Founder

Kemp Dolliver, CFA

Cherrystone Hill Research

Equity Capital Markets

JD Health International  / Equity Capital Markets

Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.

Healthcare’s presence in Asian capital markets has increased substantially over the last four years on the heels of substantial investments in private markets (VC/PE). Policy reforms and changes in listing rules, most notably in China, have led to an explosion of market cap creation for the sector as the universe of companies has expanded to include innovative companies, most notably pre-revenue biopharmaceutical companies. At the same time, substantial investments in digital healthcare, fueled by the COVID-19 pandemic, adds a new source of listed companies. This Insight focuses on leading unlisted healthcare companies in China, India, and ASEAN that have raised substantial amounts of capital and appear to be candidates for listing.   

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

*Challenges Ignored: Last week a competitor held a virtual conference with Ping An Insurance (2318.HK) [Ping An Insurance]. In typical fashion, the management of Ping An barely scratched the surface in their discussion of its weakened franchise;   *Only A Discussion On Life and P&amp;C: Management guided that Ping An Life (PAL) will have positive Value of New Business (VONB) growth for 2021, as a beneficiary of health reforms. It sees a number of new digital tools empowering agents in sales and customer development, in addition to improving agency recruitment. For Ping An P&amp;C, management guided that the full-year combined ratio would be “slightly higher” than the 99.1% posted through 3Q20. This means that Ping An P&amp;C likely will be loss making on an operational basis if the combined ratio exceeds 100%; and* Move Along, Nothing To See Here: There was no discussion of the following: 1) Continued weakness in Ping An Life’s results; 2) It being  a finalist to acqure Tahoe Insurance in Hong Kong; 3) technology platform; credit insurance risk; and the capital contrained Ping An Bank.

*Challenges Ignored: Last week a competitor held a virtual conference with Ping An Insurance (2318.HK) [Ping An Insurance]. In typical fashion, the management of Ping An barely scratched the surface in their discussion of its weakened franchise;   *Only A Discussion On Life and P&amp;C: Management guided that Ping An Life (PAL) will have positive Value of New Business (VONB) growth for 2021, as a beneficiary of health reforms. It sees a number of new digital tools empowering agents in sales and customer development, in addition to improving agency recruitment. For Ping An P&amp;C, management guided that the full-year combined ratio would be “slightly higher” than the 99.1% posted through 3Q20. This means that Ping An P&amp;C likely will be loss making on an operational basis if the combined ratio exceeds 100%; and* Move Along, Nothing To See Here: There was no discussion of the following: 1) Continued weakness in Ping An Life’s results; 2) It being  a finalist to acqure Tahoe Insurance in Hong Kong; 3) technology platform; credit insurance risk; and the capital contrained Ping An Bank. 

Ping An Insurance – Avoiding The Hard Questions

*Virtual Call Does Little To Quell Concerns: Last week a competitor held a virtual conference with AIA Group (1299.HK) [AIA]. In typical fashion, the management of AIA only discussed the positives neglecting many of the market realities;   *Mainland China Expansion and ASEAN Margins In Focus: According to management, the mainland Chinese expansion is of course progressing well as it plans three regional hubs - Beijing, Shanghai and recently approved Sichuan branch - to act as business centers. As discussed at the latest 3Q20 earnings release and now re-discussed, VONB margins have been increasing in select ASEAN markets; and*Elephants In The Room: Given both the earnings and balance sheet headwinds, who really cares about how many agents were added in mainland China? What was not discussed: negative tax implications for mainland Chinese subsidiaries versus branches; the bogusly rated AAA mainland Chinese bonds; the flailing Hong Kong flagship; and its USD-based investment portfolio.

*Virtual Call Does Little To Quell Concerns: Last week a competitor held a virtual conference with AIA Group (1299.HK) [AIA]. In typical fashion, the management of AIA only discussed the positives neglecting many of the market realities;   *Mainland China Expansion and ASEAN Margins In Focus: According to management, the mainland Chinese expansion is of course progressing well as it plans three regional hubs - Beijing, Shanghai and recently approved Sichuan branch - to act as business centers. As discussed at the latest 3Q20 earnings release and now re-discussed, VONB margins have been increasing in select ASEAN markets; and*Elephants In The Room: Given both the earnings and balance sheet headwinds, who really cares about how many agents were added in mainland China? What was not discussed: negative tax implications for mainland Chinese subsidiaries versus branches; the bogusly rated AAA mainland Chinese bonds; the flailing Hong Kong flagship; and its USD-based investment portfolio.  

Thematic (Sector/Industry)

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Yongcheng Coal Default: According to Shanghai Clearing House, Yongcheng Coal and Electricity (YCE) in Henan Province failed to repay a CNY 1 bn (USD 151 mn) short-term bond despite being given the highest rating by one of mainland China’s awful domestic credit ratings agencies; and*Watch Your Banks: The yield on benchmark five-year “AAA” rated mainland Chinese corporates was 3.99% - up over 100 bp from their April 2020 low. Investor flight is pushing financing costs higher and squeezing local corporate funding in a market which is just barely recovering from the COVID-19 pandemic. Concerns remain over higher problem loans as debt service risk is heightened over higher rates, unreliable financial statements and ratings agency reports, and now an inability to refinance public debt with a number of bond sales being canceled. Further, the degradation of corporate bond values is limiting their usage as collateral.

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

Ping An Insurance – Where There Is Smoke...

China

China Life Insurance Company Ltd. offers a wide range of life, accident, and health insurance products and services.

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China Life Insurance (601628 CH)

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