Taageer Finance Company SAOG (TFCI) Earnings Call Transcript & Summary

Thank you for joining us today. [Foreign Language] To my left, Mr. Kashif Yaqoob, the Deputy CEO of the company; to my right, Mr. Moosa Al Lawati, Head of Finance; Mr. Mustafa Al-Lawati, Head of Investor Relationship and Head of Legal as well; and [ Mr. Akhtar Zamaan ], Manager in Finance Department handling MIS and Reporting. We will just take you through a brief about the company to start with. We'll dig deeper into the numbers afterwards. And then we will basically open the sessions for questions. Just to give you a brief about the company, I'm sure you guys are aware about Taageer Finance and the incorporation. This year, we are celebrating our 25th year of basically continuous success. We are proud that this company is one of the -- basically old leasing companies in Oman with very strong shareholders, strategic shareholding by more than 80% of financial institutions regionally and from Oman as well. Our market cap as of December last year stood at OMR 28.2 million as opposed to OMR 25 million in 2023. Just major milestones and the marks of our achievements last year. Last year, with an intention to enhance our capital base, we have raised our first ever perpetual bond, and we have raised OMR 25 million successfully from mainly the local market and regional market. This was a very important milestone for us because with that, we have almost doubled the capital base of the company, which basically took some time to get increased. With the continued success that we witnessed over the last 5 years, the Board has decided that they want to embrace a new strategy. So we engaged a strategy consultant, and we had a long time to basically debate about the future of the company. And now we have a new strategy approved for the company till 2029 with new aspirations and new [Foreign Language] continued success. Last year as well, we have successfully repaid about OMR 14.6 million of our second issued bond. We have started going to the bond market from 2021. This was the second bond that we have repaid successfully to the investors, and we have another bond, which is outstanding for repayment by next year. We will basically continue tapping this bond market. We will be in contact with our investors and potential investors for basically enhancing our liquidity and funding mix. As we stand, we have about 8 locations that we are doing business in Oman. We are fairly spread across the country to capture the significant business that we look forward to capture in the future. A couple of the awards that we were honored to get. Last year, we were recognized at the beginning of this quarter by having the Best Brand of the Year by Alam Al-Iktisaad. We were the company -- Finance Company of the Year for the year 2024 as well. That recognition came from Oman Forum in beginning of this year, 2025. And a couple of digital initiatives were recognized by Alam Al-Iktisaad by getting the Technology Pioneer of the Year award in 2024. As I basically briefed you, we have embraced our new strategy for 2024 to 2029. And with that, we set a new vision for the company, leveraging on our success over the last 25 years, we basically aim to be the preferred financial partner delivering the digital-first solutions to mainly SMEs and retail customers. SMEs has been a focus segment for the company for a long time. And as we speak, basically, most of the portfolio is concentrated towards SME financing. We will continue to serve that sector. We know the risk associated with that sector, but we think it's a very important sector for the economy, and we are happy to support that sector go beyond that. From a mission perspective, we are aiming to provide our customers with accessible, innovative, personalized financial solutions. We are not just a lending party to them. We are kind of a financial partner to offer them the type of products that they wish to get and basically to help them foster their growth and financial security and contribute to the socioeconomic development in Oman. For the key financial performance, I'll leave it to Mr. Kashif Yaqoob, Deputy CEO, to go through these numbers, please.

Thank you very much. Good morning, all of you. So in terms of the company's financial statement, you can see that all the key measures starting from the top line, which is our finance income has increased [ 16% ], operating profit has increased 23% and the net profit has increased by [indiscernible]. This is commendable, keeping in view that the company despite its own growth trajectory is able to maintain the profitability and increase it. Also one notable figure if you see that the company has continued its trend of strengthening the provision coverage. And this year also, if you see the provisions of the company is OMR 6.5 million, which is more than the net profit of the company and 32% higher. This is in line with last few years when you see that the company has been focused on strengthening the provisioning coverage [indiscernible]. In terms of the balance sheet of the company, we see that the portfolio has increased by 18%. In terms of funding diversification, you see that the borrowing has increased by 10%. And in the equity side, you see the impact of perpetual bond, which has increased equity from OMR 50 million to around OMR 78 million. So this has reduced the leverage [indiscernible] capacity loan book. Now in terms of the key performance indicator, if you see the portfolio of the company has shown a compounded growth of 13%. It has increased from around OMR 259 million to OMR 306 million in last 1 year. Revenues have shown a compounded growth during 5 years of around 18%. Operating profit has shown a compounded growth of around 31%, and net profit is [indiscernible]. These are all indicators. These are not kind of any stand-alone efforts of our team. I think we give a lot of credit to the overall conducive environment at the partners we have, especially like Central Bank of Oman, the regulatory environment, the bankers who have provided us with support throughout; the depositors and investors, who have trusted us repeatedly in growing [indiscernible] money in terms of corporate deposits. So it's an ecosystem, which is [indiscernible]. In terms of the market share, as you see that the company over the last 5 years continuously increased market share also. In terms of its position, it has grown in the last around 6 years from the fifth largest to the second largest company. Earnings per share has shown an improvement from [ 8.2 to 20.4 ]. Cost-to-income ratio of the company has been kind of still on the decline from 52% to 35%. Provision coverage has increased from 51% in 2020 to 66%. There is a slight decline in the provision coverage. We're dealing with -- this year, we had some write-offs and we plan to increase it [indiscernible]. The funding mix of the company, if you see, this is very interesting to see that in 2020, our funding mix was not very diversified, but primarily dependent on bank funding. So 93% of our funding was coming from the banks. And gradually over the years, we have diversified it. So as of now, as of 31st December, you see that this bank funding contributes 59%, a reduction from 93%. Then 11% is coming from the perpetual bonds, 6% is coming from the other bonds, unsecured bond [ linkage ] and the deposits has increased from 7% [indiscernible] we believe that in our line of business it is absolutely critical that we do not rely on a single source of funding. We want diverse finance. In terms of gearing, this was one of the concern of a few banks that although the Central Bank of Oman has allowed a gearing up to 5x, but some of the banks, they thought that 3.8 gearing was a bit high. So keeping in view this concern of few banks we have issued perpetual bond, and now the gearing ratio is 2.6% and we see this is something, which is well within the limit of the regulator. And still there is a lot of [indiscernible]. In terms of return on average equity, if you see this is again a very kind of positive and excellent performance, a return on 5% [indiscernible] to 10.6% return on average. And return on average asset has been doubled from 1.1% to 2.1%. In terms of dividend yield, I think from -- as from all the shareholders' perspective we've seen that from 4.8%, this has more than doubled the dividend yield as -- which in 2024 was 10.6%, so obviously, this is a strong return to shareholders. Thank you very much.

Thank you very much. We leave basically the floor for questions from your side, if any. Please. Mr. Joice, you can go ahead.

Congratulations on the good set of numbers. You've been leading the sector over the last 3 years with impressive growth rate of 3-year CAGR, if I'm looking at it, I'm seeing 18%, which is the highest among any leasing sector companies. Could you please share your outlook for loan growth going forward, especially when you have achieved 18% consistently over the last 3 years. How do you see the loan growth going forward? And also, could you touch upon, which are the segments that you see the growth coming from?

Thank you very much. Maybe I touch basis on the approved strategy. As you said, basically maintaining a good CAGR of 18% over the last 5 years makes it a bit challenging to go further. We are still positive on the growth of the Omani economy. And I think with the focus that the division has put on the SME sector, I think there are pockets that we can help in as well as a financing company. You can see that basically the Development Bank is back on track supporting the SMEs. We are other pockets to basically support SMEs, and we are trying to collaborate with the different governments in Oman to basically help in promoting SMEs in different projects that are awarded in Oman. Of course, even you are aware. As an analyst, you are aware about the sectors, which are coming up in Oman and where is basically the money being spent. And I think we are trying to tap to the same sectors. The strategy is putting some capital growth aspirations in mind, plus a capital injection in mind as well, while leveraging on technology. Probably, I mean, we can sit on a one-to-one basis if you are keen about understanding our new vision, and we can explain how we are planning to grow beyond what we have achieved. In brief, this is what I could say about the future outlook.

Appreciate it. See, one of the -- when I looked at your balance sheet, your asset growth for this year was contributed by your factoring book and retail loans when there was a decline in your corporate loan book during this year. So I just wanted to check, was it a conscious decision by the company that you grow -- you look for lower growth in the corporate side and then increase your factoring book? And your factoring book has grown more than double, 1.5x growth that we have seen during the last year. So -- or was it a reclassification that happened during this year when it came to the reporting? Also, could you please explain your strategy for the various sectors and which are the areas that you see as attractive?

First of all, I think if you see our previous presentations also, we have been very consistent in explaining the stakeholders that the strategy is to diversify the risk and lower the risk wherever possible. So if you see in terms of our devoted percentage composition, majority of our portfolio lies in the SME sector. In terms of retail sector, now the slight shift in the mix between retail and SME is basically depending on that strategy of diversification. Some -- we believe that at this point in time, whenever we see that the [indiscernible]. However, the main focus still remains on the SME market, and this contributes a major part of the portfolio. And one more thing, which is important to note is that during last around 5 years, consistently what we have done is that average ticket size of the company, we have lowered significantly. So if you see that the kind of exposure, we can't disclose the average ticket size, but what I'm telling you in terms of the per contract exposure, which we are taking, it has reduced significantly over the years. And this is something which is a very conscious strategy. And in line with this, we take exposure in the SME and retail sector. As regards to your second question about sector, I think it's very important to understand that primarily the driving sector remains the same sector, services sector, construction sector, these are the main sectors. So we keep continuing focus on these sectors. And otherwise, the trading sector. So there are some sectors like manufacturing and the downstream oil and gas, these are -- we also have taken exposure. But keeping in view that these are the sectors, which are also being funded by the banks, and we don't want to -- we don't have the capacity to compete the banks in these sectors. So we keep on focusing on the sector whereby we have consistently performed well. So we are not changing any strategy in terms of our sector diversification.

And around -- when I was looking at the factoring business, it has improved a lot and your NIM also has improved. So is it okay that I connect the NIM improvement with your growth in the factoring business? I mean, we compare the yield on the factoring business versus the conventional book. I just wanted to check if they are attractive and what's the reason why you're focusing on this segment?

Actually, let me explain what -- I think this when you say factoring business, this is not the factoring in that sense. This is basically working capital financing. And this is a normal part of our business, which we have been doing consistently. So this is whereby we take care of the medium-term loan requirement of most of the SMEs. So there is nothing new development in this year. So we have been doing this consistently for the last 3, 4 years, and we have continued that trend. So -- and in terms of the quality of this portfolio and the NIMs in this portfolio, since right now, we believe that over the years, we have focused on serving our existing clients because in terms of the performance of these clients, that is pretty much predictable. So that has helped us a lot in getting more NIMs and more profit from this portfolio.

Okay. Got it. Got it. And Taageer, when I looked at other companies, Taageer has the highest margin among these companies over the last 2 years. And could you share your thoughts on how do you see the margins going forward? Will you be able to maintain this because maintaining this is, of course, it's a challenge. But your margin erosion has been slower than the others. Let me put it this way. So how do you see the margin trends going forward?

Good question, Joice. See, I think with the strategy that we have taken on supporting the SMEs mainly, we were competent among the other competitors in attracting good tickets and managing them internally as well. And with that, we were charging a bit of a premium to basically help us capture that advantage. Now we were previously predicting a downward turn in interest rate; however, with the recent developments, only God knows what happens with the turbulence that is being created currently in the markets. When it comes to margins, the competition plays a role over here. I mean, we are living now in a very competent -- basically financing competition, either from development bank or other competitors in the same sector. That might force a bit of a challenge on maintaining the margins. But we are reviewing that constantly. I mean, every quarter, we look at our business, we look at our demand from customers. We review what is happening in the market. And then we try to correct our positioning just to maintain the growth. So I don't have a straightforward answer for you when it comes to maintaining the margins. We hope that the margins are maintained. However, I mean, looking at the macroeconomic picture, looking at the competition as well, the positions might be corrected.

Okay. Got it. The next one that I have is on the NPL buildup. When other companies we are seeing, almost all the leasing sector companies, we've been seeing that their NPL is coming down. But at the same time, Taageer's NPL has slightly moved higher. And then other companies are looking at increasing their provision, but at the same time, Taageer's provision coverage has been coming down in 2024. So could you just tell us when you are aggressively growing, it's natural that there will be some NPL building into the system. But when you look at it, how do you see the NPL evolution that's happening in Taageer's book vis-a-vis the sector has a declining -- is a little bit cautious or declining NPL ratios? And can you touch upon your provision coverage ratios? And what's your ideal level that you will be looking at for the provision coverage?

So Joice, I think, first thing is in terms of the NPL ratio, you see that post-COVID, as you know that there are several clients, which were restructured in order to support the SME sector. So some of these clients, they were in Stage 2. And subsequently, they moved to Stage 3. So this is something what -- which was expected. And this is something, again, because this is a phenomenon, which will happen and it was bound to happen sooner or later. So this is something, which was already expected. Now the question is that when it happens, so how will we respond? So how we responded is evident in the ECL, which we have shown in the profit and loss statement. If you see the ECL amount has increased by 30%. So this is how we have reacted to this. Second part of your question is about the provision cover. Provision cover, as I explained in the presentation, is something the write-off policy of the company was there, but it was not exercised for a significantly long time. So we did not do a write-off for a pretty long time. So this time, after a long time, the company has carried out the write-offs. And the impact of this provision coverage lowering -- slightly lowering the provision coverage was mainly because of these write-offs. So these are the 2, I think, questions which you asked. If you have any further explanation.

Okay. And so do you expect any further write-offs going forward?

Write-off is a continuous process, it will happen. Because please understand that post the oil price decline of 2015 actually when a significant amount -- and the business model of -- if you have been following Taageer and since you are following for a pretty long time, if you see the major shift is that prior to 2017, '18, a lot of portfolio were, you say the corporate or bigger enterprises, which went bad. So these were the accounts. So subsequently, it took us some time to provide this account, and we are continuing this trend. And now most of this legacy portfolio has been significantly provided. And this is something the write-off of those accounts will happen now. So the company will continuously embark on write-offs gradually. And we have taken this account into the future predictions and the profitability of the company.

My last follow-up on your comfortable level for provision coverage ratios. Right now large companies are at 73% and Taageer is at 66%. So where do you see would be a comfortable provision coverage ratio that you can settle down and say that there may not be much of any further provisioning expenses during any year?

Joice, this is again a forward-looking statement. So at this point in time, I think it is not prudent to give a specific number to you. What we can assure you that in the projection which we have made, this is the most fundamental criteria, which we are looking at. And we are -- as you have seen if you are following us and you know that, that from 51%, and the highest increase in the provision coverage is for Taageer. So the company is continuously focused on this. The only assurance we can give you is that we are -- this remains one of the priority areas for the company, and we'll keep on doing.

Shaoor?

Congratulations on a great set of results. My question relates to -- it's a follow-up question on what Joice asked earlier regarding the upcoming interest rate trajectory. So I see that your assets and liabilities obviously would be priced differently. My question is how soon do your assets reprice on an interest rate? For example, if interest rates decline or increase versus how soon do your liabilities reprice?

So if you understand the dynamics of this, I think, we are in a positive position right now. In the -- so how -- let me explain this, that we are mainly a medium to long-term lender. So most of our contracts, the pricing cannot be changed in the short term. So now if you see, as we explained in our borrowing mix, so what we have done is that previously, if you see the borrowing mix of Taageer around 4 to 5 years ago, it was 70% short term. So now what we have done is that we have converted a significant part into long term because long term is more secure and it will add to the matching maturity profile of the company, so that we have done that. So now keeping in with the fact that in terms of our bank borrowing as well as the corporate deposit, both these areas, the cost of new deposit and new borrowing has reduced. So we see a positive impact...

Right. Perfect. And regarding there's a OMR 20 million cash on your balance sheet, if I'm not wrong. Could you give us some idea on what sort of return is this generating? And do you expect or should we be expecting this to be deployed to the business?

It was cash, now it will be deployed in the business. The cash balance was there because we had a perpetual bond in the last quarter. So that is the reason why there was a cash balance and subsequently it was deployed.

Thank you very much. Ahlam? Ahlam, do you want to read your question or -- Moosa, maybe you can read the question.

So the question here from Ahlam. Great results and best of luck. My one question is, as per your return on assets and return on equity trends over the past 3 years, how do you plan to maintain or improve these ratios? This is the first question. The second question is, could you share insights on your asset quality trends and how you are managing the NPLs?

ROA and ROE basically are key ratios when it comes to investors' perspective that, that consideration is being discussed on a continuous matter and linked with other ratios of performance as well. So whenever we prepare the budget, and that was discussed during the strategy discussion as well at the Board level, and we are having discussions with the shareholders as well on any prospective growth capital. So basically, the intention is to keep on improving on these ratios. If the economic trend or macroeconomic picture continues to be positive, then I think with the work that is being done internally to improve the assets quality and growth in the direction that we have, I think this will continue to get improved. On managing the NPLs, it's not basically one kind of solution, which fix everything. Internally, we have broken the remedial team into different buckets just to basically control NPAs. And now we are starting to have some monitoring committees as well just to basically prevent NPAs. As Mr. Kashif was saying that post-COVID, lots of windows for restructuring were opened by Central Bank. And as we could see now, we could see some recovery with some clients, but some clients are still suffering till now. And we are still studying with those clients basically possible remedies and how would we basically help them get around those difficulties. It's a continuous effort. We are trying to control that. The aim is to bring NPLs at a lower level because the higher NPLs we have, the lower profits we deliver to the shareholders as well, and that is not the aim with us. I hope I answered your question. Any more questions? Jasim? Unmute. [Foreign Language].

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[Foreign Language]. We open the floor to others if they have any questions. I would like to thank everybody for joining us today. It has been a fruitful discussion with the analysts, and we really appreciate the time spent on this. Thank you very much again, and look forward to meeting you in the future.