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Edited Transcript of 2883.TW earnings conference call or presentation 15-Apr-20 10:00am GMT

Q4 2019 China Development Financial Holding Corp Earnings Presentation

Taipei Apr 17, 2020 (Thomson StreetEvents) — Edited Transcript of China Development Financial Holding Corp earnings conference call or presentation Wednesday, April 15, 2020 at 10:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Lily Li

China Development Financial Holding Corporation – IR

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Presentation

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Lily Li, China Development Financial Holding Corporation – IR [1]

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Welcome to CDF’s performance review for the fourth quarter of 2019 with our spokesperson, Mr. Richard Chang, and I’m Lily from the IR team at CDF. To enhance the investor communication from 2020, our performance review will be held on a quarterly basis instead of by annual basis. Today’s broadcast consists of 2 parts. We will first start with a 15-minute presentation followed by a question-and-answer session. Please follow the instructions at that time if you would like to raise any questions. Today’s presentation will begin with CDF’s performance review followed by performance update of CDF’s subsidiaries. That is China Life, KGI Bank, KGI Securities and CDIB Capital Group.

Without further delay, please turn to Page 5 for a quick summary. With CDF’s continued efforts to increase capital efficiency and cross-selling synergies, CDF’s net income reached a 13-year high of TWD 12.8 billion in 2019, up significantly by 63% on a Y-o-Y basis with EPS of TWD 0.88 per share. And we just announced our Board’s resolution to distribute cash dividend of TWD 0.6 per share for 2019 for a payout ratio of 68% and a dividend yield of around 7% based on CDF 60-day average closing price. With 4 core business drivers providing more balanced earnings sources, 32% of CDF’s profit in 2019 came from KGI Securities, followed by 26% from China Life, 24% from KGI Bank and 16% from CDIB Capital Group.

CDF will also actively promote corporate governance and sustainable development. For example, on the environmental front, in 2019, CDF has been promoting green procurement and KGI Bank has increased its green project financing to enhance sustainability. On the social front, in addition to our long-term support for social care programs, KGI Bank has also increased its involvement in inclusive finance.

On the corporate governance front, achievement of CDF and China Life was evidenced by our inclusion in the FTSE4Good Emerging Index and FTSE4Good TIP Taiwan ESG Index for several years in a row.

Regarding our efforts and offerings amid COVID-19 outbreak. In addition to relocating our staff to set up offices and strengthening the ventilation, disinfection and sanitation of our business premises, CDF subsidiaries offers clients various online financial services to help them through this difficult time, such as online loan application, investment or trading order placement and customer caring measures for the insurance policyholders, et cetera. COVID-19 pandemic has continued to drag down global capital markets, weighing on CDF’s brokerage business and investment valuation.

Nevertheless, China Life managed to deliver resilient earnings. For the first quarter of 2020, CDF reported an unaudited net loss of TWD 488 million, primarily resulting from CDIB Capital Group’s net loss of TWD 1,717 million. CDIB Capital Group’s net loss was primarily due to unrealized mark-to-market valuation loss in the face of capital market fluctuations, and we anticipate such valuation should be back to normal once the virus is under control. We did observe that global stock markets have gradually got back on track since the beginning of April, primarily due to major central banks, accommodative monetary policies and intervention. However, we have thoroughly reviewed the credit quality of our loan and investment portfolio. Although there is no default case associated with COVID-19 so far, we have further tightened our already prudent risk management by increasing the frequency of monitoring and assessing the economic impact of COVID-19 on our profit and net worth and conducting stress tests for stricter supervision of our Board and risk management committee.

Next, regarding our subsidiaries performance. China Life continues to deliver solid growth and earnings. Its total assets surpassed TWD 2 trillion with net worth reaching TWD 142.7 billion as of the end of 2019. In addition, VNB margin has been increased with a focus on traditional regular premium products. You may be concerned about the status of CDF’s acquisition of further equity interest in China Life. CDF currently holds a 35% stake in China Life after it acquired 25% of China Life’s share on September 13, 2017. In order to balance the interest of shareholders of both companies during a period of volatility and uncertainty, CDF applied to Financial Supervision Commission to delay the further acquisition of China Life. And on April 7, FSC approved a grace period before June 13, 2022 when CDF Board members’ term expire.

As to KGI Bank, it continues to implement its customer-centric and value-oriented strategies to focus on better efficiency, lower funding costs and higher asset yield, all aiming to increase its ROE.

As to KGI Securities, it continues to focus on wealth management business, leverage fintech to enhance customers’ digital experience and rationalize its regional footprint to complement Taiwan and add revenue diversification. It is worth mentioning that its subsidiary, KGI SITE, has initiated a transformation plan since March 2018 and witnessed its AUM growing by leaps and bounds to reach TWD 167.2 billion as of the end of 2019, up 451% on a Y-o-Y basis and ranking seventh among its peers.

Last but not least, CDIB Capital Group continues to monetize its principal investment while its private equity AUM has been growing fast with multiple forward-looking thematic funds in the pipeline.

More specifically, please turn to Page 6. The chart shows CDF’s net income of TWD 2.2 billion in the fourth quarter of 2019 with KGI Securities being the largest profit contributor. And Page 7 show that CDF reported net income of TWD 12.8 billion in 2019. And KGI Securities was again the largest profit contributor, followed by China Life.

Now please turn to Page 9. China Life continues to deliver solid growth with net profit hitting a record high of TWD 13.6 billion in 2019, up 34% on a Y-o-Y basis. Its shareholder equity rose to TWD 142.7 billion as of the end 2019, up 95% on a Y-o-Y basis. EPS also rose to TWD 3.2 and ROE to 12.6% for 2019 with a solid RBC of 305%.

Please turn to Page 10. As China Life continues to promote traditional and regular premium products to enhance new business value, regular premium products accounted for 40% of FYP in 2019, boosting VNB margin to 23%.

Now let’s move on to Page 12 for KGI Bank’s overview. We resumed profitability from global markets contributing to its already stable core revenue. KGI Bank’s net profit increased to TWD 3.6 billion while PPOP increased to TWD 5.2 billion in 2019.

And Page 13 shows that ROE and ROA in 2019 also improved to 5.9% and 0.5%, respectively. Page 14 shows that loan growth has moderated from 14.3% in 2018 to 2% in 2019, mainly due to KGI Bank’s strategy to optimize its loan portfolio by focusing on yield enhancement rather than growth alone. And Page 15 show that total deposits stayed flat in 2019 on a Y-o-Y basis. However, you will notice the realignment of deposit structure with our cross-selling efforts and expanding product lines.

As a result, the demand deposit ratio has increased to a 3-year high of 30% to further reduce the funding cost.

Please turn to Page 18 for KGI Bank’s asset quality. With strong risk discipline, KGI Bank maintained a stable NPL ratio of 0.17% as of the end of 2019, much lower than the peer average of 0.21%. And KGI Bank has also maintained a solid and higher-than-average NPL loan coverage ratio of 1.29.

Please turn to Page 21. KGI Bank has maintained a solid capitalization through these years with BIS ratio reaching 15.4% as of the end of 2019.

As to KGI Securities, please turn to Page 24. Stable brokerage commissions has been KGI Securities’ main revenue drivers while the rebound in investment income also contributed to its profit for the fourth quarter of 2019.

And Page 25 show that with KGI Securities’ leadership as a regional brokerage in Asia, its overseas operations generated approximately 20% of its overall profit during the past 2 years and will continue to complement business in Taiwan.

Now let’s move on to Page 29 for CDIB Capital Group. Echoing CDF’s strategy to monetize assets and reallocate capital, CDIB Capital Group’s principal investments stood at TWD 30.9 billion as of the end of 2019, as shown in the chart on the right-hand side. On the other hand, our PE fund AUM has been fast growing and registered TWD 42.3 billion in AUM as of the end of 2019 with multiple forward-looking thematic funds in the pipeline to further increase our AUM.

And Page 30 shows that our asset management portfolio covers the entire spectrum of investing, including 4 NT dollar-denominated funds, 4 U.S. dollar-denominated funds and 3 renminbi-denominated funds already established to focus on different regions and investment stages.

This page summarizes fund size, vintage year, our shareholding of these 11 funds under our management for you quick review.

This concludes today’s presentation session. And now, we begin the question-and-answer session.

Please submit your name, your institution and your question into the input box on the webcast window, and you will be interviewed.

As there is no further questions, we thank you for your participation in CDF’s webcast conference. There will be a webcast replay within an hour. Please visit www.cdibh.com, under the Investor Relations section. And if you have further questions, please do feel free to contact our IR team. You may now disconnect. Thank you again and goodbye.

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