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

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans.

*Costs Now An Issue: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported CNY 6.5 bn – declining CNY 2.2 bn (25.1%) on a linked quarter basis. In this environment, credit troubles no doubt are a foregone conclusion. However, this was not necessarily PAB’s biggest issue in its most results announcement, where the bulk of the earnings decline was attributed to a CNY 1.9 bn (17.1%) linked quarter increase in costs;*Credit Is WEAKER Still:  We find that credit weakness is actually deteriorating at an even more accelerated pace than in 3Q20, as net new NPLs have increased CNY 20.5 bn or a massive 241% (223% in 3Q20) on an annualized basis. We also find that PAB’s reserves still remain quite light by CNY 152 bn if we assume a 2x NPL ratio. This shortfall represents 60% of stated equity; and*Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

China Merchants Bank H / Equity Bottom-Up

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.  

China Merchants Bank – Massive 4Q20 Charge-Offs

Postal Savings Bank of China C / Equity Bottom-Up

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

Postal Savings Bank – D-SIB Spurs Placement

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyse the changes of A-H premium on 146 stocks over the last week. The average A-H premium was 116.7% as of Sep 15th.</li>
<li>The average A-H premium changed by 2.3ppt week on week, led by energy, real estate, industrials and offset by communication services, information technology.</li>
<li>We highlight weekly changes in A-H premium for Postal Savings, Sinopec Corp, Shanghai Fudan, Sinopec Oilfield, Remegen Co Ltd.</li>
</ul>


We analyse the changes of A-H premium on 146 stocks over the last week. The average A-H premium was 116.7% as of Sep 15th.
The average A-H premium changed by 2.3ppt week on week, led by energy, real estate, industrials and offset by communication services, information technology.
We highlight weekly changes in A-H premium for Postal Savings, Sinopec Corp, Shanghai Fudan, Sinopec Oilfield, Remegen Co Ltd.


A-H Premium Weekly (Sep 15th): Postal Savings, Sinopec Corp, Shanghai Fudan, Sinopec Oilfield

China

China Zheshang Bank Co., Ltd. offers banking services. The Company provides deposits, loans, international settlement, wealth management, and other services. China Zheshang Bank also operates financial services.

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China Zheshang Bank (601916 CH)

Ping An Insurance - Awful Bank Result

PING AN INSURANCE: PAB reported a 25.1% lower linked quarter result. The bulk of the earnings decline was attributed to a 17.1% increase in costs;...

Thomas J. Monaco

China Merchants Bank – Massive 4Q20 Charge-Offs

CHINA MERCHANTS BANK: CMB announced a poor set of preliminary 4Q20 results, as profit declined 22.7% QOQ. Credit risk has substantially increased...

Thomas J. Monaco

Postal Savings Bank – D-SIB Spurs Placement

POSTAL SAVINGS BANK OF CHINA: D-SIB Status Spurs Private Placement And Likely A Lower ROE Both From Dilution And Challenged Fundamentals In 2021.

Thomas J. Monaco

A-H Premium Weekly (Sep 15th): Postal Savings, Sinopec Corp, Shanghai Fudan, Sinopec Oilfield

We analyzed A-H premium changes in the past week and highlight A-H premium changes for Postal Savings, Sinopec Corp, Shanghai Fudan, Sinopec...

Ke Yan, CFA, FRM

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)