IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/public-financial-holdings-limited" target="_blank" data-smartkarma-citation="entities:9760:1" rel="noopener">Public Financial (626 HK)</a> announced a scheme privatisation offer from <a href="https://www.smartkarma.com/entities/public-bank-berhad" target="_blank" data-smartkarma-citation="entities:583:1" rel="noopener">Public Bank (PBK MK)</a> at HK$2.50 per share, a 61.3% premium to the undisturbed price. The offer is final.</li>
<li>The offer is well below book value (P/B of 0.35x) and light compared to peer multiples. However, it is an attractive exit as it represents a 10-year high. </li>
<li>The vote is low-risk, as the high takeover premium will appeal to minorities given the near-term cash certainty compared to remaining a minority holder in an illiquid, 73%-controlled stock. </li>
</ul>



Public Financial (626 HK) announced a scheme privatisation offer from Public Bank (PBK MK) at HK$2.50 per share, a 61.3% premium to the undisturbed price. The offer is final.
The offer is well below book value (P/B of 0.35x) and light compared to peer multiples. However, it is an attractive exit as it represents a 10-year high. 
The vote is low-risk, as the high takeover premium will appeal to minorities given the near-term cash certainty compared to remaining a minority holder in an illiquid, 73%-controlled stock. 


Public Financial Holdings (626 HK): Public Bank’s Scheme Offer at HK$2.50

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

<ul>
<li>The bank's announcement that it expects at least a 30% decline in profit due to impairments is rare, in its clarity, not unexpected in the content.</li>
<li>There may be gaining momentum for banks in Greater China to more clearly show their credit metrics, which given economies there, are not likely to be positive. </li>
<li>Credit costs to loans have been in decline at this bank, and the surge they are forecasting, is understandable; perhaps partly given developments at China Evergrande?</li>
</ul>


The bank's announcement that it expects at least a 30% decline in profit due to impairments is rare, in its clarity, not unexpected in the content.
There may be gaining momentum for banks in Greater China to more clearly show their credit metrics, which given economies there, are not likely to be positive. 
Credit costs to loans have been in decline at this bank, and the surge they are forecasting, is understandable; perhaps partly given developments at China Evergrande?


Bank of Jiujiang - Rare Announcement Expecting at Least 30% Profit Decline

<ul>
<li>There may be overly optimistic expectations for BOC HK's credit costs, which have been relatively benign for many years. </li>
<li>Worsening economic developments in Hong Kong and China suggest that BOC HK will show a dramatic deterioration in credit metrics in coming interim results. </li>
<li>Loan growth in Hong Kong is now hitting zero and funding cost growth has been extravagant, making for a poor combination to net interest income. </li>
</ul>


There may be overly optimistic expectations for BOC HK's credit costs, which have been relatively benign for many years. 
Worsening economic developments in Hong Kong and China suggest that BOC HK will show a dramatic deterioration in credit metrics in coming interim results. 
Loan growth in Hong Kong is now hitting zero and funding cost growth has been extravagant, making for a poor combination to net interest income. 


BOC HK - Credit Costs Have Flat Lined for Years, a Blow Out in 2H23 or 1H24 Can Be a Shock

<ul>
<li>
<a href="https://www.smartkarma.com/entities/public-financial-holdings-limited" target="_blank" data-smartkarma-citation="entities:9760:1" rel="noopener">Public Financial (626 HK)</a> has entered a trading halt “pending the issuance of an announcement pursuant to the Code on Takeovers and Mergers which contains inside information of the Company.” </li>
<li>It is likely that the controlling shareholder (<a href="https://www.smartkarma.com/entities/public-bank-berhad" target="_blank" data-smartkarma-citation="entities:583:1" rel="noopener">Public Bank (PBK MK)</a>), representing 73.23% of the outstanding shares, is seeking to launch a privatisation through a Bermuda scheme. </li>
<li>While no disinterested shareholder holds a blocking stake, the headcount test necessitates a reasonable offer. I estimate a potential offer range of HK$2.20-2.80 (41.9%-80.6% premium to last close).</li>
</ul>



Public Financial (626 HK) has entered a trading halt “pending the issuance of an announcement pursuant to the Code on Takeovers and Mergers which contains inside information of the Company.” 
It is likely that the controlling shareholder (Public Bank (PBK MK)), representing 73.23% of the outstanding shares, is seeking to launch a privatisation through a Bermuda scheme. 
While no disinterested shareholder holds a blocking stake, the headcount test necessitates a reasonable offer. I estimate a potential offer range of HK$2.20-2.80 (41.9%-80.6% premium to last close).


Public Financial Holdings (626 HK): Privatisation Offer from Public Bank?

<ul>
<li>Notes to financial statements show rampant deterioration in credit metrics for both banks</li>
<li>BEA's write-offs in property development impaired loans rise by 4.1x in 1H23 vs FY22
</li>
<li>Overdue loans by &gt;1yr rose 277% HoH in 1H23 at Dah Sing, but it cut credit costs 48%
</li>
</ul>


Notes to financial statements show rampant deterioration in credit metrics for both banks
BEA's write-offs in property development impaired loans rise by 4.1x in 1H23 vs FY22

Overdue loans by &gt;1yr rose 277% HoH in 1H23 at Dah Sing, but it cut credit costs 48%



BEA & Dah Sing - Rampant Deterioration in HK Credit Metrics, Not Totally Visible in Headline Results

Hong Kong

The Bank of East Asia (BEA) is a Hong Kong-based financial services group offering comprehensive wholesale banking, personal banking, wealth management, and investment services. Its products include accounts, loans, credit cards, trade finance, and insurance. BEA was incorporated in 1918 and is headquartered in Central, Hong Kong.

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Bank of East Asia (23 HK)

Public Financial Holdings (626 HK): Public Bank’s Scheme Offer at HK$2.50

The vote is low-risk, as the high takeover premium will appeal to minorities given the near-term cash certainty compared to remaining a minority...

Arun George

Bank of Jiujiang - Rare Announcement Expecting at Least 30% Profit Decline

Bank of Jiujiang announced that its profit would be at least 30% lower for FY23 due to worsening credit metrics. This is incredibly rare to see...

Daniel Tabbush

BOC HK - Credit Costs Have Flat Lined for Years, a Blow Out in 2H23 or 1H24 Can Be a Shock

BOC HK has seen credit costs flat line for some years, possibly making it appear as though this bank does not experience credit cycles. Long term...

Daniel Tabbush

Public Financial Holdings (626 HK): Privatisation Offer from Public Bank?

It is likely that Public Bank is seeking to launch a scheme offer. I estimate a potential offer range of HK$2.20-2.80 (41.9%-80.6% premium to last...

Arun George

BEA & Dah Sing - Rampant Deterioration in HK Credit Metrics, Not Totally Visible in Headline Results

Credit metrics worsening substantially at BEA and Dah Sing, and well beyond what is visible in headline figures. There are implications also for...

Daniel Tabbush

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