections are discipline. And next, in slide Page 38, we move on Fubon Bank China. Its balance sheet continued to grow with the loan increase by about 25.7%, driven by both the corporate and retail business by double digit. And deposits also increased by about 14.1% that reflects the increase of contribution from Taiwanese clients. The net interest margin shows about 102 basis points increase year-over-year, while the net profit up by about 39.6% year-over-year, driven by the growth of the NII and also the increase from the bond capital gain. Asset quality remains stable, while you can see the NPL ratio remained low at 0.88% and coverage ratio exceeds 200%. This shows its adequacy of risk control capacity. So if you would like to ask questions, please access our Fubon's website in Investor Relations under the Analyst Meeting's web page. And you may also type in the questions and the management team will respond in the live audio meeting session. Or alternatively, please feel free to contact us at ir@fubon.com. So this is the end of the briefing, and thank you for your attention.