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.

Equity Bottom-Up

<ul>
<li>Our 2Q20 screens reveal the wide range in cost of risk amongst EM banks</li>
<li>We screen for banks that are well capitalised and have ”kitchen sinked” loan provision charges, even though this potentially sacrifices near term returns</li>
<li>We also take into account valuation versus returns metrics</li>
<li>Our analysis picks are skewed towards LatAm, with <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a> and <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a> at the top of the attractive pile, and <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a> also screening well on value, albeit to a lesser degree</li>
<li>Outside of LatAm, <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a>  screens well, along with <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd" target="_blank" data-smartkarma-citation="entities:714:1" rel="noopener">China Merchants Bank A (600036 CH)</a> and – one newcomer since our July report – <a href="https://www.smartkarma.com/entities/bdo-unibank-inc" target="_blank" data-smartkarma-citation="entities:329:1" rel="noopener">BDO Unibank Inc (BDO PM)</a> </li>
<li>Names to watch include <a href="https://www.smartkarma.com/entities/sberbank-of-russia-pjsc-cde59529-fb78-4659-85d0-127942b44ba7" target="_blank" data-smartkarma-citation="entities:27581:1" rel="noopener">Sberbank of Russia PJSC (SBER RM)</a>, <a href="https://www.smartkarma.com/entities/banco-bradesco-sa" target="_blank" data-smartkarma-citation="entities:24569:1" rel="noopener">Banco Bradesco Sa (BBDC4 BZ)</a> and – even though outside the value spectrum – <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> </li>
<li>Risks to our view include a protracted downturn that warrants further large loan loss provisioning charges going forward, which suppress profitability</li>
</ul>


Our 2Q20 screens reveal the wide range in cost of risk amongst EM banks
We screen for banks that are well capitalised and have ”kitchen sinked” loan provision charges, even though this potentially sacrifices near term returns
We also take into account valuation versus returns metrics
Our analysis picks are skewed towards LatAm, with Credicorp Ltd (BAP US) and Grupo Financiero Banorte-O (GFNORTEO MF) at the top of the attractive pile, and Banco Do Brasil Sa (BBAS3 BZ) also screening well on value, albeit to a lesser degree
Outside of LatAm, Commercial International Bank (COMI EY)  screens well, along with China Merchants Bank A (600036 CH) and – one newcomer since our July report – BDO Unibank Inc (BDO PM) 
Names to watch include Sberbank of Russia PJSC (SBER RM), Banco Bradesco Sa (BBDC4 BZ) and – even though outside the value spectrum – Bank Rakyat Indonesia Persero (BBRI IJ) 
Risks to our view include a protracted downturn that warrants further large loan loss provisioning charges going forward, which suppress profitability


EM Banks Through the Credit Quality and Value Lens

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<p style="text-align: justify;">Still waters run deep. Do not be fooled by calm appearances. Asia’s high yield market outpaced the US as risk sentiment diverged following the Fed Chairman’s speech this last week. The Powell put remained alive and well in Asia while US high yield markets repriced lower, albeit in thin end-of-Summer markets.</p><p style="text-align: justify;">Concurrently, in rate markets, reflation trade unwinding caused yields on long-dated treasuries to decline. This resulted in a slight flattening of the yield curve over the week, despite some steepening on Friday, following the announcement of stronger than expected employment figures for August. In some respects, <strong>the full week move suggests that the market does not believe that the Fed can achieve its new policy goals in the near term.</strong> However, the last full week of Summer is probably not the best guidepost to market sentiment. At the shorter-end, <strong>Eurodollar futures projected higher short-term interest rates following the US non-farm payroll announcement</strong>. Prior to this, Eurodollar futures were pointing to lower short-term interest rate expectations.</p><p style="text-align: justify;">In-line with increased credit risk tolerance in Asia, eight bond spreads tightened for every one that widened during the week as cross-over Senior Unsecured bonds outperformed other securities. <strong>Tactically, cross-over senior unsecured may be best for defensive positioning as volatility may be heightened until we have better visibility on the Fed’s plans. </strong><a href="https://www.smartkarma.com/entities/bank-of-china-ltd" target="_blank" data-smartkarma-citation="entities:24574:1" rel="noopener">Bank Of China's (601988 CH)</a> 2025 callable Additional Tier 1 (AT1) bond led spread tightening with <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India's (SBIN IN)</a> 2021 and <a href="https://www.smartkarma.com/entities/china-construction-bank-h" target="_blank" data-smartkarma-citation="entities:45:1" rel="noopener">China Construction Bank's (CCB)</a> 2022 callable AT1s keeping pace. China Constructions Bank’s 4.7% coupon AT1 bond may be one of the most expensive AT1 bonds in the world. New investors in this deeply subordinated instrument can look forward to a paltry 0.99% yield to call. This bond trades flat to CCB’s 2022 maturity Senior Unsecured bond.</p><p style="text-align: justify;">In bank debt capital markets, Asia-headquartered institutions took advantage of low rates and continued demand to lead issuance globally. <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">Oversea Chinese Banking Corp.'s (OCBC SP)</a> newly issued 10 non-call 5-year Tier II bond came with a new issue discount of only 1 or 2 basis points. <a href="https://www.smartkarma.com/entities/ind-comm-bk-of-china-h" target="_blank" data-smartkarma-citation="entities:1119:1" rel="noopener">ICBC (H) (1398 HK)</a> also achieved tight pricing only 6 weeks after bringing similar 3-year and 5-year fixed rate notes to the market. <a href="https://www.smartkarma.com/entities/mizuho-financial-group-inc" target="_blank" data-smartkarma-citation="entities:219:1" rel="noopener">Mizuho Financial Group (8411 JP)</a> also brought new securities at prices that were attractive to similar issuance 8 weeks ago. <strong>This double-tap of the credit markets speaks volumes on future interest rate and volatility expectations by these banks</strong>. Meanwhile, Dubai’s 10-year Sukuk priced well relative to Abu Dhabi’s 10-year issuance last week. Overall, in term of new issuance, August was the busiest ever for US high grade issuance. Meanwhile high yield issuance during August finished as one of the busiest months on record. <strong>This should earn US banks and some foreign investment banks handsome Q3 fees. </strong></p><p style="text-align: justify;"><strong>Market Outlook</strong> Still waters run deep. Risks may now be materially higher for EM credit. Until now, perceptions were that lower-for-longer interest rates would cause US$-investors to reach for yield, in turn raising demand for longer maturities and non-US assets. Following Fed Chairman Powell’s speech, if the Fed permits long bond yields to rise, then marginal flows into emerging market credit may slow on increasing dollar strength. We expect some market volatility until more visibility is available.</p><p style="text-align: justify;"><strong>Inside:</strong> In this weekly, we elaborate on these themes as we review global credit index levels, interest rates, Eurodollar futures and fund flows as well as bank bond spread moves and recent debt issuance to identify possible investment opportunities and potential pitfalls in Asia-headquartered bank bonds.</p>

Still waters run deep. Do not be fooled by calm appearances. Asia’s high yield market outpaced the US as risk sentiment diverged following the Fed Chairman’s speech this last week. The Powell put remained alive and well in Asia while US high yield markets repriced lower, albeit in thin end-of-Summer markets.Concurrently, in rate markets, reflation trade unwinding caused yields on long-dated treasuries to decline. This resulted in a slight flattening of the yield curve over the week, despite some steepening on Friday, following the announcement of stronger than expected employment figures for August. In some respects, the full week move suggests that the market does not believe that the Fed can achieve its new policy goals in the near term. However, the last full week of Summer is probably not the best guidepost to market sentiment. At the shorter-end, Eurodollar futures projected higher short-term interest rates following the US non-farm payroll announcement. Prior to this, Eurodollar futures were pointing to lower short-term interest rate expectations.In-line with increased credit risk tolerance in Asia, eight bond spreads tightened for every one that widened during the week as cross-over Senior Unsecured bonds outperformed other securities. Tactically, cross-over senior unsecured may be best for defensive positioning as volatility may be heightened until we have better visibility on the Fed’s plans. Bank Of China's (601988 CH) 2025 callable Additional Tier 1 (AT1) bond led spread tightening with State Bank Of India's (SBIN IN) 2021 and China Construction Bank's (CCB) 2022 callable AT1s keeping pace. China Constructions Bank’s 4.7% coupon AT1 bond may be one of the most expensive AT1 bonds in the world. New investors in this deeply subordinated instrument can look forward to a paltry 0.99% yield to call. This bond trades flat to CCB’s 2022 maturity Senior Unsecured bond.In bank debt capital markets, Asia-headquartered institutions took advantage of low rates and continued demand to lead issuance globally. Oversea Chinese Banking Corp.'s (OCBC SP) newly issued 10 non-call 5-year Tier II bond came with a new issue discount of only 1 or 2 basis points. ICBC (H) (1398 HK) also achieved tight pricing only 6 weeks after bringing similar 3-year and 5-year fixed rate notes to the market. Mizuho Financial Group (8411 JP) also brought new securities at prices that were attractive to similar issuance 8 weeks ago. This double-tap of the credit markets speaks volumes on future interest rate and volatility expectations by these banks. Meanwhile, Dubai’s 10-year Sukuk priced well relative to Abu Dhabi’s 10-year issuance last week. Overall, in term of new issuance, August was the busiest ever for US high grade issuance. Meanwhile high yield issuance during August finished as one of the busiest months on record. This should earn US banks and some foreign investment banks handsome Q3 fees. Market Outlook Still waters run deep. Risks may now be materially higher for EM credit. Until now, perceptions were that lower-for-longer interest rates would cause US$-investors to reach for yield, in turn raising demand for longer maturities and non-US assets. Following Fed Chairman Powell’s speech, if the Fed permits long bond yields to rise, then marginal flows into emerging market credit may slow on increasing dollar strength. We expect some market volatility until more visibility is available.Inside: In this weekly, we elaborate on these themes as we review global credit index levels, interest rates, Eurodollar futures and fund flows as well as bank bond spread moves and recent debt issuance to identify possible investment opportunities and potential pitfalls in Asia-headquartered bank bonds.

Bank Credit Weekly: Powell Put Strengthens in Asia While Still Waters Run Deep

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

<div class="content-highlight">
<p>The week that was in ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.</p>
<p>Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a></p>
</div><h3>Macro Insights</h3><p>In <a href="https://www.smartkarma.com/insights/thai-macro-watch-august-the-new-tech-wars-chinese-flood" target="_blank" data-smartkarma-citation="insights:42012" rel="noopener">Thai Macro Watch (August): The New Tech Wars, Chinese Flood</a>, our Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> five global events and their impact on Thai equities.</p><h3>Equity Bottom-Up Insights</h3><p>In <a href="https://www.smartkarma.com/insights/ace-hardware-indonesia-aces-ij-building-a-road-to-recovery" target="_blank" data-smartkarma-citation="insights:42520" rel="noopener">Ace Hardware Indonesia (ACES IJ) - Building A Road to Recovery,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits one of Indonesia's leading retailers after a call with management.</p><p>In <a href="https://www.smartkarma.com/insights/akr-corporindo-akra-ij-the-landed-logistics-player" target="_blank" data-smartkarma-citation="insights:42569" rel="noopener">AKR Corporindo (AKRA IJ) - The Landed Logistics Player,</a><a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits this Indonesian chemical and fuel distributor with an increasing contribution coming from its JIIPE industrial estate. </p><p>In <a href="https://www.smartkarma.com/insights/sats-from-serving-22-5m-pax-in-1q20-to-serving-200k-pax-in-1q21-houston-we-have-a-problem" target="_blank" data-smartkarma-citation="insights:42488" rel="noopener">SATS: From Serving 22.5M Pax in 1Q20 -&gt; To Serving 200K Pax in 1Q21. Houston We Have a Problem.</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> revisits Singapore airport maintenance leader post its recent numbers. </p><p>In <a href="https://www.smartkarma.com/insights/permata-bank-mandatory-takeover-launched-finally" target="_blank" data-smartkarma-citation="insights:42577" rel="noopener">Permata Bank Mandatory Takeover Launched. Finally.</a><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> revisits the <a href="https://www.smartkarma.com/entities/bank-permata-tbk-pt" target="_blank" data-smartkarma-citation="entities:728:1" rel="noopener">Bank Permata (BNLI IJ)</a> deal as it enters its final stage.</p><p>In <a href="https://www.smartkarma.com/insights/sprime-good-point-of-entry-singha-connection-could-add-further-upside" target="_blank" data-smartkarma-citation="insights:42589" rel="noopener">SPRIME: Good Point of Entry, Singha Connection Could Add Further Upside,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/aimirt-good-growth-outlook-but-already-priced-in" target="_blank" data-smartkarma-citation="insights:42639" rel="noopener">AIMIRT: Good Growth Outlook, but Already Priced In</a> initiates coverage on <a href="https://www.smartkarma.com/entities/aim-industrial-growth-freehold-and-leasehold-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:29180:1" rel="noopener">AIM Industrial Growth Freehold and Leasehold Real Estate Investment Trust (AIMIRT TB)</a> with a HOLD recommendation based on a target price of Bt14.30, implying an upside of 6% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/teamg-cost-savings-and-government-stimulus-to-drive-profit" target="_blank" data-smartkarma-citation="insights:42628" rel="noopener">TEAMG: Cost-Savings and Government Stimulus to Drive Profit,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> revisits <a href="https://www.smartkarma.com/entities/team-consulting-engineering-and-management-public-company-limited" target="_blank" data-smartkarma-citation="entities:29175:1" rel="noopener">TEAM Consulting Engineering and Management (TEAMG TB)</a> and maintains a BUY recommendation on the company as he increases the target price to Bt2.81 from Bt2.42, implying an upside of 17% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/sisb-good-entry-point-for-investment-in-private-schools" target="_blank" data-smartkarma-citation="insights:42632" rel="noopener">SISB: Good Entry Point for Investment in Private Schools,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price.</p><p>In <a href="https://www.smartkarma.com/insights/sflex-staying-behind-key-players-in-the-market" target="_blank" data-smartkarma-citation="insights:42679" rel="noopener">SFLEX: Staying Behind Key Players in the Market,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on <a href="https://www.smartkarma.com/entities/starflex-pcl" target="_blank" data-smartkarma-citation="entities:29172:1" rel="noopener">Starflex PCL (SFLEX TB)</a> with a SELL recommendation based on a target price of Bt8.90, implying a downside of 28% from the current price. </p><p>In <a href="https://www.smartkarma.com/insights/boffice-asset-expansion-motivates-the-upside" target="_blank" data-smartkarma-citation="insights:42678" rel="noopener">BOFFICE: Asset Expansion Motivates the Upside,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on <a href="https://www.smartkarma.com/entities/bhiraj-office-leasehold-reit" target="_blank" data-smartkarma-citation="entities:29173:1" rel="noopener">Bhiraj Office Leasehold REIT (BOFFICE TB)</a> with a BUY recommendation based on a target price of Bt14.10, implying an upside of 18% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/all-valuation-remains-undemanding-expect-further-upside" target="_blank" data-smartkarma-citation="insights:42635" rel="noopener">ALL: Valuation Remains Undemanding, Expect Further Upside</a>, <a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> revisits <a href="https://www.smartkarma.com/entities/all-inspire-development-pcl" target="_blank" data-smartkarma-citation="entities:29177:1" rel="noopener">All Inspire Development PCL (ALL TB),</a> where he has a Buy recommendation based on a target price of Bt4.39, implying an upside of 31% from the current price. </p><p>In <a href="https://www.smartkarma.com/insights/m-rapid-sssg-recovery-with-potential-growth-from-seafood-restaurant" target="_blank" data-smartkarma-citation="insights:42578" rel="noopener">M: Rapid SSSG Recovery with Potential Growth from Seafood Restaurant,</a> our friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> circle back to <a href="https://www.smartkarma.com/entities/mk-restaurants-group-pcl" target="_blank" data-smartkarma-citation="entities:17689:1" rel="noopener">MK Restaurants Group (M TB)</a> after attending the recent analyst briefing, where they came away more positive with signs of an SSSG recovery post lockdown easing.</p><p>In <a href="https://www.smartkarma.com/insights/egco-positive-2h20-earnings-outlook-from-better-overseas-performance" target="_blank" data-smartkarma-citation="insights:42634" rel="noopener">EGCO: Positive 2H20 Earnings Outlook from Better Overseas Performance,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisit <a href="https://www.smartkarma.com/entities/electricity-generating-pcl" target="_blank" data-smartkarma-citation="entities:6149:1" rel="noopener">Electricity Generating (EGCO TB)</a> after the company's positive analyst briefing. </p><p>In <a href="https://www.smartkarma.com/insights/wice-expect-earnings-to-continue-growing-yoy-in-2h20" target="_blank" data-smartkarma-citation="insights:42537" rel="noopener">WICE: Expect Earnings to Continue Growing YoY in 2H20,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> circle back to <a href="https://www.smartkarma.com/entities/wice-logistics-pcl" target="_blank" data-smartkarma-citation="entities:26172:1" rel="noopener">Wice Logistics (WICE TB)</a> after going to the company's analyst briefing. </p><p>In <a href="https://www.smartkarma.com/insights/hana-covid-19-impact-has-passed" target="_blank" data-smartkarma-citation="insights:42575" rel="noopener">HANA: Covid-19 Impact Has Passed,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisits one of Thailand's leading electronics manufacturing services companies. </p><h3>Sector and Thematic Insights</h3><p>In <a href="https://www.smartkarma.com/insights/indonesia-banks-most-to-recover" target="_blank" data-smartkarma-citation="insights:42493" rel="noopener">Indonesia Banks – Most To Recover?,</a> banking specialist <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> zooms in on the potential recovery to come for Indonesian Banks. </p><div><div><div id="ember9100"><div><section><div id="ember9112"><div><p>In <a href="https://www.smartkarma.com/insights/asia-banks-oversized-dividends" target="_blank" data-smartkarma-citation="insights:42535" rel="noopener">Asia Banks – Oversized Dividends,</a><a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> zeros in on dividend payments for Asian banks during the pandemic period. </p></div></div></section></div></div></div></div><h3>Credit Insights</h3><p>In <a href="https://www.smartkarma.com/insights/bank-rakyat-indonesia-pondering-pricing-on-a-promised-new-issue" target="_blank" data-smartkarma-citation="insights:42524" rel="noopener">Bank Rakyat Indonesia: Pondering Pricing on a Promised New Issue</a><a href="https://www.smartkarma.com/profiles/hank-calenti-cfa" target="_blank" data-smartkarma-citation="accounts:5194" rel="noopener">Hank Calenti, CFA</a> takes a look at the proposed US$1bn bond issue from <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> and finds it appealing. <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> could price a potential five-year senior unsecured </p>


The week that was in ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.
Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in ASEAN@Smartkarma
Macro InsightsIn Thai Macro Watch (August): The New Tech Wars, Chinese Flood, our Thai guru Athaporn Arayasantiparb, CFA five global events and their impact on Thai equities.Equity Bottom-Up InsightsIn Ace Hardware Indonesia (ACES IJ) - Building A Road to Recovery, CrossASEAN Insight Provider Angus Mackintosh revisits one of Indonesia's leading retailers after a call with management.In AKR Corporindo (AKRA IJ) - The Landed Logistics Player,Angus Mackintosh revisits this Indonesian chemical and fuel distributor with an increasing contribution coming from its JIIPE industrial estate. In SATS: From Serving 22.5M Pax in 1Q20 -&gt; To Serving 200K Pax in 1Q21. Houston We Have a Problem. CrossASEAN Insight Provider Nicolas Van Broekhoven revisits Singapore airport maintenance leader post its recent numbers. In Permata Bank Mandatory Takeover Launched. Finally.Travis Lundy revisits the Bank Permata (BNLI IJ) deal as it enters its final stage.In SPRIME: Good Point of Entry, Singha Connection Could Add Further Upside,Dr Andrew Stotz, CFA initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price. In AIMIRT: Good Growth Outlook, but Already Priced In initiates coverage on AIM Industrial Growth Freehold and Leasehold Real Estate Investment Trust (AIMIRT TB) with a HOLD recommendation based on a target price of Bt14.30, implying an upside of 6% from the current share price. In TEAMG: Cost-Savings and Government Stimulus to Drive Profit,Dr Andrew Stotz, CFA revisits TEAM Consulting Engineering and Management (TEAMG TB) and maintains a BUY recommendation on the company as he increases the target price to Bt2.81 from Bt2.42, implying an upside of 17% from the current share price. In SISB: Good Entry Point for Investment in Private Schools,Dr Andrew Stotz, CFA initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price.In SFLEX: Staying Behind Key Players in the Market,Dr Andrew Stotz, CFA initiates coverage on Starflex PCL (SFLEX TB) with a SELL recommendation based on a target price of Bt8.90, implying a downside of 28% from the current price. In BOFFICE: Asset Expansion Motivates the Upside,Dr Andrew Stotz, CFA initiates coverage on Bhiraj Office Leasehold REIT (BOFFICE TB) with a BUY recommendation based on a target price of Bt14.10, implying an upside of 18% from the current share price. In ALL: Valuation Remains Undemanding, Expect Further Upside, Dr Andrew Stotz, CFA revisits All Inspire Development PCL (ALL TB), where he has a Buy recommendation based on a target price of Bt4.39, implying an upside of 31% from the current price. In M: Rapid SSSG Recovery with Potential Growth from Seafood Restaurant, our friends at Country Group circle back to MK Restaurants Group (M TB) after attending the recent analyst briefing, where they came away more positive with signs of an SSSG recovery post lockdown easing.In EGCO: Positive 2H20 Earnings Outlook from Better Overseas Performance,Country Group revisit Electricity Generating (EGCO TB) after the company's positive analyst briefing. In WICE: Expect Earnings to Continue Growing YoY in 2H20,Country Group circle back to Wice Logistics (WICE TB) after going to the company's analyst briefing. In HANA: Covid-19 Impact Has Passed,Country Group revisits one of Thailand's leading electronics manufacturing services companies. Sector and Thematic InsightsIn Indonesia Banks – Most To Recover?, banking specialist Daniel Tabbush zooms in on the potential recovery to come for Indonesian Banks. In Asia Banks – Oversized Dividends,Daniel Tabbush zeros in on dividend payments for Asian banks during the pandemic period. Credit InsightsIn Bank Rakyat Indonesia: Pondering Pricing on a Promised New IssueHank Calenti, CFA takes a look at the proposed US$1bn bond issue from Bank Rakyat Indonesia Persero (BBRI IJ) and finds it appealing. Bank Rakyat Indonesia Persero (BBRI IJ) could price a potential five-year senior unsecured 

The Week that Was in ASEAN@Smartkarma - Ace Hardwear, Thai Macro, and Indonesian Banks

<p style="text-align: justify;">Asia’s high yield market kept pace with the US as risk sentiment rose following the Fed Chairman’s speech this week. The Powell put is alive and well in US high yield markets. <strong>However, how the Fed affects its policy change will make a difference to Asia and broader EM US$-denominated risk assets.</strong> If the Fed’s change in policy framework is actioned via yield curve control to cap real yields and push the dollar lower, then emerging market bonds will continue to benefit.</p><p style="text-align: justify;">Concurrently, in rate markets, the change in Fed policy stance and high supply expectations for September drove the US Treasury curve significantly higher as long-end bonds sold-off while shorter-end securities rose in price. The curve also steepened despite three record sized auctions during the week.  Curve steepening is generally associated with increased bank net interest income from maturity transformation and as sure as night follows day, a steepening yield curve resulted in higher bank share prices. However, <strong>if longer-end Treasury yields continue to rise, then marginal flows into risk-assets may reduce, particularly in EM as rising Treasury yields pressure dollar FX levels. </strong>This is a real risk for EM markets. All eyes are now on to the Sept 16 FOMC meeting for greater details on how the Fed policy change is implemented. </p><p style="text-align: justify;">In-line with increased risk tolerance in Asia, nine bond spreads tightened for every one that widened during the week as cross-over Senior Unsecured bonds outperformed other securities. <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank of India's (SBIN IN)</a> Additional Tier 1 (AT1) bond outperformed despite being downgraded one-notch by Moody’s Investors Service to B2. Investors may have expected a larger downgrade. <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia's (23 HK)</a> AT1 also outperformed, please see: <a href="https://www.smartkarma.com/insights/bank-of-east-asia-strategic-review-to-set-at1-value-forewarned-is-forearmed" target="_blank" data-smartkarma-citation="insights:42705" rel="noopener">Bank of East Asia: Strategic Review to Set AT1 Value; Forewarned Is Forearmed</a>. Concurrently, Turkish banks continued to lag financials globally as Fitch placed a negative outlook on its BB- sovereign rating. <strong>Tactically, cross-over senior unsecured may be best for defensive positioning as volatility may be heightened until we have better visibility on the Fed’s plans. </strong></p><p style="text-align: justify;">In bank debt capital markets, over US$17 billion was issued in USD and Euros across the credit continuum. In Asia, the <a href="https://www.smartkarma.com/entities/agricultural-bank-of-china-limited" target="_blank" data-smartkarma-citation="entities:1120:1" rel="noopener">Agricultural Bank of China (1288 HK)</a> brought a Senior Unsecured bond which <strong>looks attractive relative to where similarly rated UBS and Bank of America brought 5.5-year and 10-year senior holding company bonds last month. </strong>Close to Asia, Qatar-based Masraf Al Rayan also issued a five-year Sukuk at attractive price levels. Within the Additional Tier 1 (AT1) space, Bank of Ireland’s (BKIR) Euro-AT1 was issued +40 basis points wider than <a href="https://www.smartkarma.com/entities/rizal-commercial-banking-corp" target="_blank" data-smartkarma-citation="entities:23143:1" rel="noopener">Rizal Commercial Bank's (RCB PM)</a> of last week, after adjusting for the currency and coupon basis. BKIR has a long-established debt issuance programme and is much better at financial disclosure, in our view. We believe that Rizal’s bond was priced too tight; however, we think that this issuance may benefit spreads on Rizal’s 2024 Senior Unsecured debt. <strong>The pricing on higher rated BKIR’s bond further cements this view. </strong>For more on this, please see <a href="https://www.smartkarma.com/insights/rizal-commercial-bank-s-inaugural-at1-bond-caveat-emptor" target="_blank" data-smartkarma-citation="insights:42437" rel="noopener">Rizal Commercial Bank’s Inaugural AT1 Bond: Caveat Emptor</a><em>.</em></p><p style="text-align: justify;"><strong>Market Outlook</strong> Risks may now be materially higher for EM credit. Until now, perceptions were that lower-for-longer interest rates would cause US$-investors to reach for yield, in turn raising demand for longer maturities and non-US assets. Following Powell’s speech,<strong> if the Fed permits long bond yields to rise, then marginal flows into emerging market credit may slow on increasing dollar strength.</strong> We expect some market volatility until more visibility is available.</p><p style="text-align: justify;"><strong>Inside:</strong> In this weekly, we elaborate on these themes as we review global credit index levels, interest rates, Eurodollar futures and fund flows as well as bank bond spread moves and recent debt issuance to identify possible investment opportunities and potential pitfalls in Asia-headquartered bank bonds.</p>

Asia’s high yield market kept pace with the US as risk sentiment rose following the Fed Chairman’s speech this week. The Powell put is alive and well in US high yield markets. However, how the Fed affects its policy change will make a difference to Asia and broader EM US$-denominated risk assets. If the Fed’s change in policy framework is actioned via yield curve control to cap real yields and push the dollar lower, then emerging market bonds will continue to benefit.Concurrently, in rate markets, the change in Fed policy stance and high supply expectations for September drove the US Treasury curve significantly higher as long-end bonds sold-off while shorter-end securities rose in price. The curve also steepened despite three record sized auctions during the week.  Curve steepening is generally associated with increased bank net interest income from maturity transformation and as sure as night follows day, a steepening yield curve resulted in higher bank share prices. However, if longer-end Treasury yields continue to rise, then marginal flows into risk-assets may reduce, particularly in EM as rising Treasury yields pressure dollar FX levels. This is a real risk for EM markets. All eyes are now on to the Sept 16 FOMC meeting for greater details on how the Fed policy change is implemented. In-line with increased risk tolerance in Asia, nine bond spreads tightened for every one that widened during the week as cross-over Senior Unsecured bonds outperformed other securities. State Bank of India's (SBIN IN) Additional Tier 1 (AT1) bond outperformed despite being downgraded one-notch by Moody’s Investors Service to B2. Investors may have expected a larger downgrade. Bank of East Asia's (23 HK) AT1 also outperformed, please see: Bank of East Asia: Strategic Review to Set AT1 Value; Forewarned Is Forearmed. Concurrently, Turkish banks continued to lag financials globally as Fitch placed a negative outlook on its BB- sovereign rating. Tactically, cross-over senior unsecured may be best for defensive positioning as volatility may be heightened until we have better visibility on the Fed’s plans. In bank debt capital markets, over US$17 billion was issued in USD and Euros across the credit continuum. In Asia, the Agricultural Bank of China (1288 HK) brought a Senior Unsecured bond which looks attractive relative to where similarly rated UBS and Bank of America brought 5.5-year and 10-year senior holding company bonds last month. Close to Asia, Qatar-based Masraf Al Rayan also issued a five-year Sukuk at attractive price levels. Within the Additional Tier 1 (AT1) space, Bank of Ireland’s (BKIR) Euro-AT1 was issued +40 basis points wider than Rizal Commercial Bank's (RCB PM) of last week, after adjusting for the currency and coupon basis. BKIR has a long-established debt issuance programme and is much better at financial disclosure, in our view. We believe that Rizal’s bond was priced too tight; however, we think that this issuance may benefit spreads on Rizal’s 2024 Senior Unsecured debt. The pricing on higher rated BKIR’s bond further cements this view. For more on this, please see Rizal Commercial Bank’s Inaugural AT1 Bond: Caveat Emptor.Market Outlook Risks may now be materially higher for EM credit. Until now, perceptions were that lower-for-longer interest rates would cause US$-investors to reach for yield, in turn raising demand for longer maturities and non-US assets. Following Powell’s speech, if the Fed permits long bond yields to rise, then marginal flows into emerging market credit may slow on increasing dollar strength. We expect some market volatility until more visibility is available.Inside: In this weekly, we elaborate on these themes as we review global credit index levels, interest rates, Eurodollar futures and fund flows as well as bank bond spread moves and recent debt issuance to identify possible investment opportunities and potential pitfalls in Asia-headquartered bank bonds.

Bank Credit Weekly: Powell Put Pushes Asia and US HY Risk Sentiment Higher – Risks Now Changed

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Thematic (Sector/Industry)

<p style="text-align: justify;">In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.</p>
<p style="text-align: justify;">Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.</p>
<p style="text-align: justify;">The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. </p>
<p style="text-align: justify;">The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.</p>
<p style="text-align: justify;">We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.</p>
<p style="text-align: justify;">We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.</p>
<p style="text-align: justify;">Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.</p>

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and incentive data related to the board of directors, management, and employees across major economies in Asia and picked top 10 companies of each country in terms of market capitalization. We chose to exclude major companies listed in exchanges of other economies such as Tencent and Alibaba to limit our sample size.
Then we devised diversity and incentive scores to assign to those companies and compare those scores against a 5-year trend of their return on shareholders’ equity (ROE) ratios and 1-year stock performance from 1-July-19 to 30-June-20 over its corresponding exchange indices.
The report covers diversity vs. incentives in Asia, diversity score vs. 1-year stock performance and ROE trend, incentives vs. 1-year stock performance and ROE trend, diversity + incentives scores vs. 1-year stock performance and ROE trend, companies with top and bottom diversity + incentive scores, countries with top and bottom average diversity + incentive scores, and incentive score vs. staffing cost trend. 
The results show that companies with high diversity scores do perform well. A high diversity score also has a positive impact on the ROE trend, based on our regression analysis at 95% confidence level. We found that employee incentives are not significant as staff diversity but they can still have an influence on company performances at a lower 90% confidence level.
We note that this study is at the preliminary stage and stock performance is a function of many factors, not only the diversity scores that we concluded. Needless to say, our diversity and incentive scores also reflect the level of disclosures by selected companies, not necessarily the actual practice within each company. Our diversity and incentive scores are also not a credit rating or ranking with peers and, hence, do not reflect default probability of selected companies.
We caution that in Asia, many diversity trends in the West may not apply. The fact that many Asian business communities may remain less sensitive to equal opportunities for females, disabled persons, or LGBTQ communities could make returns of Asian companies less correlated to diversity than in the West. Likewise, additional incentives in some countries in Asia may not be necessary as employees’ strong performance (i.e. in Japan) is a norm, according to the prevalent work culture.
Bondcritic is developing a scoring model, which includes environment, social development, and corporate governance; the last of which cover diversity and incentives. This report is the first of the series to uncover shenanigans in the Asian corporate sector.

Asian Governance: Diversity & Incentives Through the Cultural Lens

Indonesia

PT Bank Rakyat Indonesia (Persero) Tbk provides commercial banking activities and its related services. The Bank also provides banking activities based on shariah principles.

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Bank Rakyat Indonesia (BBRI IJ)

EM Banks Through the Credit Quality and Value Lens

Our 2Q20 screens reveal the wide range in cost of risk amongst EM banks We screen for banks that are well capitalised and have ”kitchen sinked”...

Victor Galliano

Bank Credit Weekly: Powell Put Strengthens in Asia While Still Waters Run Deep

: Still waters run deep. Do not be fooled by calm appearances. Asia’s high yield market outpaced the US as risk sentiment diverged following the...

Hank Calenti, CFA

The Week that Was in ASEAN@Smartkarma - Ace Hardwear, Thai Macro, and Indonesian Banks

This past week's offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable...

Angus Mackintosh

Bank Credit Weekly: Powell Put Pushes Asia and US HY Risk Sentiment Higher – Risks Now Changed

Asia’s high yield market kept pace with the US as risk sentiment rose following the Fed Chairman’s speech this week. The Powell put is alive and...

Hank Calenti, CFA

Asian Governance: Diversity & Incentives Through the Cultural Lens

In this Smartkarma Original, we seek to study how diversity and incentives influence stock performance and profitability. We tallied diversity and...

Bondcritic

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