SinoPac Financial Holdings Company Limited (2890.TW) Earnings Call Transcript & Summary

Thank you for listening to SinoPac Holdings Fourth Quarter of 2022 Financial Results. Please note that SinoPac Holdings does not hold an English version analyst meeting. This presentation only includes explanation of the operating results and does not include a Q&A session. This presentation and the presentation materials distributed here with may include forward-looking statements. SinoPac Holdings ROE and ROE ranking continuously advanced. In the past 3 years, we faced the challenges of COVID-19, the Russia-Ukrainian war and of course certain rate hike cycle. Under this backdrop, SinoPac Holdings Steel demonstrated operating resilience with the 2022 ROE of 10.1%, which ranked first among 14 Taiwan listed financial holding companies and improved significantly. SinoPac Holding ESG ratings continuously enhanced. Regarding sustainability performance, our ESG ratings enhanced evidently in recent 3 years. Therefore, we are included in the DJSI World -- DJSI Emerging Markets Index, MSCI, ACWI are ESG Leaders Index and recently became a constituent of Bloomberg Gender-Equality Index. We continue to implement business strategies for 2022 to 2024. Our progress mainly resulted from clear strategies and effective implementation. We will continue to follow our 4 major strategies: Digital, Cross border, Integration and Sustainability. Regarding Digital, in addition to customer acquisition from digital channels, we will continue to improve the digital penetration rate in MAU. Moreover, we will keep strengthening our digital competitiveness by optimizing personalized recommendations and driving the automation and smartification of operating processes. As for Cross border, we will effectively see the post-pandemic business opportunities, continue to deepen cross-border services and expand our local retail customer bases. Regarding Integration, we will continue to work toward 1 SinoPac, focusing on optimizing core subsidiary account opening and asset integration services. As for Sustainability, we will continue to expand the sale of renewable energy financing, maintain our leading position in solar PV financing and also utilized various financial tools to assess the industries in achieving net-zero transformation. Page 2 executive summary. In the fourth quarter, due to seasonal factors, net revenues and net income of SinoPac Holdings declined quarter-over-quarter. However, the cumulative net revenues and pre-tax net income continued to reach record highs and ROE remained above 10%. SinoPac Holdings cumulated non-interest income of TWD 26.9 billion to increased to 21.6% year-over-year, was driven by the steady growth of interest earning assets. SinoPac Holdings cumulated net fee income of TWD 13.9 billion, decreased to 18.3% year-over-year, mainly due to volatile market and passive market sentiment. As for asset growth, SinoPac Holdings total assets of TWD 2.6 trillion increased by 3% quarter-over-quarter, primarily contributed by the total loan increased. Capital remained sufficient. In 2022, SinoPac Holdings CAR was 122%. Bank SinoPac BIS and Tier 1 ratio reached 13.8% and 11.16%, respectively. Page 3, SinoPac Holdings financial highlights. Total assets and total equity of SinoPac Holding increased quarter-over-quarter, mainly benefiting from the rebound of capital market and valuation gains of investment position. SinoPac Holdings cumulated net revenues of TWD 47.3 billion to hit a new high record. Pre-tax net income also reached a historical high. SinoPac Holdings EPS was TWD 1.4, ROE of 10.1% was the highest among 14 listed financial holding companies in Taiwan. Page 4, Bank SinoPac financial highlights. The profits of Bank SinoPac grew significantly this year. Cumulated net revenues, pretax income and net income reported a new high records. 2022 Bank SinoPac's cumulated net interest income increased to 23.8% year-over-year, higher than 15% of the peers' average. Net fee income slide 1.9% year-over-year, way better than the peers average, which was a 6.8% decline. The other income increased to 42.5% year-over-year, also higher than the peers average, which is a 29.3% increase. The outstanding performance resulted in a 28.9% increase in net income and delivered a 10.47% ROE, ranked #2 among the total 13 subsidiary banks of Taiwan financial holding companies. EPS of TWD 1.63 was also a historical high. Loan and deposit steadily increased. By the end of 2022, loan-to-deposit ratio was 67.2%. Asset quality remains benign with the NPL ratio of only 0.11% better than peers' average, which is 0.15%. Page 5, SinoPac Securities financial highlights. Along with the improvement of the capital market sentiment in the fourth quarter, SinoPac Securities capital gains had rebounded quarter-over-quarter, but still not enough to compensate the whole year decline. In 2022, SinoPac Securities net income of TWD 1.6 billion decreased to 67% year-over-year, due to decreasing market turnover and high market volatility. In response to the sluggish capital market, SinoPac Holdings Securities continues to expand its diversified revenue sources. Sub-brokerage, margin trading and wealth management fee income have accounted for 35% of the total net fee income. In 2022, the daily market turnover of the Taiwan stock market decreased by 36%. However, SinoPac Securities net fee income decreased by 27%, showing better resilience against a bearish market. During the first 2 months of 2023, SinoPac Securities sub-brokerage market share in the retail business sold to the first place. And the performance of proprietary trading was also relatively stable. With the end of supply chain inventory adjustments and the release of the epidemic, SinoPac Securities capital gains are expected to improve gradually in 2023. Page 6, SinoPac Holdings profit contribution by subsidiaries. In 2022, Bank SinoPac contributed 89% of the SinoPac Holdings net income; and SinoPac Securities contributed 10%. The overall long-term investment of SinoPac Holdings slightly increased year-over-year. However, due to the difference in tax between the 2 periods, net income decreased by 1.5% year-over-year. Page 7, SinoPac Holdings P&L breakdown. In 2022, SinoPac Holdings net revenues increased by 3% year-over-year and pretax income increased by 4%, both reached a historical high. SinoPac Holdings net income slightly decreased due to the higher tax expense. Page 8, SinoPac Holdings net revenues breakdown. 2022, SinoPac Holdings non-interest income and net revenues continually reached new highs. This page clearly shows the upward trend of SinoPac Holdings net revenues. For the past 3 years, SinoPac Holdings net revenues and net income increased by 9% CAGR. Net interest income increased by 19% CAGR and net fee income increased by 9% CAGR. All reported evident growth and led to the #1 ranking in ROE. Page 9, Bank SinoPac NIM and spread. From the left-hand side figure, interest-earning assets increased by 4.8% quarter-over-quarter to TWD 2.2 trillion. Net interest income was TWD 6.7 billion, slightly decreasing. But with funding swap revenues, adjusted net interest income increased 1.4% quarter-over-quarter to TWD 7.1 billion. In the fourth quarter of 2022, the loan rate increased by 34 bps quarter-over-quarter, while the deposit rate increased by 54 bps quarter-over-quarter. As a result, the deposit cost has increased significantly, causing the spread to decrease by 19 bps to 1.41%. This is mainly because in the fourth quarter of last year, we expect the United States is likely to raise interest rates in 2023. Therefore, we launched the U.S. Dollar Later Interest Rate Time Deposit Campaign, hoping to lock the U.S. dollar cost at a relatively stable level, which will help reduce the deposit costs in the long term. NIM decreased by 9 bps quarter-over-quarter to 1.2%. An adjusted NIM with the funding swap would be 1.27%, a quarter-for-quarter decrease of only 4 bps. We took in U.S. dollar deposit and use them in funding swap, and we will also deploy them to the banking book at appropriate timing. Looking ahead to this year with the steady expansion of interest-earning assets and funding swap opportunities, we estimated that net interest income will continue to grow. Page 10, it's Bank SinoPac loan structure. Total loans increased by 11.5% year-to-date mainly boosted by corporate loans. SME loans increased by 19.3% year-to-date contributed by robust solar power financing. SME loans accounted for 25.2% of total loans continuously increasing. NTD loans accounted for 79% of total loans increased 1% quarter-over-quarter. FX loans accounted for 21%, slightly decrease. Page 11, Bank SinoPac deposit portfolio. By the end of 2022, total deposit of TWD 2.01 trillion increased 9% year-to-date driven by FX time deposit. As mentioned earlier, due to the expectation of a possible interest rate hike in the United States, we have planned to absorb U.S. dollar time deposit in the fourth quarter. As a result, the CASA ratio has decreased to 50% and the proportion of U.S. dollar deposit has increased to 31.7%. These stable funds will also become a solid foundation for future business growth. Page 12, SinoPac Holdings net fee income. 2022, SinoPac Holdings net fee income of TWD 13.9 billion decreased 18% year-over-year, mainly due to passive market sentiment during bearish market. Securities fee income fell 31% year-over-year, along with a 13% decrease in wealth management fee revenues. However, loan-related fee income increased by 23% in 2022 and foreign exchange fee revenues also increased by 13%. Page 13, SinoPac Holdings operating expense. Due to sliding net revenues, fourth quarter CI ratio was 58%. In terms of the whole year, CI ratio was 54%. Operating expense remains under control. Page 14, Bank SinoPac asset quality. The fourth quarter NPL ratio was 0.11% outperforming peers average. The NPL coverage ratio was 1,208%, and the loan coverage ratio was 1.33%. Asset quality remained benign. In 2022, Bank SinoPac's provision of TWD 2.4 billion was mainly the general provision. The credit cost for the whole year was about 18 bps, which falls within the previous guidance. Currently, there have been no large cases of high risk observed. Therefore, we maintained the credit cost guidance for 2023 at 15 to 20 bps. Thank you for listening. If there are any questions, please feel free to reach us. You can click or scan the QR code for our IR mailbox and download the Analyst Meeting materials. We look forward to hearing from you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]