Investors and media friends, good afternoon. Thank you for participating. Discussing on the 25th of our investor conference. I'm Jenny Huang, the Chief Financial Officer of KGI Financial. Here we'll talk about the financial reviews of the holding company and subsidiaries, and also the 2024 EV of KGI Life. The senior management, including KGI Life, KGI Bank, KGI Securities, and KGI Chemical, are here, and the actuary manager from KGIL.
After presentation, we will have a Q&A session. We'll come out to raise questions through Webex. First of all, I will talk about the overview. We probably [Inaudible] . KGI Financial's net income in the first quarter is TWD 8.7 billion, a 6% growth year-on-year. KGI Bank, KGI being equal growth, KGI Securities and KGI being kind of reached some losses. The total equity on the right bottom.
Due to the impairment model being adopted, total equities rising from TWD 299 billion. This reaches 15%. As for KGI Life, Q1 profits grew 30% compared with last year. In the first quarter, the policy sales momentum was strong and FYP growth more than 70%. In April, we also see the momentum came. Since KGI adopted a new mechanism of the foreign exchange reserves in the first quarter and April, the hedging part is relatively stable. However, in May, due to the [Inaudible] , we will see the kind of challenge to KGI Life. As for KGI Bank, the Q1 net income-
[Inaudible]
-grew 14% year-on-year. In loans and wealth management, we see double-digit growth, especially the fee income in wealth management. It grew more than 30% year-on-year. In April and May for KGI Bank, the wealth management's performance kept growing too. In regards to corporate customers, due to the uncertainty of capital and the capital reserve, the public reserves are very conservative in the short term.
However, we also see the demand of fund allocation as hedging for their customers that will satisfy the needs of the customers. On the left page, KGI Securities. In the first quarter, net income decreased 36% year-on-year. The relevant investment companies in the same period last year was relatively high, and this year the market is more volatile, so it was impacted. However, in wealth management, in terms of the scale and revenue, it boasts a double-digit growth.
For CDIB Capital, it was reported a net loss in Q1 due to the volatility in the market. However, generally still raised more than what they thought. In Q1, we also raised new bonds and the target is at TWD 8 billion. The next page. The capital asset ratio of the subsidiaries are all adequate. You are more excited about KGI Life. In May, due to the effects of more involvement in KGI Life are being seen. Net worth balance are both higher than the regulatory requirements. That's my brief introduction. Next, I'll hand over to Andrew Cheng, our [Inaudible]
First, KGI Life. Please go to slide 16. You can see premium income. Q1 FYP grew by 74% year-on-year, with growth momentum coming from single pay and ILP. This is mainly because KGI Life fully understands the demand of different customer groups and provides a complete product line offering more options for policyholders' fund allocation.
For mid to long term, our product strategy still focuses on products with high CSM and VNB. If we look at FYP product mix, all products saw growth year-on-year, and this is in line with our product strategy. Next slide. Frequency VNB. Because of the changes in product mix, VNB remains sustained. Because part of the VNB in Q1 last year came from the first booking of health insurance, so it was a relatively high base. If we exclude the impact, the contribution in Q1 would be better.
VNB margin due to product mix changes, now it stands at 27.3%. For investment spread, COL is 3.1% and investment return 3.8%, maintaining a positive spread. Page 18. Investment portfolio remains prudent in Q1 compared to the end of last year, mainly due to the adjustment in domestic stock and increase in foreign deposits in response to market fluctuation.
Our overall strategy still focuses on risk management and stability. Next slide. Investment performance pre-hedging recurring yield 3.6%, up 15 basis points year-on-year. This is also due to FX because USD was stronger in Q1 this year than that of the last. For hedging costs, this is the figure in Q1 under the new FX reserve system. It includes the hedging point cost and the provision of FX reserve. The hedging cost in Q1 is 1.27%. Our hedging structure by the end of March, our reserve balance is TWD 39 billion.
Now let's move on to the [Inaudible] assumptions on page 20, economic assumptions. There are two main factors for the changes in NTD policy. First, because Fed might cut rates and the narrowing of Taiwan and U.S. spread will reduce hedging cost. For the long term, because of aligning with IFRS 17, this will reduce foreign investment and further reduce currency mismatch. For USD policy, there are no significant changes. Next slide. Yield assumption.
This is for your reference. In 2024, the overall equivalent yield is 4.24%, the same as last year. For NTD policy, the figure is 3.92%, and for USD policy, it's 4.92%. Page 22 are year-on-year comparisons. First, adjusted net worth increased by 36.6%. This is reflecting the increase of net income and asset valuation. The overall EV increased 11% year-on-year. For changes, it will be explained in the following pages.
Next, adjusted net worth from the shareholders' equity due to the increase of FX reserve reaching TWD 30 billion, the adjusted net worth reached TWD 231.5 billion. Page 24, value of in-force. The two bigger changes. First, change of investment yield assumption. This reflects the impact of investment yield strip. Second, change of other assumptions.
It reflects large amount of policy surrender last year, and also the one-time release of reserve to the adjusted net worth due to the application of the new FX reserve system. Page 25, EMV. The two figure changes. First, sales growth led to an increase of TWD 2.1 billion, and because of market demand for single pay policies, changes in product mix led to a decrease of TWD 1.2 billion, but overall, it still increased annually. Next, sensitivity analysis. It is presented here for your reference. Next, KGI Bank.
I want to please look at page 29. The net income in the first quarter end is TWD 5.1 billion, the same growth year-on-year, which is mainly driven by the loan business volume and increasing fees. The overall net income is net income by 24%, with wealth management each growing by 27%.
This side.
On the left side, you can see the deposit loan spread in the first quarter was 1.95 and 1.3 was the second. Actually, slightly dropped year-on-year, mainly due to the asset growth strategies. We see strong growth in loans, especially in the larger corporation and mortgage health, compressing the spread in NIMs.
Yes.
On the right side, the asset quality remains stable at the end of last year. The gross loans of consumer loans balances appears on the overdue loan ratio and past-due coverage ratio are essential to the reduced level. The overdue loan ratio increased by 1%. It works with the single case, and NPL ratio is 0.1%.
In the next pages, I'd like to update strategy. In the top loans in the retail and corporate loans, [Inaudible] , we saw double-digit growth. On the right side, the public deposit grew by 1%, and that is due to the growth in FCD deposits. Next is KGI Securities. Please look at page seven, please. On the upper left, as we mentioned in the first quarter, due to volatile market and the recession problem was low, the net income decreased year including grant fee, grant brokerage and investing income.
Meanwhile, KGI secured its transformation of wealth management business, therefore will be the first to market in it as well as the financial market. The AUM of wealth management group are 31% year-on-year. On the bottom right, the Japanese corporate group are 6% down. On the next page. On the upper left, this is the overseas contribution, benefiting from the securities net increasing cost of daily balance, Q1 and gross efficiency dividend.
The Q1 overseas markets grew about 10%, contributed 18.5% cost as net profit of this securities. In terms of profitability, Q1 net profit was TWD 1.8 billion, that is similar to the industry average. Also we take the monthly in the futures. Next is KGI SITE. Please refer to page 37. As of the end of first quarter, KGI SITE public fund AUM is at TWD 360.2 billion, ranking seventh in the industry.
Next page, a more detailed breakdown in the AUM in Q1. KGI SITE recorded a 7.34% growth, which is surpassing the industry average growth of 2.87%. The number of beneficiary also is approaching 300,000, our target is to reach 400,000 by 2025. KGI SITE plans to launch Taiwan's first equity fund balanced multi-asset ETF at the end of July, this is also to meet the market's need, this will be a 70/30 equity to fund asset allocation, allowing investors long-term growth. Last but not least, the CDIB.
On [Inaudible] , Q1, we have a new asset management business established, three existing business continue to raise fund. The total AUM is at TWD 59.5 billion. Although the fund raising increased by TWD 1 billion in Q1, but the overall asset management scale appear to be stable compared to the end of last year due to investment recovery change and changes in valuations. In Q1, principal investments grew 2%, as this is due to the new investment program and changes in associated valuations.
On the performance, the asset management fee is TWD 180 million, representing a 36% year-over-year. This shows our fundraising resulting as markets in 2023. Overall stability of ROI is superior to the MSCI World Index. This reflects CDIB's strategic focus on pursuing stakeholder investment return. For private credit, the business scale continued to expand. It also consistently contributed stable interest income as the accomplished CDIB.
Above are the business performance of our subsidiaries. Now we're entering our QA section. We'll first invite the corporate investor to raise question. Remember to click on the Raise Your Hand button before you raise your question, mute yourself during speaking. First is Jamie from JP Morgan, please.
My question is first is for the bank. The NIM quarter-on-quarter, it seems there to be a decrease. What is the driver for your de-growth? In the following quarters, what would be your expectation for NIM? Is it going to be stable despite that FEDs might lower the rates? Question for life. If we look at the hedge unit, your position is actually quite high. What is your April and May strategy in terms of the adjustment hedge? If there wasn't any, what is your FX reserve now? Do you still have any open position in your FX reserve?
If you still have balance and then just running out, what will be your corresponding measure to address that? You are going to launch the participating policy instantly around. What impact will it bring to the interest-sensitive products? How would this participating policy contribute to your CSM and ICS, if you compare them with interest-sensitive products? Two more questions on fee. We talk about the EV equivalents, investor return year-over-year is flat. Your figure in 2023 was 4.24, and what will be the likely expectation in 2024?
[Inaudible]
Can you also provide that figure for us? If I did not get it wrong, in page 24, your assumption on actuary changes. You said there was the impact for the new FX mechanism. Does it mean that?
Yeah.
You require moving to the new FX system and then there will be a decrease on the original position. Can you share with us in exact, what is the exact change on your actuarial changes and how it impacts your FX reserve?
We will invite Chief Financial Officer from KGI Bank to answer [Inaudible].
Hi, Jenny. The first question is about the NIM of KGI Bank. Our full year NIM is 1.3%, and in Q1 this year is about 1.11%. For next three quarters or even the whole year, we would like to maintain at the current level or improve the NIM. The main driver of the NIM contribute one is the cost of capital. As we launching the ONE KGI strategy and the possibility of more interest rate by Fed will lead the cost of deposits or perhaps it drive more NIM.
Last years, we saw the long run. In the next four quarters, we hope to adjust the constitution of loan and adjust the loan mix and try to improve the spread, and also make the use of funds more efficiently. Under the two strategies, overall, we expect the spread and NIM to maintain at the similar level as last year's or even slightly improved.
I'm from KGI Life regarding hedging strategy. Indeed, our hedge ratio is low because NTD was stable. Now it has fluctuated a lot. Recently, we have increased our hedge ratio to around 55%-60%. Our strategy moving forward, we know that NDF is very expensive now. Considering the trend, we will use traditional hedging together with a proxy hedge.
This will be the tools that we use for hedging. Regarding the assumption, last year the equivalent rate was 4.24. After one year, it's 4.34, and now it goes back to 4.24%. For VNB equivalent yield is around 4.6%-4.7%. For actuary assumption, 40% of it because of the new FX reserve system and others are due to other assumptions like lapse rate and also the changes in policies assumed rates.
For CSM and ICS, for participating policies for interest sensitive productsl under ICS, there is a system that can offset risk. The impact will be offset accordingly.
Next I will invite Tina from Capital Investment .
Please.
I want to follow up the KGI Life's hedging strategy. Can you provide us with your FX sensitivities analysis? For example, a 1% appreciation of NTD, how would it affect your FX reserve? What is for FX reserve balance at the end of April? What is your assumption of the maximum appreciation amount of NTD to totally offset your FX reserve? Are you going to increase more the reserves? Next questions are about KGI Bank. You talked about due to the tariff uncertainty, you will have a more conservative loan strategy. What would be your guidance for your loan growth? Would it still be about 10%?
[Inaudible]
Again, back to life, your unrealized loss appears to be expanding. What is the mix between your equity and bond in terms of unrealized losses? What is your unrealized gain or loss on recent weeks?
To KGI Life, as Chief Financial Officer, for the FX reserve sensitivity, our overall exposure, for the overall exposure, if we do calculation for every 0.1% of appreciation, it will affect TWD 1.7 billion. For FX, we need to factor the unrealized gain of hedging tools and also proxy hedge. Because of the tools, the actual amount will be less than TWD 1.7 billion.
Our initial break even is around TWD 3 billion. Our loss is not 0.1 of NTD times TWD 1.7 billion. We also need to look at investment gains and our gains in our business. We need to factor in all these to have a more comprehensive understanding. For unrealized loss, there are two parts. This year, we have realized some equity gains. It is affected, and also due to market fluctuation. Now our stock has rallied, the figure has gone down.
For our bonds, over 90% are parked in AC, the impact is not as big.
I will just question a little bit to the other four banks. On page 30 of our points, that is the year-on-year growth. The Q1 this year versus Q1 last year. We can look at the year-to-month growth. Our loan growth is about 5%. The corporate and mortgage loan growth are both 5%. The loan outlook for this year, we see more uncertainties.
The volatility in the market, all the events from the corporate. However, in the first quarter of this year, outstanding 9% from last year, we have been saying about 10% this year. We got good. We are not going to adjust on the number. I would like to emphasize our strategy is not only to grow the scale of loans, but to improve the loan spread and the fee income growth. This is the focus of our strategy for the level.
If you have questions, please click the raise your hand button. We will invite CNA's correspondents. Jean, please unmute yourself.
Thanks for your support. Again to KGI Life. Your FX reserve balances, TWD 21.2 billion. Is that correct? Your product mix compared to last quarter, in your real estate position, we have seen some losses and what is the reason? My second question is to KGI Securities. As the second in the market share in your DCM and ECM, what is the cause? Are there any challenges imposed on you on your primary markets? Also, we learned that there is a ring-tightener circulation circle where you have discussed with the SFC. Are there any progress as of now?
I will answer regarding KGI Life. Our FX reserve is TWD 21.2 billion, that is correct. For real estate, the figure went down is because in Q1 we did revaluation, therefore, there are some decrease, as you can see here.
Good. From [Inaudible] Securities about the underwriting for KGI [Inaudible]
Make it my question. KGI has, we have maintained number one, top two, and this year the society is still ranking. This may be due to initial statement submission time that were due behind, but our internal target is to maintain the top ranking. Top one, the top two things. On bracket [CI] being cancel and the relevant fund was there during the planning and fundraising determined especially if we have further information, we will share it.
Next we will invite another correspondent, Ms. Chen. We can't hear you, please.
A good day to us.
I have several questions for KGI Life. The first on your slide 19, the hedging ratio of 42% here, is this representing the proxy and open the sum of proxy and open? Here are you showing the ones that you're using the overlay approach methods that it doesn't affect the eventual number? If that's the right assumption, what is the figure for paid proxies? What is the positive amount for proxy as of March?
Second question on the Chief Financial Officer of KGI life, mentioned that if there is a TWD 0.25 decreased, how would it impact your pre-tax income? If we exclude hedging costs, we look at the hedge position and their effect gain or loss, and also look at the FX reserve as well as the contractual gains or loss.
If we use that assumption, if there's a 1% appreciation in USD, how would it consume your FX reserve balance? The April your [Inaudible], you talk about the changes in your assumption and there will be an impact of TWD 20 billion coming from the surrender of raise and also your adoption of the stochastic mechanism. Among this TWD 2.2 billion, what is the ratio of each?
Regarding page 19, hedging structure. 42% in addition to USD, we also have other currency assets, for example Australian dollar. It's not just unhedged USD position and proxy. For 9% overseas equity, it's our equity product. After the transition, we need to reclassify, we take out overlay approach. I can put it in OCI or P&L, that's that part.
At the end of last year and the first quarter, the proxy position, considering the effectiveness at the end of last year and the end of Q1, the position is very small. The position is not big. Next, regarding the FX fluctuation impact on our gain and loss. It's difficult to give you a specific number because for valuation it fluctuates a lot. For NDF, it can go up to as high as 40% and as low as 7%.
Because we increased our proxy hedge position, and so different currency fluctuation will have an impact. These two factors are the things that we pay attention daily, and it's very difficult to give you a exact number on how big the impact will be. Page 24, TWD 40.2 billion, 40% of it comes to the new FX reserve system and the rest comes from surrender.
Thank you to dear investors and financial media. We are not receiving any questions, and that marks the end of our Q1 investor call. Thank you for calling.