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

Thank you for listening to SinoPac Holdings Second Quarter of 2024 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. In the beginning, we are happy to share some of our recent major achievements. Firstly, our preliminary net income in the first 7 months already surpassed lows of each year before 2020. Please owe thanks to our 2 profit contributors, Bank SinoPac and SinoPac Securities demonstrating -- were the high performers. In terms of sustainability governance, we elevated our sustainable development committee to our functional committee of the Board and added 3 independent directors as committee members in July. In addition, we are the first financial holding company in Taiwan that has chief sustainability officer and a sustainability office at the Board level. Regarding ESG disclosure, SinoPac Holdings and Bank SinoPac publish climate and nature related financial disclosure reports, and those were owned by BSI with Level 5 plus excellence for 2 consecutive years. Moreover, this year, SinoPac Investment Service launched its SinoPac plus ESG evaluation system under TDCC ESG IR platform. This is the only local financial institution, which strives to offer a professional and convincing standard for ESG evaluation of Taiwan listed stocks. Look ahead SinoPac holdings will continue to fulfill our coverage social responsibility and achieve our vision together a better life. This presentation and the presentation materials distributed here with may include forward-looking statements. The second quarter of 2024 financial data are preliminary. Page 2, Executive Summary. In the first 6 months of 2024, the net revenue increased by 23.8% year-on-year and net income increased by 20.8% year-on-year. Moreover, the annualized return on equity of 12.84% reached a record high. The accumulated net interest income decreased by 5% year-on-year due to rising funding costs. However, thanks to the increase in spread and the contribution of the coupon of the foreign bond. The net interest income in the second quarter grew by 6.9% quarter-on-quarter. The net fee income of the first 6 months grew by 44.3% year-on-year. Primarily thanks to a substantial growth of securities brokerage, wealth management and loan-related fee income. In terms of others, the accumulated other income increased by 55% year-on-year. In the second half, as the U.S. Taiwan spread is expected to narrow, we may see a rebound in net interest income and decline in funding swap gains. As for asset growth SinoPac Holdings total assets expanded 3.4% quarter-on-quarter to TWD 2.9 trillion. Capital remains sufficient. In the second quarter of 2024, SinoPac Holdings CAR was 127%. Bank SinoPac BIS ratio and Tier 1 ratio were 14.63% and 12.21%, respectively. Page 3, SinoPac Holdings financial highlights. The total equity of SinoPac Holdings decreased by 1.6% quarter-on-quarter, mainly due to cash dividend distribution of TWD 9.3 billion. In the first 6 months, SinoPac Holdings net revenue of TWD 32.9 billion and net income of TWD 12.2 billion, both with historical new highs. Moreover, the net income for the first half of 2024 is equivalent to the full year net income of 2019 and 2020. Earnings per shares was TWD 0.99 and annualized return on equity of 12.84% was the best level since SinoPac Holdings was established. Page 4, Bank SinoPac financial highlights. In the second quarter of 2024, Bank SinoPac's pre-provision operating profit and net income went down, mainly due to high [indiscernible] wealth management of the first quarter. The deposits increased by 4.3% quarter-on-quarter and the loans slightly increased by 0.2% quarter-on-quarter. Therefore, the loan-to-deposit ratio did 3 percentage points to 71.5%. The remaining funding were allocated to FX swap and FX bond. In the first 6 months, the net revenue of TWD 13.3 billion and a net income of TWD 9.7 billion of the same period new highs. The net income increased by 17.6% year-on-year, which outperformed the 8.7% of other subsidiary banks of Taiwan Listed Financial Holding Companies for 3-year and 5-year CAGR, also demonstrated double-digit growth rate. In terms of capital efficiency, both the annualized return on assets and the return on equity had a significant improvement in the past few years. Page 5, SinoPac Securities financial highlights. The second quarter of net income fell by 10.4% quarter-on-quarter, mainly due to mark to market valuation of [ bonds ]. In the first 6 months, the net income increased by 68.5% year-on-year to TWD 2.9 billion, and both capital gains and recurring income grew evidently. The first 6 months of SinoPac Securities annualized return on equity was 16.75%, which reached a same period new high and increased quickly in the past 3 years. Thanks to bullish market sentiment, the brokerage fee income has experienced significant growth. In addition, SinoPac Securities market share in the retail brokerage business has remained in first place. The wealth management fee income, including the brokerage, security borrowing and lending and trust has continued growing for 8 consecutive quarters. Page 6, SinoPac Holdings profit contribution by subsidiaries. From the standalone angle, in the second quarter and the first 6 months, Bank SinoPac contributed 74% of SinoPac Holdings long-term investment income, and SinoPac Securities contributed 22%. For our quarterly review, the long-term investment income of Bank SinoPac, SinoPac Securities and other subsidiaries will decrease. Moreover, SinoPac Holdings recognized the undistributed earnings tax of TWD 785 million, resulting in a 23% quarter-on-quarter decline of net income. In the first 6 months, the contribution of Bank SinoPac and SinoPac Securities increased by 18% and 69% year-on-year, respectively. Therefore, the SinoPac Holdings net income increased by 21% year-on-year. Page 7, SinoPac Holdings profit and loss breakdown. From a consolidated basis, the first half of 2024 SinoPac Holdings net revenues, pretax income and net income increased by 24%, 29% and 21% year-on-year, respectively. Page 8, SinoPac Holdings net revenue breakdown. The second quarter net revenue of TWD 16.2 billion, though slightly down quarter-on-quarter, still increased by 17.5% year-on-year, the first 6 months comparison and the last 3-year data demonstrating an upward trend. The first half total net revenues grew at a 3-year CAGR of 12.8%. Page 9, Bank SinoPac's NIM and spread. On the left-hand side, interest earning assets increased to TWD 2.47 trillion, up 3.2% quarter-on-quarter, mainly due to increase in FX bond provision. In the second quarter, the FX swap gains decreased by TWD 137 million quarter-on-quarter due to the U.S. Taiwan spread narrowing. If adding backlog FX swap gain, the adjusting net interest income was TWD 7.6 billion, increased by 3.8% quarter-on-quarter. On the right-hand side, in the second quarter of 2024, the loan rate increased by -- at 0.2 basis points quarter-on-quarter, which is moderate than the increase in deposit rate. Therefore, the spread increased by 6 basis points. Thanks to the improvement of the loan structure, the net interest margin increased by 4 basis points quarter-on-quarter, and adjusting net interest income grew by 0.7 basis points quarter-on-quarter. Page 10, Bank SinoPac loan structure. In the second quarter, total loan balance of TWD 1.55 trillion increased by 0.2% quarter-on-quarter and 6.8% year-to-date. And in this quarter, we focused on adjusting our loan portfolio, decrease the jumbo loans and increase the SME loans. As of June, the SME loan accounted for 25.6% of total loans continuously increasing. The FX loans accounted for 20.5%, up 1.5 percentage points quarter-on-quarter, which was a project for our spread enhancement. Page 11. Bank SinoPac deposit portfolio. In the second quarter, total deposits of TWD 2.16 trillion increased by 4.3% quarter-on-quarter and 6.5% year-to-date. The deposit curve nearly grew by 2.2 basis points quarter-on-quarter, thanks to the well-controlled FX funding cost. The proportion of new Taiwan dollar deposits increased to 64.4%, down 0.9 percentage points quarter-on-quarter. Page 12, SinoPac Holdings net fee income. In the second quarter of 2024, SinoPac Holdings net fee income of TWD 4.96 billion, decreased by 14% quarter-on-quarter, increased by 29% year-on-year. Thanks to bullish market sentiment, both the security brokerage and wealth management fee income grew year-on-year. In the first 6 months, SinoPac Holdings net fee income increased by 44.3% year-on-year. The wealth management fee, loan related fee, FX fee and security fee posted double-digit growth rate. Page 13, SinoPac Holdings operating expense. The second quarter of 2024 cost-to-income ratio was 51%, which was close to the previous level. Operating expenses remain under control. Page 14. Bank SinoPac asset quality. The second quarter of 2024 NPL ratio was 0.12% and improved by 3 basis points quarter-on-quarter, which outperformed peers of 16 basis points. The NPL coverage ratio was 1098%, and the loan coverage ratio was 1.35%. Asset quality remained benign. In the first half of 2024, Bank SinoPac net provision was TWD 1.3 billion, and the annualized credit card was 17 basis points. We maintained our whole year's guidance of credit card at 15 to 20 basis points. Page 15, Green Finance Ecosystem. Bank SinoPac developed a comprehensive green finance ecosystem. The balance of green financing has been rapidly in recent years and become the growth driver of the SME loan. As of June 2024, Bank SinoPac solar financing loan balance reached TWD 118 billion increased by 25% year-on-year, with a finance install capacity of 3.7 gigawatts and a market share of around 28%. We are devoted to maintaining our highest market share in the future. Moreover, we will leverage our need in green finance to expand to the overseas market and support more [ confer ] to developing energy. As of June 2024, Bank SinoPac's green and renewable energy industry loan balance accounting for 20.6% of the corporate loan balance. Page 16, supporting SMEs and enhancing customer journey. In addition to the green finance ecosystem, we have established several specific departments to serve SME customers of various scales. Regarding Startup, we accelerated the platform called DA BOSS, providing entrepreneurs various service in needs from company early stage. Newly as several companies tend to centralize their deposits and loans with a single major bank. Therefore, we aim to seize the opportunity for deposit accumulation and micro loans. In terms of Cultivate by integrating financial service into the ERP system, we aim to simplify the corporate business process through our supplier chain service platform. We offer financial service and [ cordial ] relationship with our customers and their supply chains. As of 2023, Bank SinoPac's loan balance for SMEs accounted for 48.5% of the corporate loan balance and grew at a 3-year CAGR of 13.7%. Look ahead, we have to support SMEs and enhanced customer journey through unique green service and customer-centric strategies. By promoting inclusive growth with SMEs, we aim to increase customer loyalty and improve our deposit and loan portfolios. 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 look forward to hearing from you.