Dear friends, good afternoon. On this April 20th, we welcome all of you to join the 2022 Q2 investor conference call. Today we have four parts to the agenda. First of all, we will invite our Chief Executive Officer, Steve, to introduce the performance review of the holding company. He will also introduce the ABCD strategic update of the app and the subsidiaries.
For financial overview, our Chief Financial Officer, Jenny Huang, will update the financials of the CDIB. In terms of the performance of each subsidiary, the Chief Executive Officer from each subsidiary will talk about them. The last part is Q&A. I invite Steve to take the floor. You can select the translation function in the Webex. Steve, the stage is yours.
Thank you everyone for joining us today. Today I'd like to give you an update on our H1 highlights. For our first half net income, we had TWD 10.1 billion in earnings per share of TWD 0.61, and our net worth was also up TWD 35 billion from year-end 2022. CDIB, China Life, KGI Bank, and KGI Securities all published TCFD reports to strengthen climate governance and showcase results.
As you might be familiar with, TCFD stands for Task Force on Climate-related Financial Disclosures. This reviews risk assessment, capital allocation, and strategic planning. Very recently, we held our first generative AI hackathon with over 200 participants proposing innovative financial solutions. We had 27 teams meeting over two days.
We also worked with some of our key industry partners, such as Microsoft and Google. This was really a great example of fostering one of our core values, which is entrepreneurial spirit. Our teams focused on AI applications, which would help enhance productivity and improving customer experience. We're very excited by the result, and we look forward to doing more of these in the future.
We finally did the spin-off of KGI SITE from KGI Securities, so now it's a full subsidiary of CDIB. I also briefly wanted to address China exposure, because I know there's been a lot of questions on financial holding companies. As of June of this year, our total exposure in China was TWD 132 billion, which is 3.6% of our total assets of TWD 3.6 trillion. This number is down over TWD 54 billion or 30% since 2021.
Our exposure in real estate, which is the main area that people have been focused on, is less than TWD 8 billion, which is actually less than 0.0215%. CDIB and its subsidiaries also do not have any direct investment or lending relationship with Evergrande, Country Garden, or Zhongzhi Group. In terms of China Life, our first half net income was TWD 4.9 billion.
We focused on continuing to grow our high-value products and increase share of regular paid policies. VNB margin was also up to 34.3% from 27.1% during the same period last year. The team maintains prudent investment management in this volatile market and managed to improve our pre-hedging yield by 19 basis points to 3.66%.
In terms of KGI Bank, our first half net income was TWD 3 billion with an annualized ROE of 9.5%. SME and personal loans, which have been a carrier focus, continued to grow at 25% and 25% year-on-year respectively.
Our retail banking AUM was up 13%. Our consumer financial joint venture in China continues to perform extremely well. It was up 291%, and the Board approved a further ownership increase from 36.2% to 37.6%, which we expect to occur later this year. CDIB Capital during the first half delivered TWD 1.6 billion in net income and an annualized ROE of 11.2%. They continued to deliver resilient returns in this market with an ROI of 8.4%.
The team also signed an MOU with Soochow Life for co-funding and insurance management to set up a co-funding and insurance management company. KGI Securities had a very strong first half, delivering TWD 3.7 billion in net income, which is a 73% year-on-year. We also saw very strong overseas contribution up over 6 x, primarily driven by Singapore at a 13.6% ROE.
We maintained our number one position in ECM and DCM, and our brokered market share increased from 10.4% to 11%. KGI Securities also grew AUM by 18%. I also wanted to add that during the first eight months of this year, our staff contributed over 70,000 hours of volunteer work, which is above 90% of what we did during all of 2022.
If you turn the page, I would like to briefly give you an update on our ABCD strategy. I'm only going to touch on a few examples from each subsidiary. Some of the key areas that we'll cover is continuing to digitize our customer journeys, empowering our staff to simplify processes, continuing to install and embed Net Promoter Score, repositioning our brand, continuing to leverage cross-sell and analytics to accelerate growth, as well as continuing to grow our AUM.
We've been very focused on enhancing productivity and maintaining our ESG leadership. We quickly turn to the next page regarding China Life. One of the key examples on the digital front is they continue to add functionality to our customer app. Over 100 functions have been added, and we're seeing continued increase in automated services, almost doubling from 8% to 15%.
We have seen increased use of robotics, RPAs, and process automation, with 25 of those put in place. I'm sure you also read that we decided to rebrand China Life into KGI Life, and that's been approved by the Board and also by the Insurance Bureau. In terms of continuing to build on our ESG initiatives, you can see once again that China Life continues to do a great job.
We've had five consecutive years of winning the Treating Customers Fairly Award. Moving to KGI Bank. Also on the digital front, continued work on enhancing our onboarding experience by launching a multi-service application where multiple accounts can be open at the same time. We continue to add functionality with 42 new features added, which further help to improve our NPS score. The bank has been leading on RPAs. They launched a further 13.
At a group level now, we have over 200 RPAs that have been implemented primarily to improve productivity. In terms of CDIB Capital, they continue to focus on nurturing ecosystems in many strategic industries in Taiwan, particularly semiconductors, smart manufacturing, and sustainability. They are also actively exploring some new asset management products, including private credit and corporate ventures.
We saw a kickoff of fundraising with Innolux, targeting TWD 3.3 billion, and the team continues to stay very focused on sustainability and to further strengthen our offerings in that space. KGI Securities continues to enhance their application, and you can see in terms of trading strategies now, the recommendations have increased from 135 to 250. They have been very focused on growing our high net worth part of the business with over 11 seminars held, as well as issuing a tax guide to help in terms of family wealth planning and transfer.
They have been working closely with China Life, and we have now trained over 800 agents who have passed the securities exam. We're doing some innovative work by launching a KGI video channel, which launched in August and has been very well received. I will now turn it over to Jenny to give you an update on our financials.
Thank you, Steve. We will talk about our profitability. Please refer to page 13 on the slides. The first half of our net income is TWD 10.1 billion. ROE is 9%, excluding China Life, KGIB, KGIS, and CDIB's performance has grown significantly. Our consolidated assets has grown up to TWD 3.6 trillion, and our first half of CI has recovered to about TWD 25 billion, and our total equity has recovered from TWD 209 billion to TWD 239 billion, up 17%. Next page.
On the upper left, China Life's net income is TWD 4.9 billion. ROE is 8.2%. This one is because of the increase of hedging costs. The new money yield has amounted to 5.5% and bringing up the recurring income yield. This has been up for 19 basis points. Because of the market fluctuation, China Life's product mix continue to optimize. China Life's VNB and VNB margin has performed stably.
At the lower left is KGIB. KGIB's first half net income is TWD 3 billion. ROE is 9.5%. In terms of loan and deposits, as well as wealth management fee income, and the investment on the Suyin KGI Consumer Finance have all grown significantly. Next is on CDIB Capital. Because of the return of evaluation, our first half CAP income increased to TWD 1.6 billion and ROE is 11.2%.
Our performance is considered stable comparing to our peers. KGIS net income is TWD 3.7 billion, ROE is 13.6%, grow quite significantly comparing to last year. Our brokerage income, our fee income, as well as the overseas subsidiaries performance have grown quite significantly comparing to last year. Next page. Here we can look at the capitalization of our group. Our double leverage ratio in CDIB has lowered to 123%, meeting the regulatory threshold.
If we look at other subsidiaries' capitalization, we believe our capital position remains quite strong. This is the financial update. Now, I'll hand over to Stephanie for China Life.
Please go to page 17. First half of the year, the total premium reached TWD 82 billion and FYP reached TWD 30 billion. There is a decline in China Life and the overall industry. We focus on value contribution. Therefore, if we exclude ILP, our FYP only slightly decreased 2%. This is far lower than the 15% decline in the industry.
In the first half of the year, our FYPE reached TWD 13.7 billion, ranking number three in the industry. In response to the transition of our 517 and ICS, China Life has continued to enhance our product mix. First, we focus on the sales of protection products because it will generate higher CSM conducive to the transition. The FYP proportion of protection products among traditional products has increased from 28% at the end of last year to 38%.
The market share has increased from 10% at the end of last year to 12%. The industry ranking has increased from number four to number two. Second, China Life focuses on the sales of traditional foreign currency policies. Because foreign currency policies have higher profits, it is also beneficial to asset and liability management, beneficial to our ALM due to currency matching. In the first half of the year, the FYP of traditional foreign currency policy was TWD 15.8 billion, accounting for nearly 60% of the FYP of all traditional products, a 15% market share.
In terms of sales distribution, we continued to maintain a balanced approach among multiple channels. Bank channel continues to see results in product transformation. The market share of high-value products with a payment period of six years or above maintains number one in the market. Next, please go to page 18.
In the first half of the year, our VNB reached TWD 10.3 billion, close to last year's TWD 10.5 billion. The VNB margin increased from 27.1% to 34.3% year-on-year. In the second half of the year, China Life's product strategy will continue to focus on the sales of protection and foreign currency policies, with the goal of reaching our annual target with their value contribution.
In terms of asset and liabilities, the stable positive spread is maintained. In the first half, our ROI reached 3.1%. COL was 3.01%. The COL continued to be the lowest among large life insurers. Next, page 19. To match asset and liability, China Life focuses on the performance of long-term recurring income. Together with the sales of foreign currency policies, which is our focus, we grasp opportunities during rate hikes and continue to invest foreign bonds with better yields.
The percentage has gone up to nearly 70%, of which among domestic bonds, the ETF accounts for around 4.3%. For our China investment, in the past two years, we have continued to reduce our investment position in China. As of the end of June, it only accounts for 3.6% of disposable fund, which has significantly dropped compared to 6.1% at the end of 2021. Next slide.
Through prudent asset allocation, we maintain a stable recurring yield, reflecting the increase in yield from new money. The annual free hedging yield was 3.66%, an increase of 19 basis points year-over-year. Thanks to the TWD depreciation in Q2 and the flexible hedging operation, our hedging cost, 1.69%, has been better compared to last quarter, and our balance of FX reserve increased to TWD 11.5 billion.
To strengthen our capital, we have issued TWD 10 billion sub-debt, and the fundraising was successfully completed in June. As of now, China Life's RBC has increased to over 330%. This is China Life's part. Now I will pass the mic to [Inaudible]. Thank you.
Hello, everyone. I will talk about the profitability and long deposit trend of KGI. In terms of profitability, in the first half, our net revenue is TWD 6.9 billion, and the spread increased from 1.88% to 2.07% in the first half of 2023. The net revenue, which evolved in corporate loans and global markets and P loan. The first half of net revenue is TWD 6.9 billion and the fee income, net fee income increased to 3%.
The slight increase is due to the wealth management business growth, and the annual growth is 34%. In 2023 first half, the spread benefiting from the credit asset adjustment and interest high compared with the same period last year increased to 27 basis points. Compared with the end of 2022 increased to 19 basis points. In the first half 2023 NIM, even though due to the FX cost increase, is maintained at 1.33%.
We dedicated to maintain the stable of our asset quality. The NPL ratio is 0.19%. In terms of the loan and deposit trends, we continue to adjust our structure of loan. SME and consumer loans continue to maintain double-digits annual growth, and the total growth of the loan is 16%, and CASA ratio recovered to 41%. In terms of loan structure, we adjusted the asset quality. Our business focus is SME and P loan.
The growth of the two business, SME increased to 25%, while consumer loan growth, 15%. The annual growth of P loan is 21% and the CASA growth is 16%. That is due to the U.S. dollar interest rate increase, and we absorb more NTD deposit and USD term deposit. Our deposit structure is also in a good shape. Next, I'll hand over to Melanie Nan for CDIB Capital.
Good afternoon, everyone. I'll introduce the performance review in the first half of 2023. Please look at page 25. CDIB Capital continue to focus on asset management business. We seek for innovation to maintain a steady revenue. Due to KGI Taiwan Business Bond completing the first fundraising, the AUM reached TWD 51 billion. In the AUM, 50% have denominated in USD and 26% in NTD. In terms of the principal investment, the total is TWD 33 billion. Overseas and Taiwan accounted for 60%, and China accounted for 40%.
In the first half, the growth is due to the valuation increase of the previous investment. In page 26. In terms of fee income, on the top left, compared with the same period last year, first half in 2023 is slightly decreased. That is due to some part of the fund enters into disposal period and the fee income decreased according to the contractual terms. After closing in the second half it will be increased. On the top right, in terms of return on investment, compared with the same period last year.
Last year it was negatively 4.6%, increased to 8.4% this year. It is slightly lower than the MSCI index. That is due to part of our investment is in funds and the valuation will not be volatile. If we compare with other peers, our rate of investment is 30%, which is higher than the MSCI World Index. In the second part of the table, that indicates our new business, private credits. The total revenue increased to TWD 155 million, and the fee income increased to 40%. The average coupon rate is 11.8%. That is our update on CDIB Index pool and fund from KGIS.
Good afternoon, everyone. I will introduce our first half 2023 overall profitability. On the top left. That is the comparison between KGIS and the industry average. The darker line is KGIS and the lighter line is industry average. In the first half of this year, our ROAE is 13.6% and outperformed the industry average. In terms of the portfolio, the net income composition is TWD 3.7 billion and overseas subsidiaries contribute 15.3%.
Accounts for TWD 540 million. KGI Singapore performed really well and continue to break record revenue. The equity business also ranked number one in the Singapore market. In the bottom left, the AUM growth 18%.
Wealth management and asset management businesses both increased. On the right bottom, we can see wealth management revenue in the first half this year, the revenue compared with the same period last year increased drastically. We will continue to plan and develop security-related wealth management business. Please go to the next page. On the left side, that is our net revenue. In the first half of this year, KGI has grabbed the opportunity of rebound of index.
The net revenue increased obviously, the brokerage commission income also maintained the momentum that offsets the impact from the rate hike. Compared with the same period last year, we increased 18% to TWD 7.2 billion. On the right side, that is our market position in Taiwan. In the first half, our brokerage market share maintained stable position. Compared with last year, we increased slightly.
For other businesses, equity or bond underwriting, we maintained the number one position in the market. Next, I will hand the floor back to April.
Thank you for the sharing from the subsidiaries. We will invite corporate investors and professional investors to raise their questions. Please remember to raise your hand on WebEx, so we will know you have a question. Thank you.
[Non-English content] First, we invite Jamie from JPMorgan. Please unmute before we speak.
Can you hear me?
Yes.
I have three questions. First, Steve mentioned that your exposure in China is about TWD 132 billion. My question is that for KGI Bank, because I heard from China Life, China Life accounts for 3.6% of exposure and the rest of the TWD 132 billion for the bank. Among the 3.6% of China Life, does it include the investment on CCB? In addition to that, what are your investment targets? Can you share with us?
Next, regarding to KGI Bank, are the main exposure focused on loan or credit? Are there any targets that is about Chinese corporate or non-corporate exposure? Next is on the net interest margin. The quarter-on-quarter growth seems to be flat. I remember in Q1 you mentioned swap revenue is about TWD 400 million to TWD 500 million.
I wonder what is the Q2 composition for that, and how can we look into the second half of the year, including and excluding the swap. What is the trend of your NIM? My third question has to do with China Life. I'm not sure if I heard correctly. When we talk about protection products takes about 38% of your FYP. I wonder in terms of our regular definition, the VNB margin for protection products, based on the main products that we're selling, what is the VNB margin?
In the second half of the year, will you be also focusing on the same products? Next is the FX reserve for China Life. Has it already touched the regulatory limits? If it does, then I think your hedging cost, you said your target is 1.5%, and would it impact your hedging cost prediction? What is your realized loss? I think there is about TWD 3.5 billion or TWD 3.6 billion. What is the percentage for equity and bond, respectively?
Okay. Thank you, Jamie. You asked question about holdings and KGI Life and KGI Bank. We will have Sorry. In terms of KGI Bank, we will first have the Chief Executive Officer of KGI Bank to answer the question.
To answer your question, our exposure in China, by the end of June, our exposure in terms of loans and investment in total is about 51% of our total net worth, which is about TWD 31.2 billion. That includes our investment through in KGI. Our loan balance is about TWD 26.1 billion, accounts for 43% of our total net worth. You've also asked about the percentage. Actually, 1/3 of them are Taiwanese corporations based in China.
Another 1/3 of them are KGI Bank securities and leasing companies with good credit. The other 1/3 is of some of the Chinese enterprises. 90% of them are larger fund investment targets, so we believe our risk is managed quite well. That's all for KGI Bank. Okay, then for China Life, we will have our Head of Investors to answer.
Hi, I am Lauren. I will respond regarding China exposure. The 3.6% includes CCB Life. In addition to CCB Life, other financial investments are fixed income, mainly 70% are A-grade bonds, and most of them are SOE, supported by the nation, whether it's national bank or national corporation. Our China exposure are stable, relatively speaking.
Second, for our FX reserve, the upper limit. In the past, the voluntary contribution is quite limited. We haven't reached the upper limit yet, but now there is a small gap. If we reach the gap, NTD continue to depreciate at a 1.5% hedging cost, I think it will be beneficial, and it can be even lower than 1.5. Next, I want to welcome our Chief Financial Officer , Jenny to respond to other questions. Regarding the population loss rate, 2/3 are financial tools evaluation.
Hi, I am Rochelle. The protection type product includes health, injury, and life insurance product with protection. Now our VNB margin is around 50%-60%. In the second half, we will continue our product strategy focusing on high-value regular pay products and foreign currency products. Thank you.
Now we will have Chief Financial Officer of the bank to answer the rest of the question.
You mentioned our NIM guidance. I think the rate hike has come to a pause and the demand deposit or time deposit ratio has increased, cost of fund has been increasing rapidly. In terms of the 1.33% NIM, we believe we can maintain at this target. You've also asked about the FX swap percentage. I think it is still consistent with the figure from the first half, first quarter.
Are there any other investor who would like to ask the questions? Who would like to ask the question, please remember to raise your hand. Now I will invite Capital Investments, Tina. Can you hear me now?
Yes. I have three questions. First, addressing to China Life, what is your hedging COL expectation? For the first year, this figure has increased, I wonder what will be your guidance for your cost of liabilities. My second question is for bank, about your fee income, because I see that your fee income main contribution is coming from wealth management.
What is your guidance in terms of equity or bond or any other investments plan, and what will be your overall guidance for wealth management? I would also like to ask about your loan, because for the first half, your loan didn't really grow much. Will you be focusing on growing loan balance, or you will be focusing on the FX transaction for business? That's my questions. Tina, thank you for your question.
You have asked question for both China Life and KGI, and we'll have the Chief Actuary response from China Life to answer the question.
Hi, Tina. You talked about COL slightly increased, which is because of the sales of foreign currency policy, which account for up to close to 70%, and the cost of liability is higher for foreign currency policies. Our expectation is around an increase of five to seven basis points. We will control it below 3.05%. This level is also quite low compared to other big life insurer. There are two questions for bank. One is fee income, one is loan. I will pass the mic to Chief Financial Officer.
In terms of the fee income, just as you said, our main contribution is coming from wealth management. Our momentum for wealth management, we want to maintain it and year. Our wealth management fee income can be consistent with the first half. In terms of loan, although our total loan size did not increase, but regarding to some of the high spread products such as SME loan or personal loan, they have actually grown quite significantly and our second half trend and guidance will be consistent. Our full year loan growth will be low single digits.
[Non-English content] Thank you. I do not have further question.
Thank you. Are there any other analysts or institutional investors who would like to ask questions? Let me remind you again, remember to click the Raise Your Hand button to ask the question.
If there is no further question from you, we will now move on to the time for questions for media. Please again, remember to raise your hand. [Non-English content] Next, we'll invite Ms. Sha from Financial Times.
Can you hear me now?
Yeah.
Okay. I want to ask about the exposure of China. Can you share with us the exposure amounts of each subsidiaries? What is the total exposure? Is it TWD 132 billion and for China Life, for KGI Bank, and for other subsidiaries, what is their percentage?
The overall exposure on China, I think we will hand this question to our Chief Financial Officer.
Our overall exposure for China is TWD 132 billion. China Life accounts for about TWD 80 billion. As mentioned, it includes our investment in CCB Life. KGI is TWD 32 billion, and KGI Asset is about TWD 10 billion, and CDIB is TWD 900 million. Okay. Are there any other questions?
I'll Invite Ms. Wang from Bloomberg.
Hear me now?
Yes.
For Q1 to Q2, the investment allocation didn't really change much. I think the change is mainly on the domestic bond or what is your current view and your guidance for domestic bond investment?
I think you are asking the question for China Life. We'll have our Chief Investor to answer.
Hi. Our asset allocation adjustment, most increase comes from foreign bond denominated in USD ETFs. We put it, categorize it as domestic bond, and the yield is higher, and it doesn't need hedging. Therefore, we increase the investment. For the second half of the year, everyone is now paying attention to rate hike by Fed, this pace, and the times remaining. Now, the rate is at its peak, close to its peak. In terms of investments, bond offers great opportunities, Our investment strategy will increase our recurring yield, so that moving forward, we can have stable recurring income. Thank you.
[ Non-English content] Next, we'll invite Wei Ling from Gene Magazine.
In terms of your China exposure, are there any further guidance in terms of your investment in China? Will you be increasing or decreasing your exposure?
Maybe you can repeat your question again because you were quite broken up.
[Non-English content]
Okay. I think our Chief Executive Officer can answer your question.
I think in terms of China exposure, as you've seen, we have reduced it by about 30% from 21 levels. We don't expect any further material reduction. We think we're in a good place. If it is, it'll be relatively small. We don't expect any increase.
From the media. If there's no further questions, I would like to thank you for your participation and your questions, and this ends our investor call today. Later, you'll be able to find the video recording and the slides in our investor relation section. If you have any other further question, you can call or email us. I would like to first give you an early heads of saying Happy Moon Festival to everyone.