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

Thank you for listening to SinoPac Holdings Second Quarter of 2025 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 the Q&A session. Before the overview for the second quarter, we would like to update everyone on the progress of the recent merger cases. First, on August 5, the FSC approved the merger of SinoPac Securities with CL Securities Taiwan through a cash transaction. With an effective date set for October 20, the merger is expected to enhance SinoPac Securities brokerage market share among foreign institutional investors and further increase the proportion of stable income stream going forward. Second, on June 19, the FSC approved SinoPac Holdings acquisition of 100% of King's Town Bank with the effective date for the transaction set for October 1. The addition of KTB will create a more balanced geographic footprint for SinoPac Holdings, bridging its strength in the north with KTB's presence in the South. The complementary nature of the business lines and customer base is expected to generate significant mid- to long-term synergies. Over the past three years, KTB's average profit has accounted for over 20% of SinoPac Holdings as the share swap will result in only a 9.49% equity dilution. The transaction is expected to be accretive to SinoPac Holdings' future EPS and ROE. Therefore, with the addition of Amret on January 15 and the planned integration of KTB and CLST in the fourth quarter, we believe this development, combined with the continued execution of our five major strategies will further strengthen SinoPac Holdings foundation. This will enhance our ability to navigate challenges in the financial markets and unlock greater synergies. This presentation and the presentation materials distributed here with may include forward-looking statements. Page 2, executive summary. In the second quarter, SinoPac Holdings net revenues and net income were affected by seasonal factors and market volatility, resulting in a sequential decline but both grew year-on-year. For the first half of 2025, net revenue increased 8.1% year-on-year and net income rose 3.4% year-on-year, both reaching record highs for the same period with an ROE of 12.35%. Net interest income increased by 4.2% quarter-on-quarter and surged by 46% year-on-year in the first half, mainly benefiting from lower U.S. dollar funding cost and the consolidation of Amret, which drove both spread and NIM to new record highs. Net fee income decreased by 26.8% quarter-on-quarter, mainly due to a high base in the first quarter for Bank SinoPac fees and lower average daily turnover in Taiwan [ STAR ] market compared with last year. However, for the first half, net income still grew 4.6% year-on-year. Other net income decreased by 10.8% quarter-on-quarter and 31.7% year-on-year in the first half, mainly as a result of narrowing interest rate spread between U.S. dollar and NT dollar, which led to lower FX swap gains. Nevertheless, this was offset by an improved U.S. dollar loan-to-deposit ratio, allowing the combined NII and FX swap revenue to grow by 24.9% year-on-year in the first half. In terms of assets, SinoPac Holdings total assets grew 4% year-on-year in the second quarter. Capital remains sufficient with the CAR of 134% Bank SinoPac's BIS ratio and Tier 1 capital ratio reached 15.19% and 12.92%, respectively. In the second quarter, SinoPac Holdings received 60 awards with a total of 91 awards in the first half. Further details are provided in the presentation materials. Page 3, SinoPac Holdings financial highlights. SinoPac Holdings equity decreased by 3.5% quarter-on-quarter in the second quarter, mainly due to the cash dividend distribution of TWD 11.5 billion. In the second quarter, net revenues and net income declined quarter-on-quarter due to seasonal factors and market volatility. However, for the first half of 2025, net revenues reached TWD 35.5 billion and net income reached TWD 12.6 billion, both hitting record highs for the same period. EPS reached TWD 0.99. SinoPac Holdings net income increased 3.4% year-on-year in the first half, outperforming the combined 23.1% decline of the 12 listed financial holdings. SinoPac Holdings 5-year CAGR of 17.4% also exceeded the peer average of 8.6%. Over the past three years, both ROA and ROE continued to improve with annualized ROE reaching 12.35%. Page 4, Bank SinoPac financial highlights. In the first half of 2025, Bank SinoPac's net income reached TWD 11.1 billion, setting a record high for the same period, representing a 14.6% growth year-on-year, outperforming the 11.0% growth of subsidiaries bank under other financial holdings. The 5-year CAGR of 18.4% also existed the peer average of 11.3%. The bank has been devoted to improving capital efficiencies. Both ROA and ROE have shown significant improvement over the past few years with the annualized ROE reached 12.0%. In the second quarter, deposits decreased 1.6% quarter-on-quarter and loans decreased 2.3% quarter-on-quarter. This was mainly due to the NT dollars sharp 10% appreciation, which lowered the translated value of foreign currency assets. When excluding this FX translation impact, both deposits and loans show healthy year-to-date growth of around 5%. Page 5, SinoPac Securities financial highlights. In the second quarter, SinoPac Securities net income declined quarter-on-quarter, a result driven by sharp market volatility and cautious investor sentiment, which led to lower trading volumes. For the first half, net income totaled TWD 2.1 billion, decreasing 27.6% year-on-year. However, this performance remained relatively resilient compared to a combined 31.6% decline among the top 10 brokerage firms by market share. Over the past three years, SinoPac Securities achieved a CAGR of 33%, outperforming the industry average of 23%. The Taiwan stock market's total turnover declined 17.7% year-on-year in the first half, while SinoPac Securities fee income shrank by only 10.9%, this was mainly due to the continued development of diversified fee income source to enhance revenue stability. Wealth management fee income increased 2.3% year-on-year and the amount of purchase under the SinoPac Stock Savings plan grew 15.4% year-on-year. CLST had a market share of 0.65% in the first half of 2025. Following its merger into SinoPac Securities on October 20, SinoPac Securities market share is expected to increase from 4.8% to 5.65%. This will also enhance the proportion of stable income, contributing to more robust operating going forward. Page 6, SinoPac Holdings profit contribution by subsidiaries. In the first half, Bank SinoPac contributed 83% of SinoPac Holdings long-term investment income and SinoPac Securities contributed 16%. The Bank SinoPac contribution increased by 15% year-on-year, offsetting a 28% decline from SinoPac Securities. As a result, SinoPac Holdings overall net income still record a 3% growth. Page 7, SinoPac Holdings P&L breakdown. SinoPac Holdings total net revenue increased by 8% year-on-year. The decrease in provisions was mainly due to reduced general provisions for new loans and the reversal of expected credit loss model adjustments related to Amret. Page 8, SinoPac Holdings net revenues breakdown. In the second quarter, net revenues were TWD 16.9 billion, decreasing 9.5% quarter-on-quarter, but still growing 4.7% year-on-year. Both the cumulative net revenue for the first half of the year and the trend over the past 3 years shows sustained growth. From 2022 to 2025, the 3-year CAGR for cumulative net revenues in the first half reached 13.8%. Within this, net interest income had a 3-year CAGR of 11.3% net fee income, 10% and other income, 31%, all demonstrating double-digit growth. Page 9, Bank SinoPac NIM and spread. On the left-hand side, interest-earning assets totaled TWD 2.65 trillion in the second quarter of 2025, decreasing slightly by 1.3% quarter-on-quarter, mainly due to the appreciation of the NT dollar due to the narrowing interest rate spread between Taiwan and the U.S. dollar. FX swap revenue decreased by TWD 270 million quarter-on-quarter. However, overall, NII, including FX swap gains reached TWD 9.2 billion and setting a new high. On the right-hand side, reflecting the Fed rate cuts, which lower funding cost and an improved loan-to-deposit ratio, loan rate decreased by 8.9 bps quarter-on-quarter and deposit rate decreased by 13.1 bps quarter-on-quarter. As a result, both spread and NIM increased by 4.2 bps quarter-on-quarter. A adjust for FX swap, the NIM reached 1.38% increasing 0.1 bps quarter-on-quarter. Additionally, Emirate was consolidated starting from January 15, contributing 26 bps to the spread and 8 bps to NIM in the first quarter. In the second quarter, it contributed 23 bps to the spread and 10 bps to NIM. Our guidance for the full year 2025 as adjusted NIM, including FX swap remains about 1.34%, which is 10 bps higher than last year. Page 10, Bank SinoPac loan structure. At the end of the second quarter, the bank's total loan balance reached TWD 1.7 trillion, growing 3.7% year-to-date. The loan composition continued to optimize throughout the quarter. Jumbo corporate loans decreased quarter-on-quarter, while our SME loan portfolio posted steady growth. Currently, SME loan accounts for 26.4% of total loans. In terms of currency, foreign currency loans account for 21.8% of total loans, down 1.4 percentage points quarter-on-quarter, mainly due to strong appreciation of the NT dollar. However, on a U.S. dollar currency basis, loan increased 4% quarter-on-quarter and 29% year-to-date. The U.S. loan-to-deposit ratio rose significantly to 32.4%, an increase of 6.7 percentage points year-to-date. This also reflects a reduced volume of FX swap transactions returning to loan growth. Page 11, Bank SinoPac deposit portfolio. Total deposits reached TWD 2.31 trillion at the end of the second quarter, growing 1.1% year-to-date. Excluding FX translation effects, deposit grew 4.8% year-to-date. The deposit structure showed a trend of shifting from foreign currency deposits to NT dollar deposits, which contributed to lower overall funding cost. The proportion of NT dollar deposits reached 66.5% at the end of the second quarter, increasing 2.7 percentage points year-to-date. Page 12, SinoPac Holdings net income. In the second quarter, SinoPac Holdings net income was TWD 4.7 billion, down 26.8% quarter-on-quarter and 4.4% year-on-year. The decline was mainly attributable to market volatility, which fostered a more cautious investment sentiment. For the first half of the year, cumulative net income still grew 4.6% year-on-year. Wealth management fee increased 21%, while credit card, loan-related and foreign exchange fee also showed growth. Only securities fee income declined 12% year-on-year due to a 70% drop in the Taiwan STAR market's average daily turnover. Page 13, SinoPac Holdings operating expense. In the second quarter, SinoPac Holdings C/I ratio increased to 56%, mainly impacted by the decline in net revenues. However, over the past four quarters, the C/I ratio has remained stable at around 52%. Page 14, Bank SinoPac asset quality. The consolidated NPL ratio was 0.23% in the second quarter of 2025, unchanged from the previous quarter. The loan loss coverage ratio stood at 614%, and the loan coverage ratio was 1.43%, indicating stable overall asset quality. In the first half, the bank's net provision amount to TWD 790 million, resulting in an annualized credit cost of around 9 bps. This mainly reflects reduced general provision for new loans and the reversal of TWD 350 million due to Amret ECL model adjustment. Excluding this factor, the annualized credit cost would have been about 14 bps. Given the many uncertainties in the macro environment, our credit cost guidance for 2025 will be at around 15 to 20 bps. Page 15, green finance ecosystem. As of June 2025, Bank SinoPac solar financing loan balance reached TWD 139 billion, increased by 13% year-on-year with a finance installed capacity of 4.5 gigawatts and a market share of around 30%. We are devoted to maintain our highest market share in the future. We are now leveraging our successful domestic model and experience in green finance to expand into overseas markets, including India and Singapore, aiming to replicate our growth and support renewable energy development board. As of June 2025, Bank SinoPac's green and renewable energy industry loan balance accounts for 21% of the corporate loan balance. Thank you for your 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.