Chailease Holding Company Ltd

TWSE:5871

Q1-2025 Earnings Call

[Operator]

Welcome to the Chailease First Quarter 2025 Earnings Release Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded. For your information, a webcast replay will be available within an hour after the conference has finished.

Now, I would like to turn the call over to Vic Wang, Project Vice President of the Chailease Holding. Mr. Wang, please go ahead.

[Vic Wang, executive]

Thank you. Hi. Good evening, everyone. I would like to welcome everyone to Chailease Holding's First Quarter 2025 Earnings Conference Call. With me this evening is Ms. Sharon Fan, Head of IR, and she will be open to your questions in the Q&A period.

I will walk you through this quarter's earnings presentation, which is available for download on our corporate website under the IR section. As a reminder, please refer to the disclaimer regarding forward-looking statements at the front of the presentation.

The agenda we are going to cover for today on Slide 3 includes management highlights, first quarter 2025 consolidated performance review, followed by the segment review for our Taiwan, China, and ASEAN operations.

Without further ado, I would like to start the presentation from Slide 4. Highlights for an overview of our first quarter 2025 operation results. First, the summary table here shows the credit portfolio growth for the quarter.

On a year-over-year basis, Taiwan, China, and ASEAN credit portfolios grew 2%, decreased 2%, and up 6%, respectively.

On a consolidated level, we achieved a 2% year-over-year credit portfolio increase. The slower-than-expected portfolio growth reflects a weakening macro environment.

As a sequential portfolio growth, Taiwan increased 1%, China decreased 3%, ASEAN increased 1%, and 0.3% growth on a consolidated basis. The full year portfolio growth target for 2025 remains unchanged as of now.

Second, China's funding cost continued to show an improvement trend along with decreasing LPR. Lower cost of funds helped slightly widen the interest spread and maintain the return profile of the China operation.

Third, ASEAN asset quality stabilized or slightly improved this quarter. We observed a lower delinquency ratio for Vietnam and Malaysia, together with lower impairment loss for Thailand sequentially. We will continue to monitor if this trend continues.

Moving on to Slide 6. Consolidated credit portfolio reached TWD 827 billion at first quarter end 2025, with 2% year-over-year growth and 0.3% quarter-over-quarter increase as growth momentum for Taiwan and ASEAN was maintained for the quarter.

For the next slide, Slide 7. Shows you the trend of consolidated average loan yield and cost of funds for the past 3 years. In recent quarters, we have seen a lower funding cost trend, mainly due to decreased LPR for China. We will discuss the change of each operation region in the next section.

Next slide, Slide 8. On the left-hand side, the consolidated revenue for the first 3 months of 2025 reached TWD 24.7 billion, representing a 1% decrease compared to the same period last year due to lower revenue for both Taiwan and China this quarter.

On the right-hand side, first quarter 2025 consolidated revenue was down 2% from the previous quarter.

Moving on to Slide 9. On the left-hand side, the consolidated net profit for the first 3 months of 2025 totaled TWD 5.5 billion, and earnings per share were TWD 3.28. The decrease in net profit was mainly driven by reduced revenue, and more impairment losses were booked.

On the right-hand side, first quarter consolidated net profit was up 32% quarter-over-quarter as a China tax rebate of RMB 200 million was received.

Turning to Slide 10. This slide shows you our credit portfolio mix and net profit contribution in terms of operating region. On the left-hand side, we can see that Taiwan's credit portfolio still accounts for more than half, which is 56% of the group's total credit portfolio.

China is about 29%, and ASEAN maintained at 15% at first quarter end 2025. On the right-hand side, Taiwan's net profit contribution accounts for 48%, and China's was 43%. ASEAN's contribution is up to 8% for the consolidated net profit.

Moving on to Slide 11. The chart on the left-hand side, the cost-to-income ratio, was up from 27% to 30% for the first 3 months of 2025 compared to the same period last year due to a decrease in operating profit. The chart on the right-hand side, asset to equity, slightly decreased to 5.2x for the quarter.

Slide 12. The consolidated ROA on an annualized basis was 2.3% for the first quarter of 2025, slightly decreased from 2.3% in the first quarter of 2024, mainly due to a decrease in net profit this year.

The consolidated ROE on the right-hand side was 13% for the quarter as operating leverage lowered. The calculation for ROE excludes preferred shares.

Next slide, Slide 13. The consolidated delinquency ratio on the left-hand side at first quarter end 2025 increased to 4.2% from 3.9% in the prior quarter. Later in the presentation, I will talk about each region in more detail.

Moving to the right-hand side, the allowance to loan portfolio ratio was maintained at 2.8% compared to the previous quarter. Moving on to the segment review. Let's look at our operation performance region by region.

On Slide 15. Taiwan's credit portfolio reached TWD 462 billion at first quarter end 2025, representing a 2% year-over-year increase and quarter-over-quarter was up 1%.

The impact of intentionally slowing down used car installment financing continued this year, while my core business installment sales and offshore USD business maintained the growth momentum.

Slide 16. This slide shows the change in Taiwan's solar assets. Taiwan solar net assets reached TWD 59 billion at first quarter end 2025, representing a 9% year-over-year increase and a quarter-over-quarter was also up 2%. The growth momentum continued for the quarter.

Next slide, Slide 17. This page presents trends in our Taiwan loan yield and funding costs. The decrease in loan yield for the first quarter of 2025 was mainly due to the change of product mix and less interest income as a result of fewer calendar days in the first quarter compared to the fourth quarter of 2024.

Moving on to Slide 18. Revenue for our Taiwan operation for the first 3 months of 2025 reached TWD 12.9 billion, representing a 4% year-over-year decrease due to the change of product mix. The solar revenue accounts for 12% of Taiwan's revenue for the first quarter of 2025.

For the quarter-over-quarter comparison, on the right-hand side, first quarter revenue was down 3% quarter-over-quarter, mainly due to fewer calendar days.

Turning to the next slide, Slide 19. Taiwan's profit for the first 3 months of 2025 decreased by 3% compared with the same period last year, mainly due to a decrease in revenue. The first quarter Taiwan net profit was up 2% quarter-over-quarter, mainly reflecting lower impairment losses sequentially.

On Slide 20. On the left-hand side, Taiwan's delinquency ratio at the first quarter of 2025 was up 0.2 percentage points to 3.1% for the quarter. However, the new delinquent amount decreased from the prior quarter. On the right-hand side, recovery from delinquency and write-off amount was also down for the quarter.

Next slide, Slide 21. Allowance to loan portfolio for Taiwan is slightly down to 1.9% this quarter compared to 2% in the prior quarter. Let's discuss China's operation on Slide 22.

China's credit portfolio reached RMB TWD 52.3 billion at first quarter end 2025, which decreased by 2% year-over-year and 3% decrease quarter-over-quarter, reflecting the company's lower risk appetite given the current operating environment.

Currently, we maintain our China portfolio growth target of around 5% for 2025, and we'll revisit this target in the middle of the year to see if any adjustments are needed, as usual.

Turning to Slide 23. This page shows the loan yield and cost of funds trend for our China operation. We managed to maintain stable loan yield and spread over the quarters while keeping the credit cost level within a reasonable range under the current challenging macro environment.

The slightly lower cost of funds reflects continuous lower LPR and adjustment of the funding structure.

Next slide, Slide 24. China's revenue for the first 3 months of 2025 totaled TWD 8 billion, a decrease of 2%. On the right-hand side, first-quarter revenue was also down 2% quarter-over-quarter.

Moving on to Slide 25. China for the first 3 months of 2025 net profit reached TWD 2.7 billion, a decrease of 3%. The decrease in net profit was mainly driven by more impairment losses for this quarter compared to the same period of last year.

On the right-hand side, China's first quarter 2025 net profit was up 77% sequentially as a tax rebate of RMB 200 million was received.

Turning to the next slide, Slide 26. On the left-hand side, China's delinquency ratio in the first quarter was up 0.6 percentage points to 5.7% as a result of macro weakness remaining, as well as the decreasing portfolio. On the right-hand side, the write-off amount slightly increased for the quarter.

Next slide, Slide 27. China's allowance to portfolio ratio for the first quarter of 2025 was up 0.2 percentage points to 3.7%, reflecting an increase in delinquent amount for the quarter.

Moving to ASEAN on Slide 28. The credit portfolio at first quarter end 2025 reached TWD 122 billion, up 6% year-over-year and 1% sequentially. Malaysia and Cambodia contributed the most growth to ASEAN this quarter.

Let's turn to the next slide, Slide 29. The left-hand side, ASEAN revenue for the first quarter of 2025, totaled TWD 3.65 billion, grew 9% compared to the same period last year. On the right-hand side, ASEAN first quarter revenue was down 2% sequentially, mainly due to decreased portfolio in Thailand.

Moving to Slide 30. ASEAN's first 3 months of 2025 net profit reached TWD 0.66 billion, increased by 44% due to fewer impairment losses being booked for the quarter. On the right-hand side, ASEAN's first quarter 2025 net profit was up 42% sequentially, also due to less impairment loss for the quarter.

The last slide, Slide 31. On the left-hand side, ASEAN delinquency ratio at first quarter 2025 decreased 0.1 percentage points to 5.1%. Malaysia and Vietnam's delinquency ratios slightly improved for the quarter.

On the right-hand side, ASEAN's allowance to portfolio ratio for the first quarter of 2025 was slightly increased to 3.9%, and this also brings us to the end of my presentation for today.

Thank you for your time and for listening. Now, I'd like to turn the call over to the operator to open the line for questions. Jason?

[Operator]

[Operator Instructions]

Firstly, we'll have Gurpreet Sahi of Goldman Sachs.

[Gurpreet Sahi, analyst]

So, 2 questions. The first one is on the Taiwan loan yield. So, the loan yield dropped a lot. So, how much is the used car financing contributing to that drop? And what's the outlook for the loan yield here in Taiwan?

[Sharon Fan, executive]

I think the blended loan yield for Taiwan mainly reduced because of the smaller portfolio for the used car financing on the balance.

But for the first quarter, there's always a seasonality slightly down because of the less calendar days for the interest accrual. So, I think should be like 70% to 80% due to this used car financing impact.

[Gurpreet Sahi, analyst]

And is it done here? So, can we expect the loan yield to remain at around 8.2%, 8.3%?

[Sharon Fan, executive]

As we mentioned in the Mandarin session that used car financing, we have 3 different acquisition channels. And the impacted part is for those that we have already slowed down a lot.

The 2 other acquisition channels actually maintained quite well. But this impacted channel still continues to decrease for this year. So, this will be a continuous trend. However, the impact should gradually become smaller and smaller towards the year-end.

The other thing I'd like to mention is that although this blended yield shows a downtrend because of this product mix change. However, it won't change it won't change our overall return profile for the Taiwan operation because this gross yield, actually including the commission, which we do this business through an outside agent.

So, net-net, actually, we maintain a similar return in terms of ROA also. So, it won't impact our profitability profile.

[Gurpreet Sahi, analyst]

And then the provisions in this quarter. So, the second question is that provisions in the quarter are lower. Is it because we are comfortable with our allowance?

I see allowance not much taken incrementally for Taiwan and also ASEAN? Or is it seasonality where the first quarter is lower than the fourth quarter? So my question is, how much of the provisions being lower Q-on-Q relates to seasonality versus the underlying trends that we see in the business?

[Sharon Fan, executive]

Can I double-check? Are you referring to the Taiwan provision level?

[Gurpreet Sahi, analyst]

So Slide 36, total impairment provisions are up 12% Y-o-Y, but they are down Q-on-Q. So why are they down Q-on-Q when some of the underlying trends are the same in terms of worsening of asset quality?

[Sharon Fan, executive]

But on the consolidated level, the allowance ratio remained the same, 2.8%. It's only Taiwan.

[Gurpreet Sahi, analyst]

Yes. So why have provisions lowered like, let's say, fourth quarter last year, we did TWD 6 billion, and first quarter this year, we did TWD 5 billion. Is it Taiwan? Are we more comfortable? An outlook for the rest.

[Sharon Fan, executive]

I think for Taiwan for this quarter, slightly increased by 0.1% of the delinquency ratio, I believe it's more related to the seasonality factor.

See, on Page 20, the left-hand side, although the Taiwan delinquency ratio increased a little bit. However, if you calculate the new delinquency formation amount, actually, it's decreases sequentially. And I think this ratio increase is more because we have a slower recovery and write-off in the first quarter, usually. You can see the same pattern from last year.

So actually, we still think the possibility of improved, I mean, improving the Taiwan asset quality for the following months, quarters is very likely.

[Gurpreet Sahi, analyst]

So net-net, if we have to roughly look at, like I know guidance is not there for provisions, we did roughly TWD 5 billion for the quarter. Should we think TWD 20 billion for the year, or higher than that number?

[Sharon Fan, executive]

I think we are more looking at the coverage ratio.

[Operator]

[Operator Instructions]

Next one, Alex Leung UBS.

[Alex Leung, analyst]

First of all, I want to double-check that the used car financing business in Taiwan, you mentioned three channels, and there's only one of it that is currently being impacted. So, can I just clarify what percentage that business is currently accounting for in the Taiwan book?

[Sharon Fan, executive]

For the total car financing, it's around 13% of the Taiwan book, and I think originally, it's like half-half. The impacted part is like 6% to 7%. But I think it's already down to around 5%.

[Alex Leung, analyst]

And then any plan in terms of where it can go down to zero or better than that?

[Sharon Fan, executive]

I think it's really hard to say. It still really depends on the dynamics of the market. And so far, we still continue to scale down that part of the business, yes.

[Alex Leung, analyst]

And is this scale down mainly due to the regulation that wants you to cap the LTV, or is it more from a risk appetite point of view?

[Sharon Fan, executive]

I think both strategically, management also wants to put more focus on the other product line, and probably we will keep this part of the BU at a low momentum currently.

[Alex Leung, analyst]

And then the second question is about the Taiwan portfolio growth. So, other than this used car financing, can you give us more color in terms of what's driving the growth for the rest of the portfolio?

[Sharon Fan, executive]

Okay. Except for the used car part, actually for the rest of the product line, can still generate some growth momentum, especially for those U.S.-denominated offshore business lines like shipping, aircraft financing.

And also for some micro business financing, more focused on the non-manufacturing sector in Taiwan, smaller businesses working capital financing, that part still maintains some growth momentum, yes.

[Alex Leung, analyst]

And then I just want to clarify, last year, towards the end of the year, there was some discussion about the leasing company's loan lending to the construction company. So I just wanted to check, is there any control on the scale, or is it declining due to any [indiscernible].

[Sharon Fan, executive]

I mean from the bank side, our bank, because actually, this part is always one of our business as usual, and we continue to develop this part of the market segment.

That part probably accounts for like 5% of the Taiwan book, continues to generate quite good growth, like 5% to 10% of the annual growth rate. And we still have quite sufficient funding to support this part of the business development, yes.

[Alex Leung, analyst]

And then last question for me just on the OpEx. So from the group level, OpEx is still growing at, I think it's low teen, 13% in Q1, despite an overall more stable loan book. So I'm wondering where does that year-on-year growth mainly coming from, which market? And what's the driver for those OpEx?

[Sharon Fan, executive]

Actually, because currently, we are in a slower growth cycle compared to the historical period. But actually, we didn't do the layoff or something like that.

So I think our OpEx will remain reasonable growth with the business development activities. So I think because this year, we are still targeting around 5% of the portfolio growth. So we will continue those regular operating activities. So the OpEx probably will grow at a similar pace.

[Operator]

[Operator Instructions]

Next one, Gurpreet Sahi, Goldman Sachs.

[Gurpreet Sahi, analyst]

My question is regarding the China credit extension. So, when did we start giving the clients the option to repay loans, or is the collection more lenient? So, when did we start with those activities? And where are we right now? Like, how much longer are we taking versus before to collect the repayments?

[Sharon Fan, executive]

Yes. The delinquency collection process is prolonged starting from last year in the middle of last year.

Roughly, in the past, we could usually conclude all the delinquent cases for the collection activity within two years. But right now, it will probably extend to like 2.5 or even three years. So, yes, we will closely monitor how this develops.

[Gurpreet Sahi, analyst]

So, how does that factor into our allowance, what we are keeping in China?

[Sharon Fan, executive]

Basically, we won't give up any opportunity to execute our right to collect back our -- yes. So basically, we didn't change the loss given default so far, still quite stable, just it takes longer to complete the collection process.

So given that LGD didn't change much, I think our impairment losses will also be quite stable, yes, currently.

[Gurpreet Sahi, analyst]

And do we still want to be covered at 2x the ultimate loss or can it be lower like 1.5x or so?

[Sharon Fan, executive]

Roughly, actually, I think 2x is a very high standard. But of course, it will be more than 1x.

[Operator]

[Operator Instructions]

Mr. Wang, there are currently no questions at the moment. Thank you.

[Vic Wang, executive]

Jason, we can end the call, please.

[Operator]

Yes. Thank you. Ladies and gentlemen, we thank you for your participation in the Chailease conference. You may now disconnect. Thank you, and goodbye.