CDF earnings stabilizing as COVID-19 pandemic slows

China Development Financial (hereinafter CDF, TWSE: 2883) held its 1Q20 online investor conference today. Due to global financial market volatility caused by the COVID-19 pandemic, CDF’s 1Q20 net loss came in at NT$488mn on mark-to-market unrealized investment valuation loss. However, as the pandemic slowed down in April, the relevant valuations rebounded, the loss shrank, and overall earnings stabilized. April preliminary net profit came in at NT$2.056bn, and January-April net profit was NT$1.567bn. Richard Chang, CDF spokesman said the Group has conducted a comprehensive inventory review of the assessment quality of its credit and investment portfolio and has increased the frequency of evaluation and monitoring. Each subsidiary continues to optimize its asset or product structure to maximize the synergies from integrated financial operations.

CDF will hold a shareholders’ meeting on June 12, and the board has approved the 2019 dividend policy with a proposed cash dividend of NT$0.6 per share, in line with the Company’s long-standing stable dividend policy. In the recently announced 6th 2019 Corporate Governance Evaluation for TWSE- and TPEx-listed companies, CDF was ranked in the top 5% of best-performing companies for its consistent upholding of shareholders’ rights and protection of labor rights. In the future, the Group will work with its subsidiaries to actively implement corporate governance, promote sustainable corporate development and fulfill corporate social responsibility.

Subsidiary China Life's 1Q20 net profit was NT$4.459bn, with CDF recognizing NT$1.198bn. Its VNB (value of new business) profit margin rose to 32% on successful product structure improvement and pursuit of high-value products. In addition, the pandemic has boosted demand for insurance coverage, which is also good for future sales of protection-oriented policies.

Subsidiary KGI Bank's net profit in 1Q20 was NT$565mn, and core income such as net interest and fee incomes increased by 12% YoY. In response to the market interest rate cut, KGI Bank adjusted its pricing and credit structure to stabilize its revenue performance, while optimizing its deposit structure and reducing its cost of funds. The 1Q20 capital adequacy ratio of 13.63% and NPL (non-performing loan) ratio of 0.17% were both better than the industry average.

In 1Q20, subsidiary KGI Securities' brokerage revenue increased, but the global stock and bond markets were volatile and its net profit for the first quarter was $71 million. Down the road, the company will continue to optimize regional business development momentum and work to solidify its advantage as a regional brokerage firm in Asia. KGI Investment Trust also jumped to 7th place in the industry in terms of assets under management, which grew by 174% YoY to NT$162.8bn as of the end of March.

Subsidiary CDIB Capital suffered a net loss of NT$1.717bn in 1Q20, mainly due to unrealized valuation loss. However, the exit of small- and medium-sized venture capital companies from the market is favorable to future investment in bargain-priced targets. Meanwhile, the company continues to revitalize its own assets, with the board of directors having agreed put the CDF headquarter via public auction.