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

Thank you for listening to SinoPac Holdings First Quarter of 2023 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. This presentation and the presentation materials distributed here may include forward-looking statements. Page 2, executive summary. In the first quarter of 2023, SinoPac Holdings net income of TWD 4.7 billion, continue hitting a new high. Net revenues, interest income and other income reached the same period historical highs. Net interest income increased 7.2% year-on-year, driven by growing interest earning assets. Net interest income declined quarter-on-quarter due to rapidly rising deposit costs. Net fee income increased 55% quarter-on-quarter because of a seasonal effect it was decreased 26.6% year-on-year, resulting from the lower growth momentum of the Brokerage and Wealth Management business. Other income grew significantly both quarter-on-quarter and year-on-year and reached new highs driven by better trading revenues, including funding swap. As for asset growth SinoPac Holdings total assets of TWD 2.7 trillion, increased by 4% quarter-on-quarter, primarily contributed by the loan increase. The capital remains sufficient. In the first quarter, SinoPac Holdings CAR was 130%, and Bank SinoPac BIS and Tier 1 ratios reached 14.8% and 12.16%, respectively. Page 3, SinoPac Holdings financial highlights. Total assets and equity of SinoPac Holdings increased quarter-on-quarter, and the book value per share rose to TWD 14.32, mainly benefiting from investment positions, valuation gains and the completion of capital raising. The first quarter net revenues of TWD 12.8 billion and net income of TWD 4.7 billion, increased 2.5% and 7.7% year-on-year, respectively. And 3-year CAGR of net income reported at 26%. The first quarter SinoPac Holdings ROE of 11.75%, maintained steady growth for the past few years. Page 4, Bank SinoPac financial highlights. The profit of Bank SinoPac grew significantly, increasing 48.9% quarter-on-quarter and 6.6% year-over-year, driven by increase in trading revenues, including funding swaps and structured investment products. Annualized ROE of 10.86%, continued increase in recent years. The profits grew 2.5% year-to-date. Total loans increased 5.8%, and LDR returned to 69.3%. For the past 5 years, Bank SinoPac's total assets and profitability steadily grew. From the first quarter of 2018 to the first quarter of 2023, Bank SinoPac's net revenues grew 18.8% CAGR, outperforming peers average of 10.1%. Bank SinoPac's net income increased 22.6% CAGR during the same period, surpassing the 12.7% of peers average. Meanwhile, Bank SinoPac's asset quality remained in line with an NPL ratio of 11 bps, better than peers average of 15 bps. By the end of March 2023, TWD 10 billion new capital was injected into Bank SinoPac along with investment value rebound. So the Bank SinoPac's capital efficiency ratio increased significantly. Page 5, SinoPac Securities financial highlights. The first quarter SinoPac Securities net income increased 69% quarter-on-quarter and 1.9% year-on-year. Capital gain grew 136% quarter-on-quarter and 54% year-on-year, and recurring income increased 4% quarter-on-quarter but decreased 16% year-on-year due to lower market turnover. For first quarter SinoPac Securities net fee income increased 6% quarter-on-quarter but decreased 7.9% year-over-year due to lower market turnover, which dropped 26% year-over-year. SinoPac Securities brokerage market share increased 4.7%. Wealth management and underwriting fee income increased and SinoPac Securities continue diversifying fee revenues. As of the first quarter, sub-brokerage, mutual fund, insurance and securities borrowing and lending accounting for 38% of SinoPac Securities total net fee income. Page 6, SinoPac Holdings profit contribution by subsidiaries. In the first quarter, Bank SinoPac contributed 80% of SinoPac Holdings net income and SinoPac Securities contributed 17%. The overall long-term investment of SinoPac Holdings increased. Page 7, SinoPac Holdings P&L breakdown. In the first quarter, SinoPac Holdings net revenues increased by 2% year-on-year, and operating expense increased by 3% resulting from the expense of employee subscription to new shares. Provision expense decreased because of lower special provision. Solar net income increased by 8% year-on-year. Page 8, SinoPac Holdings net revenue breakdown. SinoPac Holdings net revenue increased 26% quarter-on-quarter and 2.5% year-on-year, benefiting from funding swaps and sales of structured products. SinoPac Holdings net revenues maintained a steady growth momentum for the last 4 quarters driven by the new high net interest income and other income. Page 9, Bank SinoPac NIM and spread. From the left-hand side figure, interest-earning assets increased by 4.7% quarter-on-quarter to TWD 2.33 trillion. Net interest income decreased by 12.4% due to rising funding costs. However, adding back from these revenues of adjusting net interest income, nearly slide 4.9% quarter-on-quarter. From the right-hand side figure, the loan rate increased by 7 bps quarter-on-quarter, while the deposit rate increased by 39 bps quarter-on-quarter. As a result, the deposit cost has increased significantly, causing the spread to decrease by 23 bps to 1.18%. NIM decreased by 17 bps quarter-on-quarter to 1.02%. Adjusted NIM with funding swap was 1.18%, a quarter-on-quarter decrease of only 9 bps. We maintained our previous guidance. The NIM is under pressure in the first half and will be stable after the third quarter. This year, adjusted NIM, including FX swap is expected to reach the same level as last year of 1.2%. Page 10, Bank SinoPac loan structure. Total loans increased by 5.8% year-to-date, mainly boosted by corporate loan. SME loans increased by 2% year-to-date. From a monthly average perspective, jumbo and SME loans increased evenly in the first quarter. NTD loans accounting for 80% of total loans. FX loans accounting for 20%. Page 11, Bank SinoPac deposit portfolio. The first quarter deposits of TWD 2.07 trillion increased 2.5% year-to-date were driven by NTD deposit. NTD time deposit increased by 12.5% year-to-date and NTD-demand deposit increased by 3.3% year-to-date due to the rapid interest rate hike in the United States, the FX LDR decline. To control the funding cost, we aim to optimize the deposit structure. USD deposits account for 29% of total deposits in the first quarter, which declined 2.3 percentage points quarter-on-quarter. Page 12, SinoPac Holdings net fee income. The first quarter SinoPac Holdings net fee income increased 55% quarter-on-quarter, mainly driven by loan-related fee income. The increase in syndication loan fee revenues were benefited from large green loans. Compared to last year's high base, wealth management and security-related fee revenues decreased due to slowing growth of bancassurance, mutual funds and brokerage fee revenue. Page 13, SinoPac Holdings operating expense. Due to capital raising in the first quarter of 2023, the employee stock subscription to the new shares added TWD 0.2 billion of operating expenses, but the CI ratio maintained at 54%. Operating expense remains under control. Page 13, Bank SinoPac asset quality. The first quarter NPL ratio was 11 bps, outperforming peers average. The NPL coverage ratio was 1,160%, and the loan coverage ratio was 1.32%. Asset quality remained benign. The first quarter, Bank SinoPac provision of TWD 0.4 billion was mainly the general provision. The annualized credit cost was around 11 bps, which falls within the previous guidance. Currently, there have been no significant test of high-risk observed. Therefore, we maintained a credit cost guidance for 2023 and 15 to 20 bps. Page 15, net income of 3-year and 5-year CAGR outperformed peers. This page shows the outstanding profitability of SinoPac Holdings in the long run. As of the first quarter, the net income of SinoPac Holdings increased by 26.3% for 3-year CAGR and 12.5% for 5-year CAGR. On the other hand, other financial holdings company 3-year and 5-year CAGR was 5% and 7% decline. By the end of 2022 the situation was the same. SinoPac Holdings net income reported at 0.6%, an 11.9% increase for 3-year and 5-year CAGR as performing peers average of 8% and 1% decline respectively. In the first quarter of 2023, SinoPac Holdings net income delivered historical high. And we also completed capital raising procedures. In the future, we will continue our 4 major strategies and create better return for our shareholders. Page 16, market share #1 in solar PV financing. Another topic is the tremendous competence of Bank SinoPac's loan-related service regarding solar power, and power storage business. Bank SinoPac has maintained a leading position in solar power financing for many years. As of the first quarter, our market share was 29%, and loan balance reached TWD 90 billion, growing 44% year-on-year. In addition to solar power financing, Bank SinoPac also expands its lending business to power storage facilities. As of the first quarter, SinoPac Holdings managed 40 power storage financing cases, which a number of cases ranked #1 in Taiwan. In the future, we will continue supporting the government's sustainability policy and assisting customers to reach net-zero transition. Thank you for listening. If there are any questions, please feel free to reach us. You can click or scan QR code for our IR mailbox and download Analyst Meeting materials. We look forward to hearing from you. Thank you, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]