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

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing.

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing. 

Yuanta Financial Holding Co / Equity Bottom-Up

*Very Solid 1Q21: Yuanta Financial Holding (2885.TT) [Yuanta] reported 1Q21 results of NTD 9.4 bn, increasing NTD 4.9 bn (107.5%) linked quarter. Much of Yuanta’s linked quarter growth can be attributed to strong net interest income growth from both a margin loan and bank loan balance increases; a significant reduction in loss provisioning; and net fee improvement on the back of an ADTV increase on the TAIEX; and*Hidden Yuanta Earnings At Bank: At 21% of Yuanta’s bottom-line, Yunata Bank posted strong core operating results as well – NTD 2.0 bn, increasing NTD 731 mn or 59.2% linked quarter. Reserve cover of NPLs is extraordinary and the best we’ve seen in Asia thus far at 12.1x. By our calculation, Yuanta Bank has over reserved and can release upward of NTD 10.5 bn – representing over one quarter of Yuanta’s quarterly bottom-line.

*Very Solid 1Q21: Yuanta Financial Holding (2885.TT) [Yuanta] reported 1Q21 results of NTD 9.4 bn, increasing NTD 4.9 bn (107.5%) linked quarter. Much of Yuanta’s linked quarter growth can be attributed to strong net interest income growth from both a margin loan and bank loan balance increases; a significant reduction in loss provisioning; and net fee improvement on the back of an ADTV increase on the TAIEX; and*Hidden Yuanta Earnings At Bank: At 21% of Yuanta’s bottom-line, Yunata Bank posted strong core operating results as well – NTD 2.0 bn, increasing NTD 731 mn or 59.2% linked quarter. Reserve cover of NPLs is extraordinary and the best we’ve seen in Asia thus far at 12.1x. By our calculation, Yuanta Bank has over reserved and can release upward of NTD 10.5 bn – representing over one quarter of Yuanta’s quarterly bottom-line.

Yuanta Financial Holding – Firing On All Cylinders

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

*Meh 1Q21 Result: Tencent Holdings (700.HK) [Tencent] reported 1Q21 total revenues of CNY 135.3 bn - increasing 25% YOY, while non-GAAP operating profit aggregated CNY 42.8 bn - increasing 20% YOY; and*Capital Raise Likely Coming: For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn for full year 2020, FinTech represents a growing 28.8% of revenue – and is a key and growing component of Tencent’s current and future results. No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tencent Holdings – Awaiting The Big Hit

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

*Good Number:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 1Q21 net profit of SGD 1.5 bn, a SGD 271 mn (24.0%) increase on a linked quarter basis. OCBC’s bottom-line improvement was primarily attributable to two factors: SGD 125 mn (43.7%) reduction in the loss provision, which may actually be justified given the deceleration in net new NPL growth; and a SGD 274 mn (139.8%) increase in attributable Great Eastern (GE.SP) earnings, much of which came from unrepeatable non-operating gains;*Credit Improving In Reality: We remain optimistic. By our calculation, we find that net new NPL growth while reversing course from being a negative SGD 78 mn or 8.0% on an annualized basis in 4Q20 only increased SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low. We continue to find that reserves are now where they need to be, which is a far cry from where currently DBS Group Holdings (DBS.SP) is; and*Insurance One-Off: Great Eastern reported bottom-line results of SGD 438 mn, an increase over the SGD 341m reported at 4Q20 due to SGD 241 mn of non-recurring gains. The NBEV margin was stronger at 47.5% versus 45.3% in 4Q20.

*Good Number:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 1Q21 net profit of SGD 1.5 bn, a SGD 271 mn (24.0%) increase on a linked quarter basis. OCBC’s bottom-line improvement was primarily attributable to two factors: SGD 125 mn (43.7%) reduction in the loss provision, which may actually be justified given the deceleration in net new NPL growth; and a SGD 274 mn (139.8%) increase in attributable Great Eastern (GE.SP) earnings, much of which came from unrepeatable non-operating gains;*Credit Improving In Reality: We remain optimistic. By our calculation, we find that net new NPL growth while reversing course from being a negative SGD 78 mn or 8.0% on an annualized basis in 4Q20 only increased SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low. We continue to find that reserves are now where they need to be, which is a far cry from where currently DBS Group Holdings (DBS.SP) is; and*Insurance One-Off: Great Eastern reported bottom-line results of SGD 438 mn, an increase over the SGD 341m reported at 4Q20 due to SGD 241 mn of non-recurring gains. The NBEV margin was stronger at 47.5% versus 45.3% in 4Q20. 

Oversea Chinese Banking Corp. – The Credit Turn Is Official

China

CSOP FTSE China A50 ETF is an exchange-traded fund incorporated in Hong Kong. The Fund seeks to track the performance of the FTSE China A50 Index. The Fund invests most of its total assets in the equities of member companies of the FTSE China A50 Index. This is a RQFII fund.

CSOP FTSE China A50 (82822 HK)

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Thomas J. Monaco

Yuanta Financial Holding – Firing On All Cylinders

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Thomas J. Monaco

Tencent Holdings – Awaiting The Big Hit

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Thomas J. Monaco

AIA Group – Risks Remain High

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Thomas J. Monaco

Oversea Chinese Banking Corp. – The Credit Turn Is Official

OVERSEA CHINESE BANKING: OCBC reported 1Q21 QOQ net profit growth of 24.0% driven by a provision reduction and one-time gain at Great Eastern. We...

Thomas J. Monaco