On October 16, China Development Financial (hereinafter CDF) will hold an investor conference to report 1H18 results. Benefiting from impressive capital market performance, earnings contribution from subsidiary China Life, and acceleration of portfolio activation, CDF posted 1Q-3Q18 net profit of NT$8.53bn (note 1), up 31% YoY. Alan Wang, President of CDF, said that four profit engines are in place to boost ROE. Subsidiaries have been aggressively pushing multiple financial innovations and digital transformation. By working with Chunghwa Telecom on financial inclusion, KGI Bank has initiated the first innovative experiment project allowed inside the financial regulatory sandbox. Assets under management (AUM) have grown significantly. As of September 2018, CDIB Capital’s AUM was NT$42.8bn, up 14% YoY, while KGI SITE’s funds under management totaled NT$20.7bn, up 120% YoY.
Alan Wang pointed out that after consolidation of China Life, CDF has seen a rapid increase in total assets. In 1Q-3Q18, China Life was the biggest contributing subsidiary to CDF earnings, accounting for 30% of CDF’s bottom line, followed by KGI Bank at 24%. KGI Bank’s net interest income grew 17% YoY, while net fee income grew 12% YoY in the same period. KGI Securities has benefited from increased Taiex daily turnover, which has boosted its brokerage business and capital income performance. In 1Q-3Q18, KGI Securities posted earnings of NT$3.6bn (note 2), up 27% YoY. CDIB Capital Global Opportunities Fund has wrapped up the first round of fund raising, gathering US$116mn. CDIB Yida Biomedicine Fund, projected to total Rmb800mn in scale, is scheduled to finish raising funds by end-2018.
CDF’s various operating strategies have paid off:
- Capital redistribution, expanding leverage and improving capital utilization efficiency: Due to the rapid growth of KGI Bank and China Life assets, financial leverage increased from 9.6 times at the end of 2017 to 11.5 times at the end of September 2018.
- Changing corporate culture, consumer and corporate banking businesses advancing hand-in-hand, focusing on a business model of garnering stable income: Compared to the same period last year, consumer business earnings of KGI Bank and KGI Securities contributed a significantly greater share of earnings, raising the ratio of stable income.
- Integrating group resources to strengthen client cultivation and cross-selling synergy: First, push for introduction of businesses to corporate or institutional clients, and then follow up with cross-selling of financial products to individual consumers, with the goal of offering comprehensive financial services.
- Strengthening asset management brand and improving the scale of fund management: Both CDIB Capital and KGI SITE saw AUM rise significantly.
- Risk control and asset activation: re-examine key operational procedures, strengthen education and training to deepen the risk awareness of first-line sales personnel, implement three lines of defense and shape a corporate culture that takes risk seriously.
- Actively promote corporate governance and sustainable development: re-elected into the FTSE Social Responsibility Emerging Markets Index constituents; won the Commonwealth Magazine’s CSR Corporate Citizen Award for the first time. Capitalited on innovative technology and quality services with reasonable pricing to promote financial inclusion.
Looking forward to 2019, China Life will promote the transformation of business channels, increase sales of installment-based and high-value products, deepen digital transformation, expand the application of FinTech in risk management, after-sales service, marketing and recruitment of talents. KGI Bank is committed to financial innovation and R&D, and is working towards becoming the expert of digital wealth management and digital loans. Also, KGI Bank will expand overseas markets and expand the development of corporate and consumer finance businesses through the establishment of a branch in Hong Kong and a consumer finance companies in China. KGI Securities' goal in 2019 is to improve the efficiency of resource utilization and pursue profitable growth at home and abroad. The two major focuses are on transforming traditional brokerage business into wealth management business in the Asia-Pacific region and on increasing the exposure to and weighting of non-brokerage business earnings. CDIB Capital Group will accelerate the divesiment of direct investment positions and dispose of non-core assets. The recovered capital will be reallocated to life insurance and commercial banking businesses. CDIB Capital Group is scheduled to raise the US dollar biomedical fund and Asia Partners Fund II in 2019.
