Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
</tr>
<tr>
<td style="width: 726.047px;">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/213/768/original/image_768460236451623962508577.png?1623962508" class="editor-image img-responsive" data-smartkarma-image-id="213768"></figure>

Source: Our analysis
</td>
</tr>
</tbody>
</table>
Related Insights
<a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> 
<a href="https://www.smartkarma.com/insights/glut-and-famine-we-might-see-snow-in-china-this-summer" target="_blank" data-smartkarma-citation="insights:52840" rel="noopener">Glut and Famine: We Might See Snow in China This Summer</a> 
<a href="https://www.smartkarma.com/insights/china-macro-ppi-peaks-while-cpi-eases-tightening-fears" target="_blank" data-smartkarma-citation="insights:52778" rel="noopener">China Macro: PPI Peaks, while CPI Eases Tightening Fears</a> 
<a href="https://www.smartkarma.com/insights/china-macro-exports-disappoint-but-it-s-still-early-in-the-game" target="_blank" data-smartkarma-citation="insights:52728" rel="noopener">China Macro: Exports Disappoint, but It's Still Early in the Game</a> 
<a href="https://www.smartkarma.com/insights/glut-and-famine-china-s-monetary-conditions-a-notch-tighter-in-may" target="_blank" data-smartkarma-citation="insights:51799" rel="noopener">Glut and Famine: China's Monetary Conditions a Notch Tighter in May</a> 
<a href="https://www.smartkarma.com/insights/icbc-the-bond-identity-a-zero-growth-dividend-discount-story" target="_blank" data-smartkarma-citation="insights:51463" rel="noopener">ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story</a> 
<a href="https://www.smartkarma.com/insights/boc-aviation-2588-hk-the-stars-don-t-look-bigger-but-they-do-look-brighter" target="_blank" data-smartkarma-citation="insights:52283" rel="noopener">BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter</a>

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<div>
As discussed in <a href="https://skr.ma/p8tiS" target="_blank" rel="noopener">Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light</a>, Yue Xiu has made an Offer for <a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a> shares not owned, at HK$20.80/share, which is a 10.1% discount to its NAV.
</div>
<div>
This privatisation renews interest in Hong Kong's remaining  "family"-owned banks, such as <a href="https://www.smartkarma.com/entities/dah-sing-banking-group-ltd" target="_blank" data-smartkarma-citation="entities:342:1" rel="noopener">Dah Sing Banking (2356 HK)</a> and <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 (23 HK)</a>.
Of the two, DSB is the most obvious candidate. It is 74.4% held by <a href="https://www.smartkarma.com/entities/dah-sing-financial-holdings" target="_blank" data-smartkarma-citation="entities:589:1" rel="noopener">Dah Sing Financial (440 HK)</a>, which in turn is controlled by the Wong family with 42.96%.
More below the fold.
</div>


As discussed in Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light, Yue Xiu has made an Offer for Chong Hing Bank (1111 HK) shares not owned, at HK$20.80/share, which is a 10.1% discount to its NAV.


This privatisation renews interest in Hong Kong's remaining  "family"-owned banks, such as Dah Sing Banking (2356 HK) and Bank of East Asia (23 HK).
Of the two, DSB is the most obvious candidate. It is 74.4% held by Dah Sing Financial (440 HK), which in turn is controlled by the Wong family with 42.96%.
More below the fold.


Dah Sing (2356 HK): Trading Cheap As Chong Hing Gets Bid

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Bank of Chongqing Co Ltd H / Equity Bottom-Up

Bank of Chongqing (1963 HK) dedicates itself increasingly to corporate lending (61.4% of loan book) but also to consumer segments (34.7%), to some discount bills (3.9%), funded by time deposits (68% of deposits) and by transaction accounts (26.6%). The bank has been expanding its business in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, Green Finance, Wealth Management, or Financial Leasing. While rooted in Chongqing, the bank has built a strong presence in Sichuan, Guizhou, and Shaanx. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing moderately. Balance Sheet expansion is somewhat in excess of the System in general. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, IoT, biometrics, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects. Management is active in funding Belt and Road, Yangtze River Economic Belt, and the Chengu-Chongqing Economic Circle.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better Capital Adequacy and Provisioning. The valuation variable too is a positive in our PH Score™. Given the increase in LLPs, on account of a 15% jump in NPLs, Profitability though eroded somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by above-System credit expansion of 16% YoY.<div class="content-highlight">A FV of 9%, a PBV of 0.39x, an Earnings Yield of 28.0%, and a Dividend Yield of 8.4%, are not unattractive. The bank commands both a top quartile PH Score™ and VFM ranking. </div>

Bank of Chongqing (1963 HK) dedicates itself increasingly to corporate lending (61.4% of loan book) but also to consumer segments (34.7%), to some discount bills (3.9%), funded by time deposits (68% of deposits) and by transaction accounts (26.6%). The bank has been expanding its business in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, Green Finance, Wealth Management, or Financial Leasing. While rooted in Chongqing, the bank has built a strong presence in Sichuan, Guizhou, and Shaanx. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing moderately. Balance Sheet expansion is somewhat in excess of the System in general. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, IoT, biometrics, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects. Management is active in funding Belt and Road, Yangtze River Economic Belt, and the Chengu-Chongqing Economic Circle.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better Capital Adequacy and Provisioning. The valuation variable too is a positive in our PH Score™. Given the increase in LLPs, on account of a 15% jump in NPLs, Profitability though eroded somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by above-System credit expansion of 16% YoY.A FV of 9%, a PBV of 0.39x, an Earnings Yield of 28.0%, and a Dividend Yield of 8.4%, are not unattractive. The bank commands both a top quartile PH Score™ and VFM ranking. 

Bank of Chongqing: Cheap Given Fundamental Dynamics

As is often cited, China maintains certain advantages over other parts of the world regarding the terrible weight of C19 that is so devastating other parts of the globe and in relation to the interrelated current macro picture.<a href="https://www.smartkarma.com/entities/bank-of-chongqing-co-ltd-h" target="_blank" data-smartkarma-citation="entities:658:1" rel="noopener">Bank Of Chongqing Co Ltd H (1963 HK)</a>has been expanding its business well in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, or Financial Leasing. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing forcefully. Balance Sheet expansion is broadly in line with the System. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better headline Asset Quality, Liquidity and Provisioning. Given the increase in LLPs, Profitability though eroded slightly while Capital Adequacy deteriorated somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by lower Funding Costs and System-like credit expansion of 13% YoY.<div class="content-highlight">A FV of 4%, a PBV of 0.37x, an Earnings Yield of 30.7%, a Dividend Yield of 5.3%, and a Total Return Ratio of 6x are highly attractive. The bank commands both a top quartile PH Score™ and VFM ranking. Chongqing is also a “3 year off, 1 year on” stock.</div>

As is often cited, China maintains certain advantages over other parts of the world regarding the terrible weight of C19 that is so devastating other parts of the globe and in relation to the interrelated current macro picture.Bank Of Chongqing Co Ltd H (1963 HK)has been expanding its business well in recent years, whether it be Corporate, SME, Consumer, Trade Finance, Capital Markets, or Financial Leasing. Management is fortifying the application of financial technologies, with the online loan business growing fast, while deposits are growing forcefully. Balance Sheet expansion is broadly in line with the System. In addition, the Bank has strengthened governance, and put in place a mechanism for online tracking of asset quality and a risk monitoring system that combines micro and macro aspects. Management has beefed up risk control tools, advanced post-loan online service and the online management of credit authorisation and inquiry, and promoted the tools used to expand the credit business. Fintech innovation is centred on 5G, AI, blockchain and other technologies through lean management robots, remote banks, intelligent WAN and integrated operation and maintenance projects.Recent results show positive fundamental momentum and trends with clear improvement in Efficiency, NIM and Spread, as well as better headline Asset Quality, Liquidity and Provisioning. Given the increase in LLPs, Profitability though eroded slightly while Capital Adequacy deteriorated somewhat. Growth in “Core Income” was robust, especially in Net Interest Income, spurred by lower Funding Costs and System-like credit expansion of 13% YoY.A FV of 4%, a PBV of 0.37x, an Earnings Yield of 30.7%, a Dividend Yield of 5.3%, and a Total Return Ratio of 6x are highly attractive. The bank commands both a top quartile PH Score™ and VFM ranking. Chongqing is also a “3 year off, 1 year on” stock.

Bank of Chongqing: Robust Trends and Cheap Valuation Characterise Chongqing

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank PCL (TMB TB)</a>, <a href="https://www.smartkarma.com/entities/banco-santander-brasil-sa" target="_blank" data-smartkarma-citation="entities:27709:1" rel="noopener">Banco Santander Brasil SA (SANB11 BZ)</a>, <a href="https://www.smartkarma.com/entities/citizens-financial-group" target="_blank" data-smartkarma-citation="entities:16004:1" rel="noopener">Citizens Financial (CFG US)</a>, <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> 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>.  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: <a href="https://www.smartkarma.com/insights/chong-hing-bank-at1-alchemy" target="_blank" data-smartkarma-citation="insights:41645" rel="noopener">Chong Hing Bank: AT1 Alchemy</a>. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities.

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by TMB Bank PCL (TMB TB), Banco Santander Brasil SA (SANB11 BZ), Citizens Financial (CFG US), Grupo Financiero Banorte-O (GFNORTEO MF) and Banco Do Brasil Sa (BBAS3 BZ).  Three banks issued AT1 notes with coupons lower than yields on their respective shorter callable bonds over the last two weeks. The result was a jump in the price of the shorter callable bonds. Information price discovery drove this impact. For more on this, please see: Chong Hing Bank: AT1 Alchemy. The alchemy behind these moves requires deconstructing bond spread components to separate the underlying credit risk of the firm from the non-call risk of the security. We then model the possible impact from issuing new AT1 bonds on the price of already outstanding securities. 

Bank Credit Strategy: Pre-Positioning for AT1 Price Accretion

China

Bank of Chongqing Co. Ltd. provides commercial banking services. The Company offers financial services to individuals and enterprises including deposits, loans, settlement, currency trading, financial & government bonds, and credit cards services. Bank of Chongqing also offers international services.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Bank of Chongqing Co Ltd H (1963 HK)

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

Dah Sing (2356 HK): Trading Cheap As Chong Hing Gets Bid

I think one could be long both DSF and DSB. DSF is cheaper, and because of the securities holdings, the discount is more egregious.

David Blennerhassett

Bank of Chongqing: Cheap Given Fundamental Dynamics

Valuation at Bank of Chongqing is undemanding given the fundamental progression underway and strategic focus on technology and fast developing...

Paul Hollingworth

Bank of Chongqing: Robust Trends and Cheap Valuation Characterise Chongqing

Chongqing stands out as a cheap bank with strong fundamental momentum in a relatively secure Banking System. Our PH Score, VFM, and behaviourial...

Paul Hollingworth

Bank Credit Strategy: Pre-Positioning for AT1 Price Accretion

Our top five picks for Additional Tier 1 (AT1) price accretion comprise bonds issued by TMB Bank PCL (TMB TB), Banco Santander Brasil SA (SANB11...

Hank Calenti, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)