Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.Bairong has three main revenue generating segments: data analytics services, precision marketing services and insurance distribution services. As of FY19, data analytics accounted for 41.4% of revenue, with the next largest segment being precision marketing at 32.1% of revenue and insurance distribution making up for the rest.Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.In this insight, I'll talk about the positive aspects of the deal.

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong Kong IPO. According to F&amp;S, it was the largest independent financial big data analytics solutions provider in China by revenue in 2019, with a market share of 8.7%.Bairong has three main revenue generating segments: data analytics services, precision marketing services and insurance distribution services. As of FY19, data analytics accounted for 41.4% of revenue, with the next largest segment being precision marketing at 32.1% of revenue and insurance distribution making up for the rest.Over 2017-19, Bairong’s revenue expanded by 3.56x or at 88.8% CAGR. While its data analytics revenue increased by 66% over the period, its precision marketing services revenue grew 22.6x, and insurance distribution grew 54.5x. Over the same time, gross profit grew 3.99x and adjusted EBITDA, PAT and OCF all turned positive during that period.In this insight, I'll talk about the positive aspects of the deal. 

Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Thematic (Sector/Industry)

After dropping steadily for the last 3 years, HK-listed China banks are finally starting to move higher led by <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> and <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>.The suspension of <a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a>'s IPO and the subsequent restrictions placed on Fintech (or Techfin) players gave the banks a shot in the arm. The economic recovery in China and the recent pre-announcement of better than consensus results by <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> have got investor attention.<a href="https://www.smartkarma.com/profiles/steven-holden" target="_blank" data-smartkarma-citation="accounts:1337" rel="noopener">Steven Holden</a> has highlighted the shift out of Banking stocks pre- and post COVID by active managers with holdings close to the lowest on record.With the China economy stabilizing and growing and reporting better than expected GDP numbers today, there could be a further move into Banking stocks pushing them higher.

After dropping steadily for the last 3 years, HK-listed China banks are finally starting to move higher led by China Merchants Bank H (3968 HK) and Postal Savings Bank of China (1658 HK).The suspension of Ant Group (6688 HK)'s IPO and the subsequent restrictions placed on Fintech (or Techfin) players gave the banks a shot in the arm. The economic recovery in China and the recent pre-announcement of better than consensus results by China Merchants Bank H (3968 HK) have got investor attention.Steven Holden has highlighted the shift out of Banking stocks pre- and post COVID by active managers with holdings close to the lowest on record.With the China economy stabilizing and growing and reporting better than expected GDP numbers today, there could be a further move into Banking stocks pushing them higher.

China Merchants Bank H / Equity Bottom-Up

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.  

China Merchants Bank – Massive 4Q20 Charge-Offs

Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

<ul>
<li>Regulatory pressure is driving Ant Group to place its financial operations into a holding company which would be subject to bank-like regulation, as Chinese regulators seek increasing oversight of the fast growth in consumer and SMB debt</li>
<li>Furthermore, and more importantly, press reports indicate that regulators are pushing for Chinese FinTech giants to share their consumer credit data with state entities, to enhance the centralized “big data” repository at the PBoC</li>
<li>The planned launch of the PBoC’s digital currency - the e-yuan – is intended to try to level the playing field between electronic payments leaders Alipay (Ant) and WeChat pay (Tencent) and the bank system, as well as giving the state a powerful tool for digital financial surveillance</li>
<li>For Ant, more bank-like regulation of credit would imply higher capital requirement for its credit operations as well as slower loan growth, with the sharing of Ant Group’s many terabytes of data with the authorities also potentially detracting from Ant Group’s “big data” edge and, by extension, valuation</li>
<li>We take a preliminary stab at a revised SOTP valuation range – despite the lack of clear regulatory parameters so far – of USD130-160bn for Ant Group, a far cry from the market’s estimated USD250bn+ valuation in 4Q20</li>
<li>We see further upside potential in the near term for Chinese SOE banks, as regulators begin to level the regulatory playing filed with FinTech; it is also time, in our view, to look again at <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, 33% shareholder in Ant Group</li>
<li>Risks to our negative view on Ant Group include a less aggressive implementation of regulatory rules on Chinese FinTech, and only limited disclosure on its “big data” lake</li>
</ul>


Regulatory pressure is driving Ant Group to place its financial operations into a holding company which would be subject to bank-like regulation, as Chinese regulators seek increasing oversight of the fast growth in consumer and SMB debt
Furthermore, and more importantly, press reports indicate that regulators are pushing for Chinese FinTech giants to share their consumer credit data with state entities, to enhance the centralized “big data” repository at the PBoC
The planned launch of the PBoC’s digital currency - the e-yuan – is intended to try to level the playing field between electronic payments leaders Alipay (Ant) and WeChat pay (Tencent) and the bank system, as well as giving the state a powerful tool for digital financial surveillance
For Ant, more bank-like regulation of credit would imply higher capital requirement for its credit operations as well as slower loan growth, with the sharing of Ant Group’s many terabytes of data with the authorities also potentially detracting from Ant Group’s “big data” edge and, by extension, valuation
We take a preliminary stab at a revised SOTP valuation range – despite the lack of clear regulatory parameters so far – of USD130-160bn for Ant Group, a far cry from the market’s estimated USD250bn+ valuation in 4Q20
We see further upside potential in the near term for Chinese SOE banks, as regulators begin to level the regulatory playing filed with FinTech; it is also time, in our view, to look again at Alibaba Group (BABA US), 33% shareholder in Ant Group
Risks to our negative view on Ant Group include a less aggressive implementation of regulatory rules on Chinese FinTech, and only limited disclosure on its “big data” lake


Ant Group: Regulatory Pressures Drive the State’s “big Data” Grab, and a Revised SOTP Valuation

China

Agricultural Bank of China Limited provides a full range of commercial banking services. The Banks services includes RMB and foreign currency deposit, loan, international and domestic settlement, bill discount, currency trading, bank guarantee, and treasury bill underwriting.

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Agricultural Bank Of China (1288 HK)

Bairong Pre-IPO - The Positives - Largest Independent Big-Data Analytics Provider

Bairong, an independent AI-powered technology platform in China serving the financial services industry, plans to raise around US$300m in its Hong...

Sumeet Singh

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

China Banks: Moving On Up

The recovery in the Chinese economy, the changes to fintech rules, the better than expected results, the low valuations and the extreme positioning...

Brian Freitas

China Merchants Bank – Massive 4Q20 Charge-Offs

CHINA MERCHANTS BANK: CMB announced a poor set of preliminary 4Q20 results, as profit declined 22.7% QOQ. Credit risk has substantially increased...

Thomas J. Monaco

Ant Group: Regulatory Pressures Drive the State’s “big Data” Grab, and a Revised SOTP Valuation

Ant Group is under great state focus and under pressure to share its many terabytes of "big data" with PBoC, hurting its SOTP valuation; yet,...

Victor Galliano

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