First Financial Holding Co Ltd

TWSE:2892

Earnings Call Transcript

[Keith Ke, executive]

Good afternoon, ladies and gentlemen. Welcome to joining us for First Financial Holding Company 2024 Full Year Webcast Investor Conference. We will start the meeting with the presentation, which includes the snapshot, financial highlights and operating results. Then we will invite Ms. Annie Lee, our EVP and IR Head, to proceed with the Q&A session. You can type in your questions at the bottom box of the webcast. The presentation material will be put on our IR website, and we will provide it for 1 year replay service for your convenience.

Okay, I would like to hand over the microphone to Ms. [indiscernible] to start the presentation.

[Unknown Executive]

Thank you, Keith. Greetings to everyone online. Let's get started to our full year 2024 earnings presentation. We begin with Slide 6, where we review key operational outcomes and operating environment today.

Number one, our yearly net profit hit a record high of TWD 25.4 billion, up by 13% year-on-year. Earnings per share was TWD 1.81. Our flagship sub, First Bank, contributed about 94% of gross profits. For 2024, First Bank delivered a net profit of TWD 23.8 billion, marking a record high earnings as well. Other subs' net income totaled TWD 2.3 billion, surged by close to 30% year-on-year.

Number two, Bank's performance was driven by continued strength in fee and treasury gains, which met up the decrease in the interest income and the increase in operating expenses. For the full year, fee was up by 34%, thanks to a 43% increase in wealth revenue. Meanwhile, treasury gains was up by 11%, with a 3% increase in ForEx swap gains.

Number three, bank's loan book grew by 9.5% year-on-year to TWD 2.6 trillion. We see loan expansion across key segments towards the end of 2024. Mortgage balance increased by 15% year-on-year. Both large corp lending and FX loan were up by about 10%. SME loan was up by nearly 4%. Overall, the pickup in commercial lending categories was a combination of exporters turnover needs before the Chinese New Year and Trump had taken office. The stronger U.S. dollar also helped.

Number four, coming into 2025. Trump administration's new tariffs and policies unveiled, rattling orders and leaving markets uncertain and choppy. With U.S. Fed in no hurry to cut rates and economic growth evolving around AI, First Financial Holding will continue focusing on navigating sustainable long-term growth by fortifying capital position and carrying out disciplined risk management.

Starting from Slide 8, we go through more details of group's profit print. First, let's look at key financial data for 2024. Book value per share at TWD 19.1, ROE at 9.82%, ROA at 0.56%. Group CAR at around 126%. Double leverage ratio close to 112%. Also, group assets continued to grow at a pace of 6% a year. It was now TWD 4.7 trillion.

Next, we turn to key items of group's consolidated income in Slide 9. Consolidated revenue was up 7% to about TWD 72 billion last year, offsetting higher operating expenses and contributing to a profit of TWD 25.4 billion.

In Slide 10, we show major subs' net profit for 2024. All delivered good growth last year. As a bank-centric holding company, we'll discuss bank's earnings more in the following slides.

Slide 12. Bank's ROE for 2024 was 8.99%. Slide 13, we review key items before pretax profits. Net revenue was TWD 63 billion, up by 7%. For net revenue, we checked out three major items.

Firstly, item of net interest income, it was about TWD 28 billion for 2024, down by 4.6% year-on-year due to heightened funding costs. Secondly, item of fee income. It was about TWD 12 billion for the year, up by 34% year-on-year. Wealth revenue contributed about 60% of the fee income, closing at TWD 7.3 billion.

Thirdly, item of gains on financial products. It was about TWD 22 billion, up by 11% year-on-year. Swap gains contributed about 70% of gains on financial products, closing at TWD 15.4 billion.

On the cost front, net provision for 2024 was TWD 5.8 billion, which was at the same level of that of 2023. Operating expenses was about TWD 28 billion, up by 6% year-on-year, reflecting bank-wise pay hike and more business tax payment.

From Slide 14 to Slide 17, we follow up on data with regards to net interest income trend. Slide 14, bank's loan book mix. We recap earlier briefing with some more details here. Total loan grew by 9.5% year-on-year to about TWD 2.6 trillion. Loan expansion was across the board last year, and mortgage increased by 15% year-on-year to TWD 720 billion. Its lifted momentum is not curbed by Taiwan Central Bank's tightening policy.

FX loans and large corp lending, both grew by about 10%. FX loan was about TWD 440 billion. Large corp lending was about TWD 350 billion. SME financing was close to TWD 960 billion, a size growing by about 4% year-on-year.

In Slide 15, loan book mix is presented on a quarterly basis. Last quarter, moderate loan growth was delivered in all categories.

Coming to Slide 16. It's loan-to-deposit ratio, spread and NIM over time. By end of 2024, total loan-to-deposit ratio was 71.1%. NT dollars loan-to-deposit ratio was 83%, U.S. dollars loan-to-deposit ratio was 42%. Spread was 1.17%, NIM was 0.67%. If including swap gains of TWD 15.4 billion, adjusted NIM was 1.05%.

Slide 17. We look at quarterly spread data on NT dollar loan and U.S. dollar loan. NT dollar loan spread at 1.29%, U.S. dollar loan spread at 2.21%.

In Slide 18, it's our deposit mix. By the end of last year, total deposit was TWD 3.7 trillion, up by 5.5% year-on-year. U.S. dollar deposit was up by 12% to about TWD 1 trillion NT dollar equivalent. NT dollar deposit was up by 3% to about TWD 2.5 trillion -- sorry, TWD 2.6 trillion with CASA ratio at 62.75%.

Slide 19, we supply bank's loan concentration data for review. In Slide 20, there is more details on mortgage business. The monthly mortgage volume we underwrote is given in the bottom graph. It has decelerated since second half of 2024. The pie chart shows the proportion of mortgage location. It remains the same as previous reporting. In the upper left graph, new mortgage loan-to-value ratio at 65%, the average mortgage loan-to-value ratio at 49%, the average mortgage yield at 2.28%.

In next two slides, we break out bank fee revenue of TWD 12 billion for review. Slide 21. Wealth revenue for 2024 closed at TWD 7.3 billion, up by 43% year-on-year. Loan-related fee was TWD 2.85 billion, up by 35%. Loan-related fees grew big last year because of a one-off item of TWD 0.57 billion. It was related to high-speed rail syndication case, which was recorded in the fourth quarter 2024.

Slide 22, fee revenue breakdown on a quarterly basis. For the fourth quarter 2024, total fee was up by 10% quarter-on-quarter to TWD 3 billion. Looking into three sub lines of wealth revenue, custody revenue was flat, bancassurance increased by 31%, fund sales reduced by 5%. For your note, in 2024, accumulated custody fee was over 0.6%, up by 21% year-on-year; accumulated bancassurance was TWD 3.7 billion, up by 49%; and accumulated fund sales was close to TWD 3 billion, up by 40%.

Coming to Slide 23, bank's cost-to-income ratio on a cumulative basis, it was 44.38% against the net revenue. The pie chart in the bottom is the bank's net revenue and operating expenses on a quarterly basis.

Next, in Slide 24, its coverage ratio and NPL ratios trend chart. Coverage ratio was close to 820%. Overall, NPL ratio was down a bit to 0.17%. Segment NPL ratios on individual loan, mortgage, large corp lending and SME financing were in the bottom graph. Asset quality at the bank remain benign.

Slide 24, we review bank's overseas operating results. Bank's quarterly pretax profit and that from overseas operations are supplied in the bar chart. The fluctuation in quarterly overseas profit during 2024 was mainly due to the handling of CRE charge-offs or recovery. Accumulated pretax profit from overseas operation was about TWD 80 billion, which accounted for 28% of bank's total pretax profits.

Lastly, in Slide 26, bank's capital adequacy ratio was 14.45%. Tier 1 was 12.29%. CET1, for your note, was 10.75%.

Back to Keith for next session Q&A.

[Keith Ke, executive]

Okay. Thank you, [indiscernible]. And if you want to raise your questions, you can type your questions at the bottom box.

Okay. First question is from KGI, Eric. Eric wants to know several issues. First one is that since you know that bank has provided some extra credit charge in 2024 last quarter, the fourth quarter. So our credit cost for 2024 was a little bit higher than our expectation. So what about 2025 projections for our credit cost? Will it be revised up or revised down?

[Annie Lee, executive]

The actual results would be we had a target lower than previous year's credit cost at less than 20 bps. That will be somewhere around 18 to 19 bps for this year's projection, after we recorded more than 22 bps credit cost last year, mainly driven by strategically heightened our provision level.

And the truth is that after the first quarter of 2024 last year, there is no -- actually, the NPL in the overseas market remained pretty much benign that in the second up to the fourth quarter of last year, there is no any new NPL service and we continue to recover from our previous charge-off.

So in that sense, that the new influx of last year's overseas NPL actually reduced by nearly 25%. Last year's new NPL in overseas book would be less than TWD 4 billion. When compared with the results of 2023, that was -- it will be up to more than TWD 5.3 billion. So you can see the balance sheet cleanup approach did great -- did a good boost to reduce our asset quality.

So in that sense, we would be more optimistic that this year's asset quality will be more stable and NPL or delinquent ratio would remain pretty much subdued. So the net credit cost would also be helped by the following recovery in the prior charge-off in the overseas CRE losses that will help us to revise down our credit -- net credit cost to less than 20 bps. That will be somewhere around 18 bps or so.

[Keith Ke, executive]

Okay. So I think our credit cost for this year will be pretty benign comparing with last year. And another question also from Eric and also related questions from Jemmy Huang of JPMorgan was they want to ask about the FX swap gains issue. So because last year, our swap gains was still strong. So what about this year's projection? And do we change -- adjust our projection of our swap gain? And also what about our adjusted NIM?

[Annie Lee, executive]

In terms of the swap gains outlook, this will be linked -- would have to link to the interest rate cycle in the states as most market consensus would view that under the Trump administration that the Fed attitude will become more conservative to further chop rates aggressively. So as the rate cycle become more conservative and prudent, that would help us to ease the pressure from the falling swap gains.

So we actually predict that the U.S. rate may only be further lower 1 or 2x with, let's say, 25 bps. And so, in that sense, that our swap gains can maintain its momentum. So we would project our swap gains for this year can be more aggressive, that just about 20% lower than last year's level, around more than TWD 15 billion. This year, our target for our swap gains can reach somewhere around TWD 12.5 billion for the whole year based on the -- our assumption that the U.S. rate cuts will be much more easier -- I mean, it will be much more slower than what people would expect.

And talking about the adjusted NIM. Due to the recovery of our FX lending, where we -- with the project that the lowering U.S. funding rates will be more evident than the pricing of the FX loan, it implies that expanding interest rate in the FX lending portfolio will help to boost the lending spread in FX, particularly U.S. dollars. That would actually help to increase up to 6 to 7 bps spread.

However, because the fall of the swap gains actually is more than that of the increase in the FX lending spread, so our adjusted NIM would be trending a bit lower than we project. The adjusted NIM will be slightly lower than last year ending results to about 1.03 bps sic [ 1.03% ] which is about 2 bps lower than the level of 1.05% last year, so which is mainly driven by a falling gap left by the slower swap gains, even though the FX lending spread may expand it.

[Keith Ke, executive]

Okay. Thank you. Annie. And this also answered the questions from Tina because she also type in the questions about our swap gains. She thought that maybe our swap gains this year might be minus for about 10% to 15%. So Annie's answer is more conservative for our swap gains. We will project for about 20% of -- and the number -- the swap gains would be around TWD 12.5 billion this year. That's our projection so far. And our adjusted NIM would be 1.03%, 2 bps lower than last year. But the original NIM might be increased a little bit more.

And another question from Jemmy Huang, JPMorgan. He'd like to know about our asset quality issues. He was considering about it because of the regulatory tightening for some policies. Would it be affect our smaller developers for our business? So -- and in advance to influence our asset quality. So talk about this issue, Annie.

[Annie Lee, executive]

Well, in terms of the asset quality related to developer and the property market, the thing is that our model to underwrite our loan, to this construction loan or developer lending pretty much cover what we call the major players in the market, mostly would be some good brand name. We actually avoid those weak player or developer smaller one in order to mitigate the risk may be associated with the potential downside of the property market.

So up to now, we haven't seen any deterioration in this asset quality issue for the smaller player in the property market. So we would not particularly concerned about this issue as long as the rest of the market remain resilient and the economic development in the -- domestically remains solid, that would not be an issue. So up to now, there is no deterioration in our asset quality for this, I mean, developers portfolio up to now. You can see based on our disclosure on our asset quality trend, it still remain pretty much stable.

[Keith Ke, executive]

Okay. Thank you, Annie. So, so far, our asset quality is no big issue right now. And another coming question was from Goldman Sachs, [ Huin Huang ]. Huin like to know our loan growth prediction for 2025. And what will be the drivers for the -- our loan growth this year?

[Annie Lee, executive]

Well, our projection for this year's loan book expansion would remain in line with the prediction in the prior quarter. We still predict our loan book will expand in the mid-single digits, around 5% to 6%, after we recorded a very strong and robust loan growth, more than 9% last year.

It's also due to a high base period that would impact the growth trend of this year. But the major driver will come -- will be more normalized to our franchise in the corporate lending, particularly for the SME and the FX lending and would follow the trend of the growth in the exporting sector and the domestic economies.

In terms of the very booming mortgage markets, we would remain a more conservative projection that this year's mortgage lending will be only half of last year's level to book around just 6% to 7% for this year after the government subsidized lending become not so, I mean, booming this year. So the major driver for this year's lending would mainly come from our niche market in the SME that will grow by 4%. And FX lending particularly in the overseas market can further advance to 11% to 12% based on projection that the U.S. dollar rate will come up, that will ease the cost of funding. So these would be the two major pillars that help us to grow our loan book.

[Keith Ke, executive]

Okay. Thank you, Annie. So our loan growth for this year will be mainly drive by SME and FX. So it would also help to boost our margin, we think. So SME, it would be about 4% growth and, FX, about 11% to 12% growth.

And there are questions coming in from the [ Mandy Lin ] from [indiscernible]. So Mandy wants to know our swap gains again. So our swap gains, this projection is TWD 12.5 billion for 2025, TWD 12.5 billion. That's our projection. And another question also is for our -- yes, the loan outlook. So we just answered the question also.

So another question is from Eric Shih. He'd like to know our dividend payout issues. So because for the couple of years -- recent years, our payout ratio was just about around 50% something. So what about our 2024 earnings? The payout ratio is also similar to 50% something? And also, how about after we applied for IRB method? It would be -- this is our CET1 ratio, how many bps or percentage would it increase if we apply for the IRB method? So -- and how about our payout policy for -- in the future?

[Annie Lee, executive]

I think I'll add up one more thing for the swap gains that I'm reading in the question box, that the swap gains for last year, 2024, was TWD 15.4 billion, yes, which was more than the prior level, more than -- I mean, more than TWD 15 billion. 2023, our swap gains was TWD 14.8 billion. So last year even outperformed the prior year's level. And this year, it will be lower because the U.S. dollar rate has gone down. So we would project there will be 20% off then last year's peak, okay? This the question to reply the prior swaps inquiry.

And talking about our dividend policy that, as we would actually enter into the IRB model next year, so I have to reiterate that for this year, our dividend policy would have to be maintained conservative, that 50% of payout ratio will be our baseline. So for this year's payout ratio, what I can have, the very preliminary commitment will be at least 50%, 5-0%. This will be this year.

But of course, if our Board can accept a more aggressive payout, then that will be a good news for investors anyway. But we actually had some add up in our incremental bps for our RWA and to help to reduce the overall risk asset quality that would give us some room to propose to the Board that we may lift a bit to pay out some cash dividend to the investors.

But it's still subject to the final decision of the Board. So what I can elaborate here will be 50% payout ratio of the base. And if there is any more add up, we have to have more discussion in our Board, okay? When we move on to the IRB application next year, yes, we would have 3% more to add up on our capital adequacy ratio.

So that will significantly help a boost to free us from our very conservative dividend policy and let us -- can actually deliver more aggressive dividend payout. But we will have to wait for another year before we can really actually reach that level. So for this year, 50%, but there may be some add up. We have to wait until the final decision by the Board anyway, yes. And next year, yes, we will pay more. But we will have 1 more year ahead.

[Keith Ke, executive]

Okay. So we would stay more conservative right now. It's at least 50% for cash. And maybe depending on our management team, maybe there will be a little bit add up.

And another issue is about our fee income. Since our 2024 fee income was pretty aggressive, in our slide, it shows we had a 34% growth Y-o-Y, especially from the wealth management, it's about over 40% growth. So what about our outlook for our fee income for 2025?

[Annie Lee, executive]

After we reach this historical high growth in the fee revenue, this year it will be a very challenging year that maintain the momentum. But the good thing is that the capital market still remain pretty much robust and aggressive. So we would manage to grow our wealth management business by growing about 12%, double-digit growth, but not as high as 30%, 40% last year due to the high base period phenomena.

And another factor will be, last year, the loan-related fee would have a so called onetime numbers that the high-speed rail breakup fee did some impact, that this year no longer exist. So the non-Wealth fee revenue would stay flattish. And overall, our fee revenue would manage to grow by 7% to 8%, which would be our target to grow our fee income by high single digit, mainly driven by wealth management at 12% this year.

[Keith Ke, executive]

Okay. Thank you, Annie. So we think our fee income will still have the momentum even. Maybe the growth rate will not be that aggressive, but it's still keeping the momentum.

And if you have any questions you want to ask, you can type your question at the bottom box. So far, there is no more question coming in. I'd like to maybe to ask Annie to maybe give us some more outlook about our overseas deployment for next year because some of you might know that we have new branches in Osaka and maybe what's our plan for our overseas issues.

[Annie Lee, executive]

Well, we plan to open our loan office in Osaka in the third quarter this year in order to capture the business opportunities arise in the relocation of the Taiwan company, particularly for the tech sectors. And apart from Japan market, we actually had a very completed branch service and network in the U.S. market. We actually have 4 offices in the U.S. market, which is pretty much beneficial to the so-called new Trump administration policy that would attract more investment in U.S.

So I would say that in the future, particularly in the next 1 or 2 years, our U.S. branches or offices would give a good boost to help the Taiwan business, especially for those tech sector to rebuilt their supply chain or the investment in U.S. market. And that would be our niche that we have deployed or had the expansion in the U.S. market for many years. I suppose that the global trend that the supply chain will become more localized, that will help a bank like us to capture these opportunities to serve the local business.

So I guess that this will be our future plan to further serve those overseas business to build up their new manufacturer site and help them sort of expand their business there. So I guess that I would particularly highlight our U.S. market business in the future.

[Keith Ke, executive]

Okay. Thank you, Annie. And there is no more questions coming in. So maybe most of you have no concern about our management team's operation. So that's a good news for us. And so Annie, do you have any conclusions for today's conference or maybe we will end the meeting here?

[Annie Lee, executive]

Okay. I would like to further highlight that we -- after we clean up the balance sheet in the overseas market, particularly in the developed countries, that will help us to have more chances that rebuild our balance sheet in these countries, especially in the North America markets. So I will see that our future plans to connect our franchise from Taiwan to the overseas market can be a huge opportunity that we can further grow our loan book.

And we actually target that we would regain our overseas profit contributions from less than 30% to gradually up to more than 30% or 40%. Now hopefully, that will be pretty much help us to further expand our margin.

Because traditionally, the margin -- I mean, the lending in the overseas market will be much more aggressive than that in Taiwan due to the competition is not so fierce. So that will be a positive news for us. And I would further, I mean, update our most -- I mean, our future plans to expand our overseas mix business in the next quarter. And so let's discuss more in the coming meetings, okay?

[Keith Ke, executive]

Okay. Thank you, Annie.

[Annie Lee, executive]

Thanks.

[Keith Ke, executive]

So there is no more questions coming in. And if you have any questions in your mind, you can also write e-mails to Annie or IR. We will reply it for you, and thank you for joining our conference today, and have a great day ahead. Okay. Thank you.

[Annie Lee, executive]

Thank you. See you next quarter. Bye.

[Keith Ke, executive]

Bye.