E.SUN Financial Holding Co Ltd

TWSE:2884

Q4-2024 Earnings Call

[Chiwei Hsiao, executive]

Hi, dear investors. Welcome to the earnings call of E.SUN Financial Holding Company of the Fourth Quarter 2024. My name is Chiwei. I'm the moderator today. Along with me are my colleagues, Mr. Alex Chiu and Mr. Martin Lin; and the Deputy CFO, Ms. Sarah Chen. At the beginning, I would like to invite Sarah for a brief opening note.

[Sarah Chen, executive]

Hi, dear investors, E.SUN has delivered a record-breaking performance in 2024, surpassing previous years. Net fee income reached a new record high. Wealth management fees also hit a record high, driven by a robust investment market and strong demand for mutual funds, insurance and overseas bonds. For E.SUN Securities, the brokerage business also thrived with a 68.8% year-over-year increase in net profit. This segment now contributes 8% to our total profit.

With our diversified revenue streams, we are confident in the sustainability of our future earnings. We delivered positive results in cost control. Operating expenses in 2024 grew at a more moderate pace of 6% year-over-year, resulting in a cost/income ratio of 52.1%. We remain committed to disciplined expense management this year. E.SUN's overseas business delivered a strong performance last year.

The pretax profit for overseas branches and subsidiaries reached TWD 10 billion and ranked second among domestic banks. We are optimistic that the overseas branches will continue to grow this year. We continue to expand our international footprint. In last October, we opened a subbranch in Kumamoto, Japan, to better serve Taiwanese businesses and their supply chain. We are also pursuing opportunities in North America with applicants for a branch in Toronto, Canada and a rep office in Dallas, U.S.A.

On top of that, we also got the approval from FSC for the application of Mumbai branches in India. Lastly, E.SUN has consistently received recognition in ESG being selected 11 times for the DJSI and achieving the highest rating of AAA from MSCI ESG for the third consecutive year. We will continue our efforts to sustainable future. Thanks for your listening.

[Chiwei Hsiao, executive]

Thank you, Sarah. And now we are going to hand over to Alex. He will walk us through the slides. And after his presentation, we will start to take questions from the investors. Back to you, Alex.

[Alex Chiu, executive]

Hello, investors. I'm Alex, IR of E.SUN Financial Holding Company. Today, I will begin the presentation with the summary of E.SUN Financial Holding Company on Slide 1. As you can see by the end of 2024, both Financial Holding Company and E.SUN Bank's total assets has exceeded TWD 4 trillion and the growth rate for the Holding Company is 11.9%. And for the Bank, the growth rate for the total assets is 11.7%. And for Security also delivered a very significant growth in terms of its assets.

For the key financial indicators, the book value per share for the holding company is 15.84% TWD 84. And for double leverage ratio is 108.38% and the CAR ratio for the holding company is 133.01%. Both are -- all the key financial indicators are at a healthy level. For physical channel, domestically for the bank, we remain 139 physical branch in Taiwan. And for overseas channel, we have now 33 overseas operating sites in 11 countries and regions.

And for the -- a branch for the securities house are 17 branches in Taiwan remain unchanged. On Slide 2, you can see the business and financial review for 2024. We reported our net revenue to be TWD 76.1 billion. The growth rate was 14.1% and the net profit was TWD 26.1 billion, which was grew by 20%. And the EPS for the holding company is TWD 1.63 and ROE is 10.66%, ROA is 0.68%.

For the 2 subsidiaries, E.SUN Bank's net profit was TWD 24.5 billion, which grew by 25.4% and E.SUN Securities net profit was TWD 2.2 billion. The growth rate is as high as 68.8%. Both subsidiaries delivered a record high in terms of its profit. For the business development, loan balance has reached TWD 2.3 trillion, and the growth rate was 12%, in which the corporate loan grew by 12.1% and the foreign currency loans grew by nearly 20%. And for the retail loans, which grew by 12.8%.

And on the other hand, we keep a very decent growth for our deposit balance, which grew by 10.5%. For the fee income, which is a highlight for last year, the fee income was TWD 28.2 billion, the growth rate is 30.8%. Out of which wealth management as the main fee income contributor, the fee was TWD 13.5 billion, and the growth rate is 44.8%. And also credit card fee was TWD 7.8 billion, grew by 9.4%. They're all at a record high.

And for credit card consumption has exceeded TWD 600 billion last year, the growth rate was 12.7%. And while E.SUN was very fast growing our business, we keep a very benign asset quality. Our NPL ratio was 14 basis points and coverage ratio was 868.9%.

For business highlight in the fourth quarter is that we have been approved by the FSC for Toronto branch in Canada, Mumbai branch in India and also Dallas repo. And we'll continue to grow, expand our footprint in overseas markets. And for the honors and recognition and also the ESG performance, E.SUN has been listed in DJSI since 2014. And also we got the AAA rated by MSCI ESG rating for the third consecutive year.

On Slide 3, you can see the 4 graphs to illustrate our performance -- our financial performance. On top of the all-time high net profit, I would like to highlight our ROA last year was 0.68%, which is the best performance in the past 5 years. On Slide 4 is the net income from our subsidiaries. E.SUN Bank continued to become the main profit contributor, which contributed 92.8% of the profit and the security house, which delivered a very good performance last year, contributed 8.2% of the profit.

On the right-hand side, you can see that the chart indicate that the -- both the bank and securities has delivered a very good performance last year. On Slide 5, you can see the net profit breakdown. E.SUN continues to follow the good golden rules for growth. That is the growth rate of the net profit is higher than the growth rate of net revenue, of which growth rate is higher than the growth rate of OpEx. One thing worth mentioning is that the OpEx growth is 6% last year, which is very well-managed OpEx control.

On Slide 6, you can see the revenue breakdown for the holding company. Out of TWD 760 million net revenue, the net interest income contributed 44.7% and net fee income is 37% and fixed income and others are 18.3%. On the right-hand side, you can see the chart is that our net interest income and net fee income are all double-digit growth. Net fee income as the highlight of the -- our financial performance last year.

As you can see on Slide 7 is the breakdown of net fee income. On wealth management contribute 48% of the net fee income, while credit card contribute nearly 28%. On the right-hand side, you can see that across all the business lines, the fee income are positive growth. And on top of that, credit card is nearly double digit. That is a 9.4% growth. And for wealth management, it's 44.8%.

Please turn to Slide 8 for the breakdown for wealth management fees. Across all the product portfolio, our mutual fund is 40.2% and the bancassurance is 37.3%. Bond and others are 17% and custodian and trust are 5.6%. On the right-hand side, you can see that the graph indicates that mutual fund has doubled of its sales last year, and the bancassurance has 17.3% growth. It's worth to mention that for the bancassurance sales is double-digit growth for the third consecutive year, and we will continue to grow our sales capability in bancassurance to give a more balanced product portfolio.

On Slide 9, you can see the credit card business breakdown. We use the 4 graphs to illustrate our performance in the credit card business. Both active card and card consumption market share are at a very good level, which is 12.7% and 13%, respectively. And our per card spending last year has exceeded TWD 10,000 monthly, and that is the record high for our performance in credit card.

On Slide 10 is the overview of E.SUN Securities. At the lower part of this slide, you can see both net revenue and net profit, we continue to grow. And for last year, the net profit was a record high. And one thing worth mentioning is that the ROE performance for E.SUN Securities last year was 25.9%, which was the highest among all the security houses under Financial Holding Company. And in the future, E.SUN Securities will continue to grow and generate more profit for the Holding Company.

On Slide 11 is the business overview for our overseas development. Overseas branches and subsidiaries pretax profit last year reached TWD 10 billion last year, and the growth was 16% that contributes 32.2% bank's profit. And the loan balance in overseas has grew by 17.4%. On Slide 12 is the deposit and loan structure. For the total deposits, the growth rate is 10.5%. And for total loan is 12.1%. Out of the total loan for corporate loan is 11.5% and on retail side, 12.8%. And both the loan businesses are positive growth last year.

On Slide 13, on the left-hand side, you can see the loan portfolio breakdown. E.SUN continued to keep a balanced loan portfolio between corporate and retail. For the corporate loan, SME is 25.9% and large corporate is 21.1%. And on the retail side, the mortgage is 23.5% and for secured personal loan is 21%.

On Slide 14 is the loan-to-deposit ratio and the deposit structure. For the total loan-to-deposit ratio, it's 69.8%. And for the deposit structure on the right-hand side, you can see that for the Taiwan dollar and foreign currency dollars are all positive growth. On Slide 15, for NIM and spread, we report our NIM in the fourth quarter is 1.30%, a 2 basis points increment compared to what we had in the third quarter.

And for the spread, we also had a 2 increment for the total spread, thanks to the well-managed funding cost and also the rate cut of the U.S. currencies. The deposit rate has decreased by 5 basis points in the fourth quarter. On Slide 16 is the asset quality. For the NPL ratio in the year-end of 2024 is only 14 basis points. And we also reported our credit cost to be 17 basis points last year, and they are mainly because of the very strong loan momentum.

On Slide 17 is the asset quality by business and the comparison with the market. For the mortgages, it's only 6 basis points. And on the other hand, for corporate, it's only 9 basis points. On Slide 18 is the cost income ratio. We -- for the full year in 2024, the CI ratio is 52.1%. That is a significant improvement compared to what we delivered in the years before, and we'll continue to keep our CI ratio at a very benign level.

On Slide 19 is the capital adequacy ratio. For the Holding Company, the CAR ratio is 133.01%. And for the Bank, the common equity Tier 1 ratio is 11.67% and the BIS ratio is 15.31%, all at a very adequate and strong level. On the last page of the presentation is our performance in ESG and sustainable development. And in this regard, E.SUN will continue to improve our performance in both environment, society and also governance.

And now this is the end of the presentation, we can head into the Q&A section.

[Alex Chiu, executive]

Okay. We have our first question. It's about the guidance across the board of E.SUN for this year. For -- of course, on the loan business, we still set a high single-digit growth target for our loan this year. Last year, the loan growth volume was TWD 250 billion. The growth rate was 12% as opposed to the high single digit as we guided at the beginning of last year, there was some improvement.

And this year, we still, at the beginning of the year, guide a high single digit for this year. And of course, this is still subject to the actual business environment, and we will see, but the baseline is high single digit. Among the loan breakdown, I think it will still be quite balanced between NT dollar and the foreign currency loan. On NT dollar, there is some expansion on NIM and spread for NT dollar. Even though the real estate market, the Central Bank set a series of restrictions or constraints for banks to grant loan in real estate and for mortgage.

However, the spread of mortgage loans has significantly increased over the past few quarters. So the margin-wise, it is slightly better than previously. So in the net interest income growth in NT dollar loan section, we are quite positive about it. For the foreign currency loan, we delivered a quite strong foreign currency loan growth last year. And this year, we continue to be optimistic about foreign currency, and it's mainly supported by our overseas branch network.

Last year, the growth rate from the overseas assets was more than 20%. And this year, it will continue to be strong. On the fee income business, we guide a high single or double-digit growth for this year. Of course, it's the 2 main business drivers. First is wealth management. Last year, we had a 30% growth, of which the wealth management, the growth rate was 40%. And it is quite unlikely for us to replicate such a strong growth rate again this year.

However, we still -- we are still quite positive about the overall investment sentiment and the environment and also our approach to optimize the product mix to enhance the fee income from insurance products. So -- and to make our wealth management fee income structure, to be more balanced. So this year, we are still quite positive about the wealth management fee income.

On the credit card fee income, last year, it was a 9.4% growth in fee income. And this year, we are still very positive about the consumption volume of the credit card, mainly supported by the government's policy to improve the noncash transaction to TWD 10 trillion in the next 2 years. So it will continue to be -- there will still continue to be a very strong growth coming from the credit card consumption volume. So overall, the fee income business, we guide a double-digit growth.

For the cost management, the CI ratio was lowered from the previous year, it was 55-ish to 51%. And this year, we will maintain a very good cost management and to maintain the growth rate at a moderate single digit. So under the -- our guiding principle to have the cost growth lower than the revenue growth. And naturally, our profit growth will be better than the growth rate of revenue. So this year, we are still quite confident about the overall profitability.

Lastly, on credit cost, we do not see much immediate sign of asset quality deterioration and asset quality has always been the strength of E.SUN. The credit cost will be at a similar level as what we had last year.

[Sarah Chen, executive]

The second question is regarding the forecast of U.S. and the Taiwanese rate market. In our point of view for the U.S. market, the Q4 GDP for last year grew at 2.3%. That's reflected a very strong demand in domestic consumption. And for the employment rate in January this year, the employment rate was down to 4% and the growth of salary is better than expectation, which means that the economic situation in U.S. is quite good.

The CPI in January grew 3% and the core CPI grew by 3.3%, which are both higher than expectations. The Chairman Powell says that even the inflation reached the target of 2%, but it was not reached the goal. So we have to pay attention about the impact of tariffs, which will bring the potential pressure of inflation. In our forecast, we predict that Fed will keep the rate at flat for the first half of the year, but they will keep watch about the situation in tariffs.

If the situation is much clear, maybe Fed will cut interest rate for 25 basis points. About Taiwan, the interest rate in Taiwan, the economic situation in Taiwan is much -- since it is much good because the expansion of new technology will expand the export in Taiwan and domestic demand. In the forecast in Taiwan Central Bank, the growth -- the GDP growth were around 3.13%. But we -- Central Bank said, we have keep eyes on the policy, especially in the government of Trump.

Central Bank will remain the interest rate at flat, but they said they will pay attention around -- pay attention about the CPI because inflation pressure will be up -- maybe will be up for the second half of the year. But actually, the policy of Central Bank, especially in the real estate market have seen the impact of tightening. So maybe Central Bank Taiwan will keep eyes on it.

So about our forecast of spread and NIM, we are quite optimistic about the NIMs and spread because due to the adjustment of our customers, we have seen some positive impact, especially from our loan and investment. And we have the cost of control of funding for the last 2 years, which have seen a very positive outcome. So we believe in this year, we can see very positive impact, especially in spread and NIM. So that's our forecast.

[Alex Chiu, executive]

Okay. Investors, we have the next question. It is about the potential acquisition. If E.SUN consider acquisition of existing life insurance companies to expand the scale of the group, what will be the key factors to consider scale, capital position of the target?

I think just as what our management indicated in the earnings call this afternoon, this is -- E.SUN has entered its fourth decade. And in this decade, one of our main target is to expand the landscape of financial holding company. Now under the holding company, we have a bank, and we have a bank -- sorry, security health and also a venture capital company. So it is possible for us to fulfill more subsidiary under the Financial Holding Company.

One of it is to acquire insurance company. And also, we can expand the scale of the Securities health through M&A. But for the acquisition of life insurance, just as the Chairman indicated this afternoon, it can be through acquisition of existing life insurance or alternatively, now the regulator has eased the regulation of digital insurance company. And the regulation now is more open, and we do not exclude possibility to evaluate, to run our insurance business through any possibility.

And also, the scale and the capital position, of course, it is something that we are very concerned about. If we want to make acquisition and the size and scale will be at an appropriate level for E.SUN. It will not be too sizable for E.SUN. So that is my brief answer for the acquisition of life insurance company.

Yes. And we have the next question. It is a question about the dividend policy and the dividend payout target for E.SUN this year.

[Sarah Chen, executive]

Well, for the dividend policy, we hope we will use the profit to support growth. In our past experience, the proper payout ratio may around 80%. But we think our capital has ranked #4 in Taiwan financial holding company. In order to consider, we have to maintain the future growth, we have to retain the empty room for the capital.

And we also hope our net worth can keep increasing. So for the policy for this or maybe last 2 years, cash dividend will be paid [ bi-monthly ]. So maybe we'll have a relative small position in equity dividend. But this is subject to the Board.

[Chiwei Hsiao, executive]

Hi, investors. It seems like we have answered all the questions, and we are about to call it a meeting. And lastly, this is the last day that our member, Alex, as the Investor Relations, and next week, he will transfer to other department still in E.SUN. We thank him for the service for the last 5 years and wish him all the best.

Okay. So this is our earnings call meeting for this quarter, and we will speak to you next quarter. Thank you. Bye-bye.