Cathay Financial Holding Co Ltd (TPE:2882) Q1 2025 Earnings Call Highlights: Strong Growth in ...
Net Income: TWD32 billion for Q4 2025; TWD32.2 billion for Q1 2025.
Return on Equity (ROE): 14.4% for Q4 2025.
Earnings Per Share (EPS): TWD2.18 for Q1 2025.
Cathay United Bank Earnings Growth: 17% year-on-year for Q1 2025.
Net Interest Income Growth: 18% year-on-year for Q1 2025.
Net Fee Income Growth: 33% year-on-year for Q1 2025.
Wealth Management Fee Growth: 46% year-on-year for Q1 2025.
Credit Card Fee Growth: 14% year-on-year for Q1 2025.
Cathay Life Total Premium Growth: 24% year-on-year to TWD134 billion for Q1 2025.
First Year Premium (FYP): TWD55 billion, doubled year-on-year for Q1 2025.
Value of New Business (VNB): TWD9.4 billion, up 9% year-on-year for Q1 2025.
Investment Yield: 4% after hedging for Q1 2025.
Asset Management AUM: TWD2.2 trillion for Q1 2025.
Book Value: TWD884 billion for Cathay Financial Holdings, down year-to-date.
Book Value Per Share: TWD52.8 for Q1 2025.
Embedded Value: TWD1,279 billion for 2024, up 12% year-on-year.
Appraisal Value: TWD1.55 trillion for 2024.
Warning! GuruFocus has detected 6 Warning Sign with TPE:2882.
Release Date: May 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Cathay Financial Holding Co Ltd (TPE:2882) delivered solid results in the fourth quarter with net income reaching TWD32 billion and ROE at 14.4%.
Cathay United Bank reported a 17% year-on-year growth in earnings, supported by double-digit growth in loans, net income, and net interest income.
Cathay Century, the P&C insurance subsidiary, achieved a 21% year-on-year increase in net income, maintaining solid underwriting profitability.
Cathay SITE, the asset management subsidiary, posted a 20% year-on-year earnings growth and continued to receive strong market recognition.
The company's capital position remained robust despite recent currency fluctuations, providing a solid buffer against financial market volatility.
Cathay Life's earnings declined year-on-year due to a high base of capital gain in the same period of last year.
The consolidated book value of the holding company was down year-to-date, reflecting lower mark-to-market value of financial assets amid stock market corrections.
The equity-to-asset ratio stood at 8.5%, indicating a decrease in book value due to equity market corrections.
The cost of liability rose slightly due to the declared rate increase for interest-sensitive policies.
Cathay Life's book value was down year-to-date, reflecting equity market corrections, which could impact future financial stability.
Q: How does Cathay Financial manage the impact of Taiwan dollar appreciation on its life business? A: Grace Chen, CFO, explained that Cathay Financial employs a dynamic hedging strategy using traditional hedging tools, currency swaps, NDFs, and proxy hedging with a basket of currencies correlated with the Taiwan dollar. This strategy effectively mitigates earnings impact despite short-term volatility. The FX volatility reserve offsets 60% of currency impact, and an application to adopt a new reserve mechanism could increase this to 100%. The company's strong capital position provides resilience against further volatility.
Q: What is the impact of U.S. tariffs and market volatility on Cathay's banking and life insurance businesses? A: Grace Chen noted that the banking business showed strong momentum, maintaining targets for high single-digit loan growth and fee income growth. For life insurance, Cathay increased cash positions to enhance flexibility and focused on aligning assets with liabilities. The company is well-prepared for IFRS 17 and ICS adoption, with a strategy prioritizing value-driven growth.
Q: How does Cathay United Bank manage risks associated with wealth management clients pledging Taiwan dollar assets to buy U.S. dollar products? A: Hsing-Hsien Hu, Senior EVP, stated that the pledge portfolio is not a major part of the business, with a healthy loan-to-value ratio of 50%. Investment revenue is driven by market performance rather than hedging strategies. The bank maintains a healthy portfolio and targets high single-digit growth in wealth management fees.
Q: What is Cathay Life's approach if the FX reserve is fully depleted due to Taiwan dollar appreciation? A: Chang-Ken Lee, CEO, expressed confidence in the hedging strategy's effectiveness, noting that the Taiwan dollar's recent appreciation was temporary. The company does not foresee structural changes in currency movements and believes the FX reserve will not be depleted. The hedging strategy remains effective, with no significant impact expected on earnings or capital.
Q: What is the single rate equivalent for the value of new business in 2024? A: Chang-Ken Lee stated that the equivalent investment rate for new business in 2024 is around 4.7%, up from 4.62% in 2023. This includes both Taiwan dollar and U.S. dollar new business.
Q: How much can Cathay leverage proxy hedging in its risk management strategy? A: Shu-Fen Cheng, Senior EVP, explained that proxy hedging typically ranges from 10% to 30% of the hedging strategy. The company adjusts the mix based on currency movements and risk-reward judgments, maintaining flexibility to manage currency volatility effectively.
Q: How does Cathay United Bank's deposit growth compare to peers, and what strategies are in place? A: Shu-Fen Cheng highlighted that Cathay United Bank's deposit growth has outperformed key peers for the past seven years, driven by a strong brand and enhanced corporate services. The bank focuses on attracting retail and corporate deposits without over-leveraging client assets.
Q: What are the historical hedging costs for Cathay Life, and how effective is the proxy hedging strategy? A: Shu-Fen Cheng noted that Cathay Life's hedging costs have been contained within 1% to 1.5% in most years, with proxy hedging effectively minimizing costs. The strategy leverages currency correlations and has proven effective over the past 14 years, with only two years exceeding the cost benchmark.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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