Experts and media friends, good afternoon. I'm the speaker woman from CDF, April Lin. Welcome all of you to join CDF's 2023 Q3 investor conference call. Today's agenda will have four parts. First of all, we will invite the CDF president, Steve, to talk about the overall performance review of CDF, also the strategy update of ABCD strategies.
Next, our Chief Financial Officer, Jenny Huang, will explain the financial overview. Then for each subsidiary, we will invite Mandy Chao to cover the performance upgrade. Next, the last session will be Q&A. Before I invite Steve, you can use the interpretation function in Webex. Steve, the stage is yours.
I want to give you a brief update of our financial performance for the first nine months of 2023. Net income was TWD 17.5 billion, earnings per share of TWD 1.05. We continue to drive innovation and transformation as a sole recipient of the IDC Digital Infrastructure Award in Taiwan, we are also selected to the FTSE4Good Emerging Index for the seventh consecutive year.
In terms of China Life, nine-month net income was TWD 11.3 billion. They continue to remain focused on high-value products and increase their market share of regular paid policies. The VNB margin also continued to go up 35.3% versus 29.3% at the same period last year. We managed to also increase our pre-hedging recurring yield by 10 basis points up to 3.85% as of the end of September. For KGI Bank, nine-month net income of TWD 4.2 billion and annualized ROE of 8.9%.
We continue to grow SME and personal loan business, which grew 16% and 24% respectively. Our consumer finance business is up 252% year-on-year with a profit of RMB 305 million in 2023 so far this year. Also, our customer wealth management fee income grew 30% compared to the same period last year, and our AUM is now in excess of TWD 500 billion.
CDIB Capital nine-month net income was TWD 1.4 billion with an annualized ROE of 6.5%. The board approved new investments in both Innolux Fund II and a data center project fund, which is expected to yield TWD 6.4 billion in fee-paying AUM next year. We also pledged up to TWD 3 million in a matching fund in the NDC's Regional Revitalization Initiative as a partnership to support micro and small businesses to energize local economies.
KGI Securities delivered a very strong set of results with net income of TWD 5.4 billion, a 101% increase on last year. Overseas contribution was also up 172% with a 13% ROE, which is above the industry average. We also increased our brokerage market share from 10.4% to 11.4%. Customer AUM also continues to grow strongly, up 25% year-on-year, up to TWD 413 billion as of September.
Also, as of late November, our OCI valuations remain at a comfortable level, which should enable us to pay a dividend in 2024 subject to AGM and board of directors approval. If you now turn to the next page, a quick update on our overall strategy. We continue to accelerate our digital efforts and have expanded our partnerships and alliances to build ecosystems. We are also beginning to include AI into our lead and innovation part of the strategy. Our employee engagement continues to improve.
Results of this survey this year were 73, which are up on 68 the year before, 61 two years ago, and 53 three years ago. Anything above 70 is outstanding. With customer focus, we've continued to drive NPS. We recently received overall results based on third-party double-blind studies, which are number one overall and also tied for number one in digital.
We continue to reposition our brand around committed to your prosperity. You'll hear shortly a quick update on where we are with the China Life rename to KGI Life. We remain focused on driving growth, our AUM is now TWD 4.3 billion for the group, on target towards our goal of TWD 5 billion by 2025. We continue to focus on transforming our IT infrastructure, a lot of work continues on building open APIs and shifting more of our applications to the cloud.
As you saw a few moments ago, we continue to maintain very strong ESG leadership. When you go to the next page, I'll only touch on a few examples of what's been occurring in our businesses. China Life has launched over 100 new functions in our customer app, the percentage of self-service ratio has increased from nine to 17%.
We will complete the rebrand of China Life to KGI Life in January 1st of this year, there'll be a press conference in December to announce this in more detail. We remain focused on driving foreign currencies, our market share is now number one, with FYP reaching TWD 21.2 billion. We remain ranked number two in protection-type products with FYP reaching TWD 15 billion, a 30% year-on-year growth. For KGI Bank, we continue to expand our alliance networks to now 11 partners.
We launched KGIB/KGIS consolidated onboarding process, which by automating over half the information, continues to optimize the customer experience. The number of mobile app logins also continues to increase, up 20%, now 87% of all our transactions are digital. In terms of industry-leading deposit collaboration with nonprofit organizations, we reached TWD 600 million during the first nine months of this year.
For CDIB Capital, we continue to explore new asset management products, for example, fund of funds and our corporate ventures. We also kicked off a beneficiary note program with a target size of $ 33 billion, which is off to a very strong start. Our green asset investments reached TWD 2.8 billion, up 7.4% on last year. KGI Securities also continues to increase their share of straight-through processing transactions up to 50%, compared to 23% at the end of last year.
We strengthened our TCF and launched toll-free hotlines for elderly customers. We've now trained over 1,000 China Life agents who have passed the securities special license exam. We launched a new financial podcast, which was ranked top 15 for business programs during the first week. I'll now turn it over to Jenny to give you an update on our financials.
Thank you, Steve. English investors, now I will cover the nine months 2023 performance. Please go to slide 13. Our nine-month net income is TWD 70.51 billion. KGIS profits have doubled compared to last year. China Life, due to hedging costs, they have seen some decline in their profitability. In terms of the consolidated net income, we have climbed up to 5% to TWD 3.7 trillion, and our net worth has also grown from TWD 209 billion to TWD 235 billion of this year. Next page. It's on mute.
CDIB's first three months net income is TWD 4.2 billion, down 11% comparing to last year. This is because of the negative carry from the bond position. Since we expect the rates will begin to ease, we believe our negative carry situation will be eased.
On the upper right chart, CDIB's nine-month profit, due to the recovery of valuation, we have picked up our loss and then gained TWD 1.4 billion by the first nine months. KGIS net income is TWD 5.4 billion, which has doubled from the previous year. For KGIS, in terms of traditional brokerage, wealth management business, and other business have seen great increase comparing to the last year. This is the capitalization of our subsidiaries.
If we look at CDF, our double leverage ratio has dropped from 128% last year to 124% this year. For the first three quarters performance and the recovery in our OCI, they have both benefited our capitalization in the holdings, we believe we can maintain our double leverage ratio on regulatory standards. You can also see the three subsidiaries' capital adequacy. They are all on a very sound basis. Now I'll hand over to Mandy to talk about the subsidiaries details. Thank you.
Page 17, China Life. As you can see in the slide for the premium income, the FYP in the first nine months, the decline is because of rapid rate hikes. China Life continues to focus on six-pay products, including foreign currency products. As you can see on the upper right, the product mix, traditional regular pay has increased 36% YoY, accounting for 53% of the FYP.
To strengthen the matching of asset and liability, China Life also focuses on the sale of USD policies. In the first nine months, the market share of USD policy ranked number one in the industry, making up more than 50% of FYP. For distribution channels, China Life maintains a balanced approach and continues to increase the FYP contribution from its own channel. Now it's for 29%, it also focus on regular pay products and AMH.
FYPE, although FYP declined, but FYPE is roughly the same compared to last year. Regular pay takes up nearly 90%. Page eighteen. For VNB, value of new business, due to weaker premium momentum, VNB dropped around 9% year-over-year. However, because we focus on high-value products, as you can see on the slide, VNB margin reached 35.3%, which is much higher compared to last year.
For spread, due to the increase in hedging costs, the investment return is 3.57, and COI is at 3.02, maintaining a positive spread. Page nineteen, our portfolio. We value ALM and focus on long-term and stable income. With fixed income as the main allocation, China Life seizes investment opportunity amid rate hike. The asset allocation remains the same compared to last year.
Part of the wage changes are from the changes in investment valuation. The investment returns of each asset are as listed, and the figures for investment are pre-hedge figures. Next, slide 20. Our recurring yield. Due to the increase in return from new money, the recurring yield in the first quarter increased 10% year-over-year.
Hedging cost, the percentage is 1.27, which is much better than the first half of the year. For the hedging structure, the hedge ratio is around 55%. It has been lowered slightly. For FX reserve, by the end of September, we have reached TWD 16.53 billion, reaching the legal cap. Next, KGI Bank. Page 22, the net revenue due to rate hike. The financial asset related income increased by 70% year-over-year.
Due to rising funding costs, interest income has declined slightly, but the overall net revenue is the same as last year. The income grew by 6% year-over-year, while management related income grew 30% year-over-year. For NIM and spread, due to structure optimization, the spread has reached 2.1%, and NIM was affected by rising funding costs. The first nine months, it has remained at 1.32%.
Time please.
We continue to maintain sound asset quality. For NPL, although the ratio went up slightly, it is due to a single case, and this case has, however, sufficient guarantee, and now it has entered the disposal process. If we exclude that, the figure is 0.21. We continue to maintain a solid asset quality moving forward. Next slide.
As you can see on the slide, the loan mix, which is the same as last year. We continue to optimize the mix. As you can see, for SME, it grew by 26%. Customer loan grew by 17%, among which personal loans increased by 24%. On the other side, for deposit mix, compared to the same period last year, the change in deposit balance was mainly due to the increase in foreign currency and time deposit by 37%. Next, CDIB.
Please go to page 25. CDIB, in terms of its asset management business, it closed the first round of Guoshan Tower business fund, and AUM increased to TWD 52.7 billion. In terms of principal investment composition by geography, China and global positions are both increasing, mainly due to fund disbursement and valuation growth.
The overall asset is TWD 13.9 billion. In the top right, the fee income. CDIB continues to strengthen the asset management business to drive the stable fee income, and the first nine-month fee income is TWD 420 million. The top right return is compared with the MSCI volatility. CDIB's investment positions is more stable than that of the market.
On the bottom left and bottom right, in terms of the PE business, since 2020, this is a new business, private credit, and the business scale has picked up year-on-year. It also contributes more interest income and fee income, and it contributes to more stable profit for the company. The first nine-month revenue reached TWD 240 million. Next, KGIS. Please go to page 28.
The first nine-month ROE is 13% and outperforming the industry average. The key strategy, including the overseas expansion and wealth management growth. In terms of overseas, the contribution accounted for 14.4% compared with 11% last year. A significant growth. In terms of AUM, including wealth management pick up 22%. On the bottom right, the wealth management related revenue increased 42% compared with the same period last year.
In page 29, the net revenue in first nine months. KGIS first nine months net revenue amounted to TWD 11 billion, increased as 33% compared with the same period last year, and mainly benefiting from the capital market stabilization and successful investment strategies. Interest income also increased 18%. On the right chart, we can see the leading position of KGIS in the market. That's the performance overview of the four subsidiaries in the first three quarters. Next, we're going to move to the Q&A session.
Thank you for your explanation. Now we move to the Q&A. We will invite institutional investors and analysts to raise questions. Please remember to press the raise your hand button to raise questions. The first question, Jamie from JP Morgan. Can you hear me? Jamie?
Yes.
Can you speak louder?
Yes, okay. I have a few questions.
For KGIB, it seems the NIM quarter-on-quarter is flat. It is an adjusted number for NIM. If it's a reported NIM, what is the quarter-on-quarter trend? Secondly, for the management, do you expect in the future quarters the outlook will be flat? The second question, NPL. The NPL growth is due to a single case. I don't know if you can share more detail about the case, about the region or the industry of the case.
You mentioned you have fully collateralized the case. Does that mean we don't have any extra provision for the case and will rely on the collateral disposal? As for China Life, can you share with us the recurring yield in this interest backdrop? If we look into the future for the next 12 months, how much space for further interest rate hikes?
Another question is about hedging cost. You already reached the maximum limit of the FX reserve, I don't know the exact number of the limit. If you already reached the limit, in Q4, are there any benefits to the recurring yield in Q4? Second question about China Life. The FSC made an announcement about ICS intermediate metrics for interest risk in[ RV, C, and IGS calculation], how much percentage in the calculation?
The last question about CDF, your dividend policy. Some of your peers mentioned based on what they understood this year, whether they use for the revision or write-off, it depends on the classification and the other equity. Last year, if you have any deficiencies you don't need to provision. I believe you're facing the same issue. Based on what you understand, are you going to follow the same approach as the peers?
That means this year, based on the valuation under fair value of equity and reclassification, so far the distributable reserve is still better than the reported earning.
Thank you. Thank you, Jamie, for your questions. For KGIB, China Life, and CDF. For KGIB, we will invite Ms. Neville from KGIB to answer.
About the NIM question, now 1.33% is swap included. If we exclude swap, this figure is at 1.13%. There will be a 20 basis points difference before and after calculating swap. This NIM spread is actually increasing. The swap effect at the beginning of the year is about 15 basis points. For the single case that affects our NPL, this is a case of a business building in London. Now we are making the reserve based on the regulation. The current valuation of this real estate, we believe it will fully cover our exposure in the real estate position. For China Life, you asked about recurring yields and other question, I will hand over to Lauren.
For hedging cost and recurring yield, for the next 12 months, the increase of recurring yield, if the rate remains high, new money can be benefited. We think it's possible to go up. However, we need to look at the overall position. We do need a bigger fund. I think it's about 5 to 10 basis points, but it depends on the rates moving forward. For hedging costs, we have reached the limit in September. The figure is TWD 15.5 billion. What benefits will it bring? Because FX fluctuates a lot, it will affect hedging cost. We will continue to adopt a stable approach. Now I will pass the floor to Rochelle.
Jenny, good afternoon. Based on current calculation, our interest rate risk under RBC and ICS is roughly the same. Starting from last year, Insurance Bureau has a weighted approach.
The purpose is to bridge the gap between the two schemes. Last year, this year, we do not fall in that category. Before the transition, we won't fall into that category as well. This is my response to that. Now, I will pass the floor to Jenny. You asked about the dividend-related issue.
Our view is the same as our peers. About the distributable dividend or revenue, meaning that if our OCI and our reclassification mark to market do not pose any further unrealized loss, then we will be able to use the revenue of the quarter or of the period, but we also need to make a reserve of 10% for capital. I hope that answered your question.
I have a follow-up question. Based on what we've seen end of September, end of October, our unrealized loss valuation, if we include the shareholders' equity or reclassification, is the net impact positive or negative?
Based on the end of September's figure, we've already had the statement that it results is a positive impact.
Okay, understood.
Are there any other questions?
Now, Peggy from Morgan Stanley. Peggy.
Can you hear me?
Yes.
Okay. Thank you. My question is that we see that the double leverage ratio by the end of September, you maintain at the level of 124%. This is still relatively high since the regulatory limit is 125%. Would this affect the dividend payout of the next year? What is your view or your strategy over the high DLR ratio? What will you do to lower that? Also, the ADT view on the Taiwanese stock. I would like to hear from the management.
We will hand over to Jenny to answer the double leverage ratio issue.
Regarding whether DLR affects the dividend payout. We need to maintain a stable financial status to give dividend. Although the regulation did not say if we exceed any limits, we cannot pay the dividend, but we still concern our soundness of financial data figures. Now the ratio is at 124%. We maintain close control to the risk and the capital under the holdings. Our view for next year is still positive. We have a level of confidence to maintain at the regulatory threshold of DLR.
Peggy, your second question. You asked about the Taiwanese stock question. Can you elaborate?
The ADT transaction volume, what is your view?
Yeah. I'll talk about the market. Obviously, the market has continued to improve. We're seeing inventory levels being replenished. Our view is that the market trend will remain positive, at least during the first part of next year.
Thank you. Are there any other questions? I will hand over to Ms. Wang from Bloomberg.
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Will you be adding your position on that? Thank you.
We'll hand over to Lauren.
Good afternoon. We talked about this. The portfolio remains the same. The changes comes from valuation. As you can see, for foreign investments, it seems like there is overweight. However, because of rate changes and TWD depreciation, it seems like we have increased foreign investment, but that's not the case. For overall portfolio, we only do a minor adjustment. For our bond ETF, the percentage is not very high. It's around four%-five%. This is my response. Thank you.
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Whether we will continue to increase position. Our product strategy, as we mentioned, we will focus on USD policies. For USD coming in, we will make foreign investments. With new funds, we will continue to be used for foreign investment.
Okay, understood.
[Non-English content] Question Tina from Cap President Holdings.
Can you hear me?
Yes. The floor is yours.
I have a few questions. First is to KGIB. You mentioned the FX revenue. What is the amount for the first three quarters, and what is your outlook for Q4? Will you be carrying on the momentum for FX all the way until Q4? I want to ask about the single case in overseas of the real estate. Will you be adding more reserve for that? What is your cost of credit? Whether your cost of credit will be at a low level? I will also like to know about the loan and the fee strategy of KGIB, because the loan strategy maintained flat and fee is also not increasing.
I would like to know your view for the next year. The second question goes to China Life for FYP VNB and hedging cost. What will be your guidance for next year? The third question has to do with venture capital. I know that you are a big shareholder of World Gym. World Gym might go to IPO in the next year, and after IPO, would it bring any more benefits to your holdings? What is the valuation of World Gym on your book? That will be all.
Tina, thank you for your question. For bank question, we will hand over to Chris.
Regarding the first three quarters FX swap income, it is considered stable. The nine-month figure is about TWD 1 billion, and we expect that in Q4, the momentum will continue or even be better.
For next year, if we are looking forward, I don't think it is a good timing for us to determine, because we still need to rely on the rate hike and the market situation. The single case impact to our NPL, our credit cost is still maintained at 3 - 5 basis points. We believe that it wouldn't strike a big impact to our NPL. In terms of loan and fee, although they both remain flat, the composition or the mix of the loan and fee has been changed.
We have reduced position coming from large corporation and increased percentage coming from SME loan, and they have all seen good momentum. Although the overall fee income, wealth management related fee increased by 30%, what have gone down is the fee income coming from the large corporations. We believe our growth momentum will continue, and we will be briefing you on the latest move in the next year. For China Life, I will hand over to Rochelle.
Next year, with less market fluctuation, FYP VNB next year will grow by 10%-20% our target. For hedging cost, I will pass the floor to Lauren.
Next year, because the spread between Taiwan and U.S., the situation won't be resolved soon, the hedging point cost will remain high at swap and NDF. On the other hand, if we look at NTD exchange rate, it really fluctuates a lot. Next year, we think it is possible to maintain the same level as this year, but it really depends on the market condition.
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More questions?
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We are open for the question session for the medias. Now we invite Shu Shen.
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Can't hear you.
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Can you speak louder, please?
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Limited by OCI. Thank you. Thank you Shu Shen. We will invite our Chief Financial Officer to answer your question.
Yes, what you mentioned is correct. This year, by the end of September, we've mentioned our OCI plus the reclassification positions. It is a positive figure. In this situation, when we consider our dividend policies, we can consider our current earnings, and that's all. Are there other questions? Jenny from JPMorgan, you can ask questions, please. Sorry, I forgot to click the button.
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Shu Shen, do you have more questions? If yes, you can speak out. I would like to confirm with Jenny's answer.
Can you hear me?
Yes. We can hear you.
Jenny's answer, do you mean now in the other equities, we see negative numbers, those numbers will not impact the dividend payout next year? I just want to confirm.
Yes. We only look at the current variation. You look at the accumulation number.
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Any other questions?
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Thank you for your questions. That's all for today's investment conference. We receive a question. Chen Xin Wen.
[Non-English content] which assets, which negative
You have TWD 30 billion reserve.
Yes, according to the regulation, it is sufficient to pay dividend.
Thank you.
Okay, no further questions, and that's all for today's investment conference. Later you can find today's recording in the investment conference area in our website. You can also download the PowerPoint. If you have further questions, you can call or email us. Thank you for joining today. Wish you all well. Thank you