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

*Poor Result: Singapore Exchange (SGX.SP) [SGX] reported a weak FY 2H21 result, declining SGD 35.0 mn (14.6%) on an HOH basis. Higher than expected costs was the primary culprit for the overall disappointing result, increasing SGD 28.7 mn (11.6%) HOH pushing the expense to revenue ratio 410 bp higher to 51.8%. Cost pressures will not end, as SGX gave guidance that costs are due to increase between 9%-11%, as revenue begins to contract; and*Peripatetic: Recently, SGX announced its acquisition of MaxxTrader, its third acquisition after BidFX and Scientific Beta in 2020. Management is also considering getting involved Special Purpose Acquisition Companies (SPACs). Significant strategic alternatives are needed at SGX, if it is to avoid being hollowed out by the Hong Kong Exchanges &amp; Clearing (388.HK).

*Poor Result: Singapore Exchange (SGX.SP) [SGX] reported a weak FY 2H21 result, declining SGD 35.0 mn (14.6%) on an HOH basis. Higher than expected costs was the primary culprit for the overall disappointing result, increasing SGD 28.7 mn (11.6%) HOH pushing the expense to revenue ratio 410 bp higher to 51.8%. Cost pressures will not end, as SGX gave guidance that costs are due to increase between 9%-11%, as revenue begins to contract; and*Peripatetic: Recently, SGX announced its acquisition of MaxxTrader, its third acquisition after BidFX and Scientific Beta in 2020. Management is also considering getting involved Special Purpose Acquisition Companies (SPACs). Significant strategic alternatives are needed at SGX, if it is to avoid being hollowed out by the Hong Kong Exchanges &amp; Clearing (388.HK).

Singapore Exchange – Completely Distracted

*Poor 2Q21 Result: DBS Group Holdings (DBS.SP) [DBS] reported 2Q21 results of SGD 1.7 bn, decreasing SGD 304  mn (15.1%) on a linked quarter basis. The weaker results were driven primarily by an overall revenue decline, a loan provision increase, and a higher tax rate;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. By our calculation, and given the NCOs of SGD 69 mn, we find that net new NPLs have re-accelerated – up SGD 266 mn or increasing 18.0% annualized versus SGD 85 mn or 5.6% in 1Q21. We feel that reserves should be shored up in the neighborhood of SGD 2.5bn – amounting now to about two quarters of operating results; and *Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

*Poor 2Q21 Result: DBS Group Holdings (DBS.SP) [DBS] reported 2Q21 results of SGD 1.7 bn, decreasing SGD 304  mn (15.1%) on a linked quarter basis. The weaker results were driven primarily by an overall revenue decline, a loan provision increase, and a higher tax rate;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. By our calculation, and given the NCOs of SGD 69 mn, we find that net new NPLs have re-accelerated – up SGD 266 mn or increasing 18.0% annualized versus SGD 85 mn or 5.6% in 1Q21. We feel that reserves should be shored up in the neighborhood of SGD 2.5bn – amounting now to about two quarters of operating results; and *Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

*Challenging Result: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 2Q21 net profit of SGD 1.2 bn, a SGD 341 mn (22.7%) decrease on a linked quarter basis. OCBC’s bottom-line weakness was primarily attributable to two factors: 1) SGD 71 mn (44.1%) increase in the loss provision, which is well justified given the re-acceleration in net new NPL growth; and 2) SGD 362 mn (24.6%) decrease in overall fee revenues, driven primarily by weaker attributable Great Eastern (GE.SP) earnings which likely will be here to stay; and  *Credit Breaking Down After Reprieve:  By our calculation, we find that net new NPL growth has re-acclerated to SGD 771 mn or 78.3% on an annualized basis versus a negative SGD 78 mn or 8.0% for 1Q21. Given the increase in net new NPLs, reserve would appear to now be wanting by SGD 3.1 bn or just under three quarters of bottom-line results.

*Challenging Result: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 2Q21 net profit of SGD 1.2 bn, a SGD 341 mn (22.7%) decrease on a linked quarter basis. OCBC’s bottom-line weakness was primarily attributable to two factors: 1) SGD 71 mn (44.1%) increase in the loss provision, which is well justified given the re-acceleration in net new NPL growth; and 2) SGD 362 mn (24.6%) decrease in overall fee revenues, driven primarily by weaker attributable Great Eastern (GE.SP) earnings which likely will be here to stay; and  *Credit Breaking Down After Reprieve:  By our calculation, we find that net new NPL growth has re-acclerated to SGD 771 mn or 78.3% on an annualized basis versus a negative SGD 78 mn or 8.0% for 1Q21. Given the increase in net new NPLs, reserve would appear to now be wanting by SGD 3.1 bn or just under three quarters of bottom-line results.

Oversea Chinese Banking Corp. – Re-Accelerating Credit Risk

Research from SooChow CSSD Capital Markets (Asia), SCCM Asia Research

SCCM Asia Research

Research from SooChow CSSD Capital Markets (Asia)

Thematic (Sector/Industry)

<h2>Singapore</h2><h3>SREITs results in a glance (see detailed spreadsheet and calendar attached)</h3><table class="table table-striped"><tbody><tr><td style="width: 146.859px; height: 12px;"> </td><td style="width: 143.312px; height: 12px;">AREIT</td><td style="width: 147.344px; height: 12px;">MINT</td><td style="width: 145.031px; height: 12px;">AAREIT</td><td style="width: 143.453px; height: 12px;">EREIT</td></tr><tr><td style="width: 146.859px; height: 13px;">Period</td><td style="width: 143.312px; height: 13px;">1H21</td><td style="width: 147.344px; height: 13px;">1Q22</td><td style="width: 145.031px; height: 13px;">1Q22</td><td style="width: 143.453px; height: 13px;">2Q21</td></tr><tr><td style="width: 146.859px; height: 13px;">Gross Revenue (S$ m)</td><td style="width: 143.312px; height: 13px;">586.0 (+12.4% YoY)</td><td style="width: 147.344px; height: 13px;">128.1 (+29.2% YoY)</td><td style="width: 145.031px; height: 13px;">31.8 (+16.8% YoY)</td><td style="width: 143.453px; height: 13px;">59.5 (+6.25% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">NPI (S$ m)</td><td style="width: 143.312px; height: 12px;">445.6 (+14.8% YoY)</td><td style="width: 147.344px; height: 12px;">104.7 (+33.1% YoY)</td><td style="width: 145.031px; height: 12px;">23.1 (+23.9% YoY)</td><td style="width: 143.453px; height: 12px;">42.9 (+9.4% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">DPU (S$ c)</td><td style="width: 143.312px; height: 12px;">7.66 (+5.4% YoY)</td><td style="width: 147.344px; height: 12px;">3.35 (+16.7% YoY)</td><td style="width: 145.031px; height: 12px;">2.25 (+12.5% YoY)</td><td style="width: 143.453px; height: 12px;">0.754 (13.9% YoY)</td></tr><tr><td style="width: 146.859px; height: 12px;">NAV per Unit (S$)</td><td style="width: 143.312px; height: 12px;">2.27</td><td style="width: 147.344px; height: 12px;">1.75</td><td style="width: 145.031px; height: 12px;">1.35</td><td style="width: 143.453px; height: 12px;">0.398</td></tr><tr><td style="width: 146.859px; height: 12px;">P/B (x)</td><td style="width: 143.312px; height: 12px;">1.37</td><td style="width: 147.344px; height: 12px;">1.65</td><td style="width: 145.031px; height: 12px;">1.15</td><td style="width: 143.453px; height: 12px;">1.1</td></tr><tr><td style="width: 146.859px; height: 12px;">Occupancy (%)</td><td style="width: 143.312px; height: 12px;">91.3</td><td style="width: 147.344px; height: 12px;">94.3 (Overall); 97.8 (North American); 93.4 (Singapore)</td><td style="width: 145.031px; height: 12px;">95.7</td><td style="width: 143.453px; height: 12px;">91.7</td></tr><tr><td style="width: 146.859px; height: 6px;">Reversion (%)</td><td style="width: 143.312px; height: 6px;">6.4</td><td style="width: 147.344px; height: 6px;">Not Disclosed</td><td style="width: 145.031px; height: 6px;">Not disclosed</td><td style="width: 143.453px; height: 6px;">-0.2</td></tr><tr><td style="width: 146.859px; height: 12px;">Gearing (%)</td><td style="width: 143.312px; height: 12px;">37.6</td><td style="width: 147.344px; height: 12px;">31</td><td style="width: 145.031px; height: 12px;">34.3</td><td style="width: 143.453px; height: 12px;">42.9</td></tr><tr><td style="width: 146.859px; height: 12px;">Cost of Debt (%)</td><td style="width: 143.312px; height: 12px;">2.4</td><td style="width: 147.344px; height: 12px;">2.7</td><td style="width: 145.031px; height: 12px;">2.8</td><td style="width: 143.453px; height: 12px;">3.24</td></tr><tr><td style="width: 146.859px; height: 12px;">1 Yr Fwd Yield (%)</td><td style="width: 143.312px; height: 12px;">5.06</td><td style="width: 147.344px; height: 12px;">4.69</td><td style="width: 145.031px; height: 12px;">6.1</td><td style="width: 143.453px; height: 12px;">7.05</td></tr><tr><td style="width: 146.859px; height: 12px;">Debt Hedged (%)</td><td style="width: 143.312px; height: 12px;">75.2</td><td style="width: 147.344px; height: 12px;">95.8</td><td style="width: 145.031px; height: 12px;">77.2</td><td style="width: 143.453px; height: 12px;">75</td></tr><tr><td style="width: 146.859px; height: 12px;">Target Price</td><td style="width: 143.312px; height: 12px;">Under Review</td><td style="width: 147.344px; height: 12px;">N/A</td><td style="width: 145.031px; height: 12px;">Under Review</td><td style="width: 143.453px; height: 12px;">N/A</td></tr><tr><td style="width: 146.859px; height: 13px;">Rating</td><td style="width: 143.312px; height: 13px;">Under Review</td><td style="width: 147.344px; height: 13px;">N/A</td><td style="width: 145.031px; height: 13px;">Under Review</td><td style="width: 143.453px; height: 13px;">Under Review</td></tr></tbody></table>

SingaporeSREITs results in a glance (see detailed spreadsheet and calendar attached) AREITMINTAAREITEREITPeriod1H211Q221Q222Q21Gross Revenue (S$ m)586.0 (+12.4% YoY)128.1 (+29.2% YoY)31.8 (+16.8% YoY)59.5 (+6.25% YoY)NPI (S$ m)445.6 (+14.8% YoY)104.7 (+33.1% YoY)23.1 (+23.9% YoY)42.9 (+9.4% YoY)DPU (S$ c)7.66 (+5.4% YoY)3.35 (+16.7% YoY)2.25 (+12.5% YoY)0.754 (13.9% YoY)NAV per Unit (S$)2.271.751.350.398P/B (x)1.371.651.151.1Occupancy (%)91.394.3 (Overall); 97.8 (North American); 93.4 (Singapore)95.791.7Reversion (%)6.4Not DisclosedNot disclosed-0.2Gearing (%)37.63134.342.9Cost of Debt (%)2.42.72.83.241 Yr Fwd Yield (%)5.064.696.17.05Debt Hedged (%)75.295.877.275Target PriceUnder ReviewN/AUnder ReviewN/ARatingUnder ReviewN/AUnder ReviewUnder Review

ASEAN Builder's Scoop (03Aug21) - AREIT Boosted by DPU-Accretive Acq

SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Yoma Strategic Holdings / Equity Bottom-Up

Key Singapore Market Moves and Flows in July

Singapore

CapitaLand Ascendas REIT is an industrial real estate investment trust. The Trust invests in business and science park properties, integrated development, amenities, and retail (IDAR) properties, high-specifications industrial properties and data centers, light industrial and flatted factories, and logistics and distribution centers.

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CapitaLand Ascendas REIT (CLAR SP)

Singapore Exchange – Completely Distracted

SINGAPORE EXCHANGE: SGX FY 2H21 result declined 14.6% HOH due to rising costs. This is a distracted company with three bolt-ons in last year....

Thomas J. Monaco

DBS Group Holdings – Bad Print

DBS: DBS QOQ 2Q21 results declined 15.1% due to poor revenues and higher provisions. We worry that DBS has not caught the LVB risk, net new NPLs re...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Re-Accelerating Credit Risk

OVERSEA CHINESE BANKING: OCBC reported a QOQ 2Q21 net profit decline of 22.7% driven by higher provisions and weaker associate income. Net new NPLs...

Thomas J. Monaco

ASEAN Builder's Scoop (03Aug21) - AREIT Boosted by DPU-Accretive Acq

AREIT boosted by DPU-accretive acq; KEP-SPH better yield for SPH holders; SMPH 1H21 supported by resi biz; DD launches buyback program; LPKR strong...

SCCM Asia Research

Key Singapore Market Moves and Flows in July

The STI’s 1.2% gain in July brought its price gain over the first seven months to 11.4%, with dividends boosting the total return to 13.2%,...

Singapore Exchange Ltd (SGX)

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