Welcome everyone to Cathay Financial Holding first quarter 2023 results webinar. All lines have been placed on mute to prevent background noise. After the presentation, there will be a question and answer session. Please follow the instructions given at the time if you would like to ask a question. I would like to introduce Ms. Sophia Cheng, CIO of Cathay Financial Holding Company. Sophia, you may begin. Thank you. Good afternoon, and good morning to investors in Europe. Welcome to Cathay Financial Holding's 2023 first quarter analyst meeting. I'm Sophia Cheng, the Chief Investment Officer of Cathay Financial Holding. Today, I will host the conference call. Thank you for joining us today. In the beginning, I would like to introduce the senior managers who are with us online. Today we have Mr. CK Lee, CEO of Cathay Financial Holding. CK, would you like to say a few words? Hello, everyone. Welcome to the investor meetings. Thank you. Thanks. We also have Ms. Grace Chen, our Chief Financial Officer of Cathay Financial Holding. Mr. Abel Lin, Managing Senior EVP of Cathay Life, and Mr. Kevin Hu, Senior EVP of Cathay United Bank. For today's conference call, Sophia Cheng from our IR team will present the first quarter results and announce the new 2022 embedded value details. After the presentation, we are open for Q&A session, in which senior management will answer your questions. Without further ado, let me pass the call over to Chang for the briefing of first quarter results. Thank you, Sophia. Let's start with the business overview on Page 4, which provide a quick highlight on each subsidiary. Cathay United Bank first quarter net income set a new record high for the January to March period, with 33% growth year-on-year, deliver double-digit growth in deposits and loans. Asset quality remained benign. Benefiting from rate hike, net interest income grew 26% year-on-year. Cathay Life recurring yield continued to improve. Interest income show double-digit growth year-on-year. Book value recovered with equity to asset ratio of 7.4%. Cathay Century, a general insurance subsidiary. Premium income growth 11% year-on-year, with 12% market share. Asset management subsidiary, Cathay SITE, AUM reached a new record of TWD 1.4 trillion, ranked number one in the industry. Lastly, Cathay Securities maintained its number one market share position in sub-brokerage business. Please look at Page 5. Cathay Financial Holding net income and EPS. Cathay Financial Holding net income was TWD 7.2 billion. First quarter's earnings reflect lower investment income, while the same period of last year set a high base period for earnings, benefiting from Taiwan dollar depreciation and more favorable capital markets. Core business maintained solid, as recurring income continued to show robust growth. Page 6 shows the subsidiaries' net income and ROE. Cathay United Bank's earnings grew 33% year-on-year to TWD 9.2 billion, driven by strong core earnings. Cathay SITE and Securities each deliver their second highest historical first quarter record. Although Cathay Life's earnings was affected by elevated hedging costs and subdued capital gains, the recurring income saw double-digit year-over-year growth, which is quite beneficial to the company's earnings quality in the long run. Cathay Century regained normal profit performance in April, with pandemic insurance sector fading out. Please turn to Page 7 to see the book value of Cathay Financial Holdings. The consolidated book value of holding company rebounded TWD 84 billion quarter-on-quarter to TWD 696 billion as of the end of first quarter. Book value per share increased to TWD 40.2. Pages 9 and 10 show our overseas expansion. Cathay Financial Holdings continue to extend overseas business through deepening business operation and digital transformation. The Ho Chi Minh City branch loans grew 20% year-on-year. Cathay Life Vietnam's total premium increased 25% year-on-year. Cathay Century Vietnam's premium also grew steadily. Also for the subsidiary operation in China subsidiary launched Green Bankers Acceptance discounting service in February, the first Taiwanese bank to do so in China. For Cathay Life's joint venture in China, the total premium growth, 20% year-on-year. Please turn to Page 12 for more details about the banking subsidiary. Cathay United Bank delivered strong loan growth with mortgage and corporate loans, each showing double-digit growth. The total loan balance increased 14% year-on-year to TWD 2.1 trillion as of the first quarter. Deposit grew 12% year-on-year to TWD 3.3 trillion. Interest yield is shown on Page 13. Benefiting from rising rates, first quarter 2023 net interest margin and interest spread increased 19 basis points and 12 basis points year-on-year respectively, while declining quarter-on-quarter due to fast repricing of deposit rate. Page 14 shows the asset quality. Cathay United Bank maintained low NPL ratio at 7 basis points, and coverage ratio was over 2,000%. Gross provision was TWD 1.5 billion. Recovery was TWD 1.8 billion. Please turn to Page 15 for SME and foreign currency loans. SME loan balance shows robust growth to TWD 310 billion, accounting for 15% of the total loan. Foreign currency loan balance was TWD 217 billion, maintained at the same level of 2022 year-end, excluding the impact from Taiwan dollars appreciation. Page 16 shows offshore earnings. The offshore earnings declined due to lower 101 investment income. Please turn to Page 17 for fee income. Fee income grew 2% to TWD 5.3 billion in the first quarter of 2023, driven by strong growth in credit card fees, offsetting the decline in wealth management fees. Page 18 shows the breakdown of wealth management fee. Wealth management fee income was TWD 3.3 billion, declined 11% year-on-year, mainly due to higher base period of sales in mutual funds and in insurance due to more favorable capital markets in first quarter last year. However, overseas bond sales increased due to substantial growth in securities fee. The number of customers showed solid growth, while AUM delivered double-digit growth year-on-year. We still expect a high single-digit wealth management fee year-on-year growth for the full year. Please move to Page 20 and 21 for Cathay Life's premium performance. Total premium was TWD 111 billion in the first quarter of 2023. The decline was largely due to the higher base period for investment-linked policy in the first quarter last year, which saw more favorable capital markets. The premium of protection type policy grew 6% year-on-year, supporting the contractual service margin. On Page 21, first year premium FYP and the annualized premium APE was TWD 30 billion and TWD 12 billion respectively. Both declined year-on-year due to the same reason as mentioned for the total premium. Annualized premium APE of traditional product remained steady. Page 22 shows the value for new business. Value of new business for first quarter was TWD 7 billion. The decline was due to the higher base period of sales volume of investment-linked policy, and increased uptake of traditional saving products. However, VNB margin remained steady. Page 23 shows the cost of liability and breakeven SAR. The cost of liability grew slightly quarter-on-quarter due to the decline rate increase for interest-sensitive policies. The breakeven SAR improved. Please look at Page 24 for the investment portfolio. Cathay Life's total investment reached TWD 7.4 trillion as of the end of first quarter. Overseas investment accounting around 70%. Please refer to the table for investment return on each asset class. Overall investment yield is shown on Page 25 and 26. After hedging investment yield was 2.69%, reflecting elevated hedging costs as indicated. On Page 26, left-hand side, the pre-hedging recurring yield increased 32 basis points to 3.15%, with interest income showing double-digit year-on-year growth. The annual hedging cost of first quarter was 1.81%. Cost of traditional hedging tools remain high year- to- date. Taiwan dollars appreciated 0.8%, making Taiwan dollar strong among Asian currencies, reducing the effectiveness of price risk hedging. The foreign currency balance stood at over TWD 42 billion as of the end of first quarter. The new FX volatility mechanism and the abundant FX volatility reserve balance, serving as buffer for FX fluctuation and using up the traditional hedging cost pressure while enabling wider flexibility in hedging strategies. Cathay Life will continue its flexible and dynamic to ensure the effective control of the hedging cost. Please turn to Page 27, the overall breakdown of overseas fees income. For overseas fees income investment, Cathay Life allocated 50% in North America, 18% in Europe, and rest are in Asia- Pacific and other countries. Page 28 shows the book value and unrealized gain of financial assets. Both increased over TWD 70 billion quarter-on-quarter as the stock and bond market rebounded in the first quarter. Next, please turn to Page 34 for the performance of Cathay Century. Cathay Century's premium income grew 11% year-on-year to TWD 7.6 billion. Loss ratio was 12%. Page 34, the gross combined ratio and retained combined ratio both increased due to the impact of pandemic insurance losses. The pandemic insurance impact has come to an end. Cathay Century has returned to normal profitable performance in April. RBC ratio remained above 300%. The related reserve balance was TWD 0.5 billion as at year-end. We expect it to be sufficient to cover the outstanding claims. This is our first quarter operating result. The next session will update of the 2022 embedded value and the appraisal value. Please turn to Page 36 for the summary of embedded value and appraisal value major components. In this table, you can see the S/A assumption for various insurance policies. We increased the equivalent investment yield by one basis points to 4.12%. Based on the new assumption, Cathay Life's 2022 embedded value decreased by 18% year-on-year. The decline was mainly due to book value decrease caused by aggressive rate hikes and equity market volatility. The EV per share holding company was TWD 75. Cathay Life's appraisal value as of 2022 was TWD 1.2 trillion, TWD 23 per share of the holding company. We estimated 2023 value for one year new business of TWD 27.5 billion and apply multiple of 8.8 when deriving value of new business. In the following pages, you can see more detailed analysis of 2022 movement of EV components. You can refer to Page 43 and 44 for the scenarios of impact from various investment yield and discount rates, while on Page 45, you can also see a summary table for year-on-year components. We hope the information is useful to you. This is the end of the presentation. Now let's open to Q&A. We will now begin our question and answer session. If you wish to ask a question, please click the Raise Hand button and wait for your name to be announced. After you are announced, please press the Unmute button shown on your screen and ask your question. If you wish to cancel your question, please unclick the Raise Hand button. Now we are in the Q&A session. As a reminder, please click the Raise Hand button if you would like to ask a question. The first question is from Alex Ye, UBS. Alex, please press the Unmute button shown on your screen and ask your question. Thanks for taking my question. I have a question on the bank side. In the China section, management said that you expect the reporting NIM to be a bottom in Q1 and expect a sequential recovery in coming quarters. Could you give us some color in terms of what is the driver for a rebound in coming quarters from both an asset yield and funding cost perspective? Thank you. Hi, this is Kevin from the CUB side. Okay. The reason causing the first quarter one downward is the rising interest rate and the savings rate is going faster than the loan repricing speed. Therefore, we see in quarter two and onwards, once we can reflect the asset side, the loan side, we'll reflect the actual spread, then our NIM will be improved. That's our basic expectation. The deposit rate usually reflects earlier than lending rate, so that's why there's a lagging effect. We already see deposit cost increase, and then the following quarters, lending rate will expand. Alex, have we answered your question? Yeah. Thank you. Yeah. Do you have an expectation in terms of the reported NIM for the year-end level or full year level? We think it's a bit too early to conclude how will be the end or peak NIM. At least, at current level, we feel quite comfortable that 1.40% level should be the trough, and we should expect a little bit upside. Having said that, you can notice that our loan growth is quite strong. Therefore, on net interest income basis, we should be expecting quite decent growth. Okay. Thank you very much. Thanks. The next question is coming from Jimmy Huang, JP Morgan. Hi, Jimmy. Jimmy, please click the Unmute button shown on your screen and ask your question. Hi. Thanks for taking my question. Just two questions from me. First one is, for the bank, operating expenses, may I know is the year-on-year growth largely driven by the better earnings growth, and therefore, higher compensation or any other reasons to result in relatively high OpEx growth? Second question is on embedded value, the cost of capital. I think in the Chinese session, you do mention the TWD 36 billion year-on-year increase is largely due to the higher interest rate risk. On the basis that if we see a bigger impact on RBC ratio this year due to a further increase in the interest rate risk charges, should we assume the cost of capital increase this year for 2023 could be even bigger than in 2022? Thanks. Jimmy Huang, if you look on Page 55, the P&L for Cathay United Bank, you'll notice that, yes, there is a 24% increase in operating expenses, but you will also notice there is a 26% increase in revenue. As a result, the cost income ratio first quarter this year and lies at 48.23% versus first quarter last year, 48.9%. The cost income ratio is actually stable and slightly down. Yes, it should be in accordance to the revenue growth. The cost income ratio actually remain quite stable. Then Abel Lin, you wanna- I think, Jimmy, yes. This year, in RBC C3, interest rate risk, because the regulation will step by step adjust the factor. This year the impact is bigger than last year. I see. Thank you. The next question is from Michael Zhang, Citi. Michael, please press the unmute button shown on your screen and ask your question. On cost. Just want to understand what's the driver behind the cost growth in the first quarter. Was it mainly, you know, due to the credit card related fees, you know, the promotional expenses? Thank you. Michael, sorry, you were cut off at the first sentence. Would you mind repeating your question again? Oh, sure. Just want to follow up on the cost question. I noticed that there's a pickup in the, you know, the promotional expense in bank operating expense. Just wanted to understand, is it mostly related to, you know, credit card fees, and, you know, do you still maintain this 51%-53% cost-income ratio guidance? Hi, Michael. The increase mainly coming, we spend or invest mainly into three dimension. The first dimension is on the people. We continue to invest on people. The people cost drives up the expenses. Secondly, we invest in the customer. That's why you mentioned that we increased the marketing expenses for all the products. Not only for the credit card, but also including the branded cards and other product as well. Thirdly, we improve or invest to continue to invest in our platform upgrade of digital services and overall infrastructure. Michael, you can see that as we were responding to the upcoming trend in the credit card coming from Costco, we have put tremendous effort into promoting the CUBE Card. So far, the cost promotion and the spending has delivered quite strong performance. In line with that, yes, the marketing expense will also increase. As I mentioned earlier, the overall cost income ratio in first quarter has maintained at 48.2%, which is slightly lower than first quarter 2022. The whole year we are still looking at somewhere 51%-53% range, as you mentioned. Got it. Thank you. Thank you. As a reminder, please click the Raise Hand button if you would like to ask a question. There appears to be no further questions at this point. Sophia, can we conclude this meeting? If there's no further questions, maybe I'll pass to CK for the closing remark. Well, thank you so much. Should we have any further question, please contact our IR team. Thank you. Great. Thank you very much, and we'll see you in the next quarter. Thank you and goodbye. Thank you for participation in Cathay Financial Holding Company's results webinar. You may now disconnect. Goodbye.