Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>A week after the State Council issued "Several Opinions" (关于加强监管防范风险推动资本市场高质量发展的若干意见》), the CSRC <a href="http://www.csrc.gov.cn/csrc/c100028/c7474875/content.shtml" target="_blank" rel="noopener">announced</a> Friday five capital market cooperation measures with HK Connect. The goals are to increase cross-border investor flows.</li>
<li>They include: a broader range of ETFs in Connect, including REITs in both directions, include RMB counters in Southbound, improve mutual recognition of funds, increasing China IPOs in Hong Kong.</li>
<li>RMB Dual Counters Southbound-eligible will take time. They have some homework, but it is on the "To Do" list "as soon as possible and smoothly." Watch impact on H/A Pairs.</li>
</ul>


A week after the State Council issued "Several Opinions" (关于加强监管防范风险推动资本市场高质量发展的若干意见》), the CSRC announced Friday five capital market cooperation measures with HK Connect. The goals are to increase cross-border investor flows.
They include: a broader range of ETFs in Connect, including REITs in both directions, include RMB counters in Southbound, improve mutual recognition of funds, increasing China IPOs in Hong Kong.
RMB Dual Counters Southbound-eligible will take time. They have some homework, but it is on the "To Do" list "as soon as possible and smoothly." Watch impact on H/A Pairs.


RMB Dual Counter Trading Is Coming - This Changes AH Relationships

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.

Equity Bottom-Up

<ul>
<li>HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. </li>
<li>The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.</li>
<li>Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. </li>
</ul>


HSBC holds 19% of BoCom and still carries it with a value of USD23.3bn despite the stock market valuation putting it closer to USD8.1bn on YE22 figures. 
The bank cites its Value In Use testing as the justifiable reason for this gap, and this testing will include major assumptions like discount rates and long term growth rates.
Goodwill and other intangible charges were USD10.6bn in FY08, USD3.4bn in FY16, and USD7.4bn in FY19 for HSBC. 


HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

Thematic (Sector/Industry)

<ul>
<li>Domestic credit growth in Hong Kong weakened further in latest monthly release at -2.2% YoY. Weekly Centa City Leading Index grinds lower, a more HFD point relevant to credit</li>
<li>The acceleration in domestic credit growth in Indonesia is unique, where growth is up to +11.2% YoY in most recent month vs +5.2% YoY in the same month last year  </li>
<li>We remain concerned about credit metrics for HK's banks given contracting growth, worsening property, which is collateral. Many HK banks have done little in provisioning </li>
</ul>


Domestic credit growth in Hong Kong weakened further in latest monthly release at -2.2% YoY. Weekly Centa City Leading Index grinds lower, a more HFD point relevant to credit
The acceleration in domestic credit growth in Indonesia is unique, where growth is up to +11.2% YoY in most recent month vs +5.2% YoY in the same month last year  
We remain concerned about credit metrics for HK's banks given contracting growth, worsening property, which is collateral. Many HK banks have done little in provisioning 


Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

HK/China Equity Long-Short

Osbert Tang, CFA

<ul>
<li>
<a href="https://www.smartkarma.com/entities/enn-energy-holdings-ltd" target="_blank" data-smartkarma-citation="entities:316:1" rel="noopener">ENN Energy (2688 HK)</a> is not required to submit a merger control filing to the SAMR, suggesting it is making a step ahead in meeting the pre-conditions. </li>
<li>The use of onshore bank loans and cash balance as a refinancing source and consideration payment will lower financing costs, boosting the value of ENN Natural Gas H-share.</li>
<li>The current share price is 9.3 and 17.7% below the low-bound and high-bound of our estimated value range. It is also less vulnerable to the current tariff war.</li>
</ul>



ENN Energy (2688 HK) is not required to submit a merger control filing to the SAMR, suggesting it is making a step ahead in meeting the pre-conditions. 
The use of onshore bank loans and cash balance as a refinancing source and consideration payment will lower financing costs, boosting the value of ENN Natural Gas H-share.
The current share price is 9.3 and 17.7% below the low-bound and high-bound of our estimated value range. It is also less vulnerable to the current tariff war.


ENN Energy (2688 HK): Privatisation Progressing Well Ahead

<ul>
<li>HK &amp; China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs. </li>
<li>Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23. </li>
<li>LT credit costs shows HSBC's provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind. </li>
</ul>


HK &amp; China CRE credit impaired loans are rising sharply and high in 3Q23. We believe there is risk that the bank has to take much higher credit costs. 
Not only Mainland China CRE where there are risks. HSBC shows its ECL coverage ratio for HK CRE rising 45% over the past nine months, from 4Q22 to 3Q23. 
LT credit costs shows HSBC's provisioning is like during a benign environment, at ~1/3 of its LT average. Its +34% QoQ credit costs in 4Q22 is worth keeping in mind. 


HSBC - HK & China CRE Credit Impaired Loans Now 25.8% from 20.2% | ECL Coverage for HK CRE up 45%

Hong Kong

BOC Hong Kong (Holdings) Limited is an investment holding company providing banking and related financial services through its principal operating subsidiary, Bank of China (Hong Kong) Limited (BOCHK). It offers a comprehensive range of financial, investment, and wealth management services to personal, corporate, and institutional customers, and is one of Hong Kong's three note-issuing banks and the sole Renminbi clearing bank. The company was incorporated in Hong Kong on September 12, 2001, and is headquartered in Central, Hong Kong.

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BOC Hong Kong (2388 HK)

RMB Dual Counter Trading Is Coming - This Changes AH Relationships

1 year+ after the CSRC said it was working towards expanding HKD RMB dual counter trading in HK, making RMB counters eligible, last month through...

Travis Lundy

HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

HSBC still carries its 19% investment in BoCom at a very high value compared with the market value and with a far weaker China outlook, we are not...

Daniel Tabbush

Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

Domestic credit growth HFD shows weakening figures in Hong Kong, far better figures and strong in Indonesia, and still strong, rising in Taiwan....

Daniel Tabbush

ENN Energy (2688 HK): Privatisation Progressing Well Ahead

ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...

Osbert Tang, CFA

HSBC - HK & China CRE Credit Impaired Loans Now 25.8% from 20.2% | ECL Coverage for HK CRE up 45%

NYCB, Aozora, now Pfandbriefbank in Germany, CRE risks are clear. HSBC is not only exposed in places like Hong Kong and China, but also material...

Daniel Tabbush

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52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

RMB Dual Counter Trading Is Coming - This Changes AH Relationships

1 year+ after the CSRC said it was working towards expanding HKD RMB dual counter trading in HK, making RMB counters eligible, last month through...

Travis Lundy

HSBC - Gap of USD15bn on Carrying Value Vs Fair Value of BoCom, as China Economy Weakens More

HSBC still carries its 19% investment in BoCom at a very high value compared with the market value and with a far weaker China outlook, we are not...

Daniel Tabbush

Asia Credit - HK Weakens More, Indonesia, Taiwan Remain Strong, and Improving

Domestic credit growth HFD shows weakening figures in Hong Kong, far better figures and strong in Indonesia, and still strong, rising in Taiwan....

Daniel Tabbush

ENN Energy (2688 HK): Privatisation Progressing Well Ahead

​ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...

Osbert Tang, CFA

HSBC - HK & China CRE Credit Impaired Loans Now 25.8% from 20.2% | ECL Coverage for HK CRE up 45%

NYCB, Aozora, now Pfandbriefbank in Germany, CRE risks are clear. HSBC is not only exposed in places like Hong Kong and China, but also material...

Daniel Tabbush

ENN Energy is progressing on meeting pre-conditions, with no merger control filing needed. Refinancing with onshore bank loans and using cash...