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

Thank you for listening to SinoPac Holdings First Quarter of 2024 Financial Results. Please note that SinoPac Holdings does not holding English version analyst meeting. This presentation includes explanation of the operating result and detail of Bank SinoPac acquisition of Amret but does not include the Q&A session. This presentation and the presentation materials distributed herewith may include forward-looking statements. Page 2, executive summary. In the first quarter of 2024, SinoPac Holdings net income of TWD 6.9 billion continued hitting a new high with an annualized ROE of 14.35%. Net revenue also reached same period new highs, mainly driven by significant growth in fee income and trading revenues. Net interest income decreased 9.2% because of the rising funding cost and enlarging FX swap trading. If we add back FX swap gain, the adjusted interest income could grow around 7% year-on-year. Net income increased 60.5% year-on-year, mainly thanks to the securities related, wealth management and loan-related fee income. Other income reached a new high, driven by better trading revenues, including funding swap. SinoPac Holdings total assets of TWD 2.9 trillion increased by 4.9% quarter-on-quarter, mainly contributed by the loan increase. The capital remains sufficient. In the first quarter of 2024, SinoPac Holdings CAR was 132%. And Bank SinoPac BIS and Tier 1 ratio reached 15.22% and 12.76%, respectively. In the first quarter of 2024, SinoPac Holdings won 29 awards, including digital finance, wealth management and trading. Some are listed here for your reference. Page 3, SinoPac Holdings financial highlights. The first quarter of 2024 shareholder equity of SinoPac Holdings increased TWD 8.8 billion quarter-on-quarter, and the book value per share rise to TWD 15.93. The first quarter net revenue of TWD 16.7 billion and net income of TWD 6.9 billion increased 34% and 55% year-on-year, respectively. Three-year CAGR of net income reported at 16%. The first quarter SinoPac Holdings ROE of 14.35% maintained steadily for the past 3 years. Page 4, Bank SinoPac financial highlights. The profits of Bank SinoPac grew 55% quarter-on-quarter and 33% year-on-year, driven by increase in fee income and trading revenues. Both wealth management and loan-related fee income demonstrated significant growth. Trading revenue enhanced mainly because of funding swap gains. Now annualized ROA for the first quarter was 0.82%, and the ROE was 11.95%, both continue growing and maintaining a level of over 10%. Deposits increased 2.4%, and loan increased 6.5% year-to-date, with [ LDR ] ratio rebounding to 74.3%. For the past 3 years, Bank SinoPac's total assets and profitability all steadily grew from the first quarter of 2021 to first quarter of 2024. Bank SinoPac's net income increased at 18.2% CAGR, surpassing the 14.9% of other bank subsidiaries of these financial holding companies. Page 5, SinoPac Securities financial highlights. Driven by a bullish capital market, the first quarter SinoPac Securities net income increased around 90% both quarter-on-quarter and year-on-year. Capital gains grew 112% quarter-on-quarter and 65% year-on-year, and recurring income increased 20% quarter-on-quarter and 42% year-on-year. Thanks to the surge in [ daily ] average turnover of the Taiwan Stock Exchange to TWD 500 million level and the active trading in the U.S. stock market, SinoPac Securities has experienced evident growth in brokerage fees and achieved the top position in stock brokerage market share. Both wealth management and underwriting fees have shown significant growth. In the first quarter, SinoPac Securities annualized ROE was 17.44%, reaching a new high in recent years. Page 6, SinoPac Holdings profit contribution by subsidiaries. From a standalone angle, in the first quarter, Bank SinoPac contributed 74% of SinoPac Holdings net income, and SinoPac Securities contributed 22%. The overall long-term investment of SinoPac Holdings increased 67% quarter-on-quarter and 44% year-on-year. Therefore, the SinoPac Holdings net income grew 70% quarter-on-quarter and 45% year-on-year. Page 7, SinoPac Holdings P&L breakdown. In the first quarter, SinoPac Holdings net revenue increased by 30% year-on-year, and operating expense increasing by 16%, resulting from the expense of employee bonus. Provision expense increased because of the loan growth. Net profit before tax increased 47% year-on-year, and the net income increased by 45% year-on-year. Page 8, SinoPac Holdings net revenues breakdown. SinoPac Holdings net revenue increased around 30% quarter-on-quarter and year-on-year, benefiting from the growth in fee income and other revenues. On the last 4 quarters, SinoPac Holdings net revenue maintained a steadily growth momentum. Page 9, Bank SinoPac NIM and spread. From the left-hand side figure, interest earning assets increased by 1.69% quarter-on-quarter to TWD 2.39 trillion. Net interest income decreased by 1.52% due to higher NT dollar loan mix. However, adding back funding swap revenues with adjusted net interest income could increase 8.3% year-on-year. From the right-hand side figure, in the first quarter, both loan rates and deposit rates decreased by 5 bps quarter-on-quarter. The decrease in loan rates was mainly due to increasing proportion of NT dollar loan, while the decrease in deposit rates will result from our ongoing efforts to reduce U.S. dollar deposit and increasing CASA ratio. NIM decreased by 1.9 bps quarter-on-quarter, adjusting with funding swap was 1.23% and quarter-on-quarter decrease of only 0.8 bps. We maintain our previous guidance. This year, adjusted NIM is expected to reach the same level or slightly higher than 1.22%. Page 10, Bank SinoPac loan structure. Total loans increased by 6.5% year-to-date, mainly boosted by corporate loans. The jumbo loans increased 15% year-to-date and 2.6% year-on-year because of seasonal effect. SME loans continue increasing by 5.8% year-to-date and 10.5% year-on-year. NT dollar loans accounting for 81% of total loans and foreign currency loans accounting for 19%. Page 11, Bank SinoPac deposit portfolio. The first quarter deposits increased to TWD 2.08 trillion, driven by the increase in NT dollar deposits. NT dollar demand deposits increased by 6.2% year-to-date and NT dollar time deposits increased by 1.5% year-to-date. We have continued to control funding cost. The percentage of U.S. dollar deposit was down 1.8 percentage points, and the CASA ratio improved 0.7 percentage points quarter-on-quarter. Page 12, SinoPac Holdings fee income. In the first quarter, SinoPac Holdings net fee income increased 77.8% quarter-on-quarter, mainly driven by wealth management, loan-related fee and securities-related fee income. Wealth management fee income increased by 133% quarter-on-quarter and 143% year-on-year with strong sales momentum in mutual funds, overseas fund and insurance products. Loan-related fee income increased by 324% quarter-on-quarter and 22% year-on-year, mainly due to an increase in syndicated loans, which was benefited from a contribution of green energy loans in recent years. Securities-related fee income increased by 20% quarter-on-quarter and 41% year-on-year, driven by active stock market trading. Fee income, including Taiwan stock brokerage and underwriting fee income, all demonstrating robust growth. Page 13 SinoPac Holdings operating expense. In the first quarter, net income reached a new high with expense also increasing, but to a lesser extent. The increase in expense was mainly due to the employee performance bonus. Operating expense remained under control, and the C/I ratio decreased to 45%. Page 14, Bank SinoPac asset quality. The first quarter NPL ratio was 0.15%, which is comparable to the peers' average of 0.16%. NPL coverage ratio was 872%, and the loan coverage ratio was 1.34%. Asset quality remained benign. The increase in NPL impact was mainly due to a single case. The rental rate of its collateral is high, was temporarily classified as NPL Tier 2 under restructuring process. After the completion of restructuring, it will be removed from NPL. Therefore, we maintain the credit cost guidance for 2024 at 15 to 20 bps. Page 15, green finance ecosystem. SinoPac Holdings was devoted to solar power and emerging renewable energy financing. At the end of the first quarter, Bank SinoPac's solar PV financing installed capacity reached 3.59 gigawatts with a market share nearly 30%, and the solar financing loan balance reached TWD 111 billion. The green and renewable energy industry loans account for 20.3% of total corporate loans. In the future, SinoPac Holdings will continue to employ green finance as our niche to expand the SME customer base. Next, we would like to introduce the recent acquisition decisions made by the Board of Directors of SinoPac Holdings and Bank SinoPac. Page 16, Bank SinoPac's acquisition of Amret PLC, a leading microfinance deposit-taking institution in Cambodia. A microfinance deposit-taking institution, MDI, provided small loans to poor people in rural areas and microentrepreneurs. Its business item includes loan deposit arrangements. Page 17, deal description. First, boosting overseas revenues and expanding our international presence is one of our major strategies. The Cambodia economy is one of the highest-growth economies in Asia, and Amret is the largest MDI. Therefore, we believe acquiring Amret is a very good opportunity for us to expand our overseas business. In addition, Amret's current shareholders are prestigious international development finance institutions. In the following 2 years, Bank SinoPac look forward to collaboration with IFC and FMO to strengthen ESG capability. In consideration of the continuity of business philosophy and to be familiar with local business environment, Bank SinoPac aims to finish the 100% equity acquisition in 3 tranches. The first tranche in 2024, Bank SinoPac will acquire 80% equity. The second tranche is in 2025, Bank SinoPac continues to acquire 10% equity. The third tranche is in 2026, Bank SinoPac will acquire the rest 10% of equity. Regarding the price, the first tranche, 80% of equity value amounts to around USD 435 million. Page 18, Amret overview. Amret was established in 1991 and gained MDI license in 2009. Amret's current shareholders specialize in sustainable and responsible investment for financial inclusion. Through this acquisition, Bank SinoPac can further broaden its positive influence on sustainable finance. Page 19, Amret operating data. As of 2023, Amret ran 150 business locations in 24 provinces across Cambodia, boasts total assets of around USD 2 billion, which was the largest among MDIs and ranked #9 among 154 financial institutions in Cambodia. Bank SinoPac will complete the acquisition process according to the share purchase agreement after gaining regulatory approvals. 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 IR materials. We are looking forward to hearing from you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]