Release Date: August 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cathay Financial Holding Co Ltd (TPE:2882, Financial) reported strong core business momentum with first half earnings reaching TWD71.7 billion, the second best in its history.
- Cathay United Bank achieved record-high earnings for the first half with a 15% year-on-year growth, driven by robust loan growth and a 33% increase in net fee income.
- Cathay Life's value-driven product strategy led to a 12% growth in annualized premium and a 21% increase in the value of new business year-on-year.
- The company's asset management subsidiary, Cathay SITE, achieved record-high earnings with AUM reaching TWD1.9 trillion.
- Cathay Financial Holding Co Ltd (TPE:2882) continues to broaden its sustainable impact, hosting significant summits on sustainable finance and climate change, and joining global networks for impact investing.
Negative Points
- Cathay Life's first year premium (FYP) declined year-on-year due to a high base of investment-linked products from regulatory changes in July 2023.
- The cost of liability for Cathay Life increased slightly quarter-on-quarter due to declared rate increases for USD denominated interest-sensitive policies.
- Offshore earnings for Cathay United Bank were down to TWD3 billion due to a high year-on-year base from a single case recovery in the first quarter of 2023.
- Cathay Century's gross combined ratio increased due to higher year-on-year gross loss ratio from an earthquake claim payment in April.
- Hedging costs for Cathay Life increased to 1.21% in the first half, driven by the depreciation of the Taiwan dollar and elevated Taiwan dollar and US dollar interest spread.
Q & A Highlights
Highlights from Cathay Financial Holding Co Ltd (TPE:2882) Q2 2024 Earnings Call
Q: Could we get the swap revenues and the adjusted net interest margin for the first half or for the second quarter? Also, what's the potential impact for swap revenue on the net interest margin if US rate cuts occur?
A: The swap revenue for Q2 is TWD4.9 billion. The whole year forecast on the NIM of 1.5% is based on total revenue excluding swap revenue. For the first half, the swap revenue was TWD1.6 billion, equivalent to 13 basis points of our NIM, making the NIM including swap revenue 1.63%.
Q: Why is the hedging cost at Cathay Life higher this year despite the Taiwan dollar depreciating more?
A: The higher hedging cost is mainly due to changes in the FX reserve. Last year, we released around TWD7 billion from the FX reserve, whereas this year, we increased it by TWD18 billion. This difference of TWD25 billion is why the hedging cost is 1.2% this year compared to 0.9% last year.
Q: Should we expect credit costs at Cathay United Bank to be lower in the second half given the expected moderation in loan growth?
A: The full-year credit cost is expected to be around 30 basis points, driven by normal loan growth rates. There is no significant credit concern, and the credit cost includes recovery impacts.
Q: What is the outlook for wealth management fees in the longer term, and what will be the key drivers?
A: We expect at least 30% growth in wealth management fees for the full year. Longer-term growth remains optimistic due to double-digit growth in affluent customer numbers and a 14% increase in AUM. Strong client growth and AUM growth will continue to drive wealth management fees.
Q: Are there any asset quality risks associated with the strong consumer loan growth?
A: We closely monitor the quality of our consumer loans. More than 60% of consumer loans are secured by assets like government bonds, US Treasuries, or time deposits. The overall asset quality remains stable, and we do not foresee significant risks.
Q: What is the guidance for net interest margin (NIM) for the full year?
A: We anticipate that the NIM will likely be at least 1.5% for the full year, assuming 1 to 2 Fed rate cuts and a similar move by the Taiwan Central Bank.
Q: How does Cathay Financial Holdings plan to manage its hedging costs?
A: We employ a dynamic hedging strategy, including traditional hedging tools and proxy hedging. As of July end, our foreign currency reserves stand at over TWD50 billion, providing a buffer against currency volatility. We aim to maintain hedging costs between 1% to 1.5% for the full year.
Q: What is the dividend policy of Cathay Financial Holdings?
A: We focus on providing a favorable dividend yield while considering the payout ratio. Our aim is to balance investor returns with sustainable growth.
Q: What are the key highlights from the second quarter performance of Cathay Financial Holdings?
A: Cathay United Bank delivered robust loan growth and a net interest margin of 1.5%. Wealth management fees grew by 40% year-on-year. Cathay Life's CSM grew 35% year-on-year, and the company maintained a strong capital position with an RBC ratio of 352%.
Q: How does Cathay Financial Holdings plan to address climate change and sustainable finance?
A: We hosted the Cathay Sustainable Finance and Climate Change Summit, bringing together international climate leaders and experts. We also joined the Global Impact Investing Network and Asia Venture Philanthropy Network to generate positive social and environmental impact through impact investing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
