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Four Balanced Profit Drivers in Place to Boost ROE AUM Grown Substantially while Enjoying Remarkable

      2018-10-18

On October 16, China Development Financial (hereinafter CDF) held an investor conference to report 1Q-3Q18 results. Benefiting from a rising capital market performance, earnings contribution from China Life, and acceleration of asset monetization, CDF’s 1Q-3Q18 net profit reached NT$8.53bn, excluding a one-off valuation gain derived from KGI Securities’ stake in China Life in 2017, up 31% YoY. Alan Wang, the President of CDF, said at the investor conference that four profit engines are in place to boost ROE in 2019. In the meantime, subsidiaries have been aggressively pushing various financial innovations and digital transformation as in the case of KGI Bank initiating the first regulatory sandbox with Chunghwa Telecom to promote financial inclusion. CDIB Capital Group’s assets under management (AUM) have grown significantly reaching NT$42.8bn as of September 30, 2018, up 14% YoY, while the AUM of KGI SITE totaling NT$20.7bn, up 120% YoY.
 
Alan Wang also pointed out that China Life drove a significant expansion of CDF’s consolidated assets post the acquisition. China Life was the most profitable subsidiary in 1Q-3Q18, accounting for 30% of CDF’s net profit, followed by 24% from KGI Bank. KGI Bank’s 1Q-3Q18 net interest income grew 17% YoY, while net fee income grew 12% YoY. KGI Securities has benefited from an increasing Taiex trading volume, which has boosted its brokerage business and capital income performance in 1Q-3Q18, and therefore, KGI Securities’ 1Q-3Q18 net profit reached NT$3.6bn, excluding a one-off valuation gain recognized in 2017, up 27% YoY. On the other hand, CDIB Capital Global Opportunities Fund has wrapped up the first round of fund raising with a fund size of US$116mn while CDIB Yida Healthcare Private Equity Fund being expected to have its first close of approximately Rmb800mn by end-2018.
 
CDF’s various operating strategies have paid off:
  • Reallocate capital and increase financial leverage to enhance capital efficiency: CDF's financial leverage increased from 9.6x at year-end 2017 to 11.5x as of September 30, 2018, driven by rapid asset growth of KGI Bank and China Life
  • Shape corporate culture with the aim of generating a steady income stream via well-balanced deployment among retail and institutional businesses within the group: The share of recurring income increased in 1Q-3Q18 with significant growth in profit generated by retail business of KGI Bank and KGI Securities
  • Integrate group resources to strengthen customer relations management and cross-selling synergies: Cross-selling activities are reviewed on a quarterly basis and their performance accounts for more than 20% of top management's KPI evaluation. CDF has launched an institutional business referral program and has started to conduct cross-selling between life insurance and bank/securities, aimed at providing clients with comprehensive financial services
  • Strengthen the asset management brand and expand portfolio scale: CDIB Capital Group's AUM increased from NT$37.7bn at year-end 2017 to NT$42.8bn as of September 30, 2018; KGI SITE's AUM increased from NT$9.4bn at year-end 2017 to NT$20.7bn as of September 30, 2018
  • Enforce prudent risk management and accelerate asset monetization: CDF conducts prudent risk management via reviewing critical operation process and enhancing training program to increase front-line staff's risk awareness while adopting three-lines of defense in the risk management framework
  • Continue commitment to corporate governance and sustainability responsibilities: CDF’s sustainability engagement has earned increasing recognition, given CDF being selected as a constituent stock of the FTSE4Good Emerging Market Index for the second year, awarded the Corporate Social Responsibility Award by CommonWealth Magazine for the first time, as well as being ranked among top 6-20% in the 4th Corporate Governance Evaluation System. CDF strives to promote innovative business models and in cooperation with strategic partners, providing customers with financial services that are accessible and reasonably-priced.

    Looking forward to 2019, China Life will continue to transform its agency channel, extend the FinTech applications in risk management, after-sales service, marketing and recruitment. KGI Bank, on the other hand, will focus on developing financial innovative models and aim to become the innovative credit and wealth management specialist in the financial industry. Also, KGI Bank will establish Hong Kong branch and invest in a consumer finance company in China to further expand its corporate and retail business in overseas markets. Furthermore, KGI Securities will continue to improve the efficiency of resource utilization and pursue profitable growth in foreign and domestic markets with two major focuses on transforming traditional brokerage business into wealth management business in the Asia-Pacific region and increasing the exposure to and weighting of non-brokerage business. Last but not least, CDIB Capital will accelerate the monetization of direct investments and non-core assets and reallocate the capital to banking and insurance business. CDIB Capital also plans to launch a U.S. dollar-denominated Biotech Fund in 2019.

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