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>Credit metrics appear worse than headlines, with what may be inflated substandard loans now at 66% of total NPLs in 1H23 compared with 21% in 1H21, requiring low provisions</li>
<li>High net charge-offs can partly explain this, but high growth from RMB1.6bn during 2H18/1H19 compared with RMB7.5bn during 2H22/1H23, shows major deterioration</li>
<li>2Q23 saw CZB take credit costs of RMB10.3bn or 2.48% of loans, far higher than most other periods, but there remains high volatility, where very high figures rarely repeat QoQ</li>
</ul>


Credit metrics appear worse than headlines, with what may be inflated substandard loans now at 66% of total NPLs in 1H23 compared with 21% in 1H21, requiring low provisions
High net charge-offs can partly explain this, but high growth from RMB1.6bn during 2H18/1H19 compared with RMB7.5bn during 2H22/1H23, shows major deterioration
2Q23 saw CZB take credit costs of RMB10.3bn or 2.48% of loans, far higher than most other periods, but there remains high volatility, where very high figures rarely repeat QoQ


China Zheshang Bank- Substandard Loans 66% of NPLs from 21% | NCO's Avg RMB7.5bn Vs RMB1.6bn In Past

China Merchants Bank A / Equity Bottom-Up

<ul>
<li>New results detail from CMB shows divergence with credit quality and actual credit costs</li>
<li>The bank saw its credit costs decline 25% YoY despite higher Loss and Doubtful Loans YoY</li>
<li>Property development NPLs surged from 4.1% to 5.5% at 1H23 HoH, to RMB19.6bn in total</li>
</ul>


New results detail from CMB shows divergence with credit quality and actual credit costs
The bank saw its credit costs decline 25% YoY despite higher Loss and Doubtful Loans YoY
Property development NPLs surged from 4.1% to 5.5% at 1H23 HoH, to RMB19.6bn in total


China Merchants Bank - New Results: Property Dev. NPLs at 5.5% from 4.1%...  25% Lower Credit Costs

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<ul>
<li>
<a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2022/0128/2022012800929.pdf" target="_blank" rel="noopener">announced</a> last Friday it intends to buy back 8.43% of shares out from Elliott Investment Management for HK$2.9bn ($373mn), paying HK$11.19/share.</li>
<li>The share buyback is expected to result in a 6% increase in the consolidated net asset value per share.</li>
<li>Conditions to the buyback appear straightforward. BEA is trading cheap at 0.3x P/B. </li>
</ul>



Bank of East Asia (23 HK) announced last Friday it intends to buy back 8.43% of shares out from Elliott Investment Management for HK$2.9bn ($373mn), paying HK$11.19/share.
The share buyback is expected to result in a 6% increase in the consolidated net asset value per share.
Conditions to the buyback appear straightforward. BEA is trading cheap at 0.3x P/B. 


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

*Results Better Than Expected: Bank of East Asia (23.HK) [BEA] reported 1H21 results of HKD 2.3 bn – improving HKD 579 mn (34.3%) HOH despite a tax rate of 14.9% (negative 6.8% in 2H20). Results were supported by both a reduced loss provision and net interest income improvement; and  *Credit Turn, But Premature Provision Cut:  By our analysis, we find that credit deterioration appears to be decelerating as net new NPLs have increased 29.3% on an annualized basis versus over 60% at 2H20. Assuming that the decelerated breakdown in credit at BEA holds, we find that loss reserves remain wanting by HKD 4.5 bn or nearly one year of bottom-line results.

*Results Better Than Expected: Bank of East Asia (23.HK) [BEA] reported 1H21 results of HKD 2.3 bn – improving HKD 579 mn (34.3%) HOH despite a tax rate of 14.9% (negative 6.8% in 2H20). Results were supported by both a reduced loss provision and net interest income improvement; and  *Credit Turn, But Premature Provision Cut:  By our analysis, we find that credit deterioration appears to be decelerating as net new NPLs have increased 29.3% on an annualized basis versus over 60% at 2H20. Assuming that the decelerated breakdown in credit at BEA holds, we find that loss reserves remain wanting by HKD 4.5 bn or nearly one year of bottom-line results. 

Bank of East Asia – Premature Provision Cut

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

<a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a>/CHB has despatched the scheme document in relation to a privatisation offer from Yuexiu Holdings, the largest shareholder who holds 74.97% of outstanding shares. The offeror will offer HK$20.80 per scheme share.Unsurprisingly, the IFA considers the offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the privatisation precedent comparison could be improved. <div class="content-highlight">The key condition is the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). With no shareholder holding a blocking stake, we continue to believe that the substantial premium of the offer price to long-term average share prices and P/B multiples, makes it likely that the offer gains approval at the court meeting on 30 August (cheques dispatched on or before 7 October). At the current price of HK$20.45 per share, the gross spread to the offer price stands at 1.7%.</div>

Chong Hing Bank (1111 HK)/CHB has despatched the scheme document in relation to a privatisation offer from Yuexiu Holdings, the largest shareholder who holds 74.97% of outstanding shares. The offeror will offer HK$20.80 per scheme share.Unsurprisingly, the IFA considers the offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the privatisation precedent comparison could be improved. The key condition is the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). With no shareholder holding a blocking stake, we continue to believe that the substantial premium of the offer price to long-term average share prices and P/B multiples, makes it likely that the offer gains approval at the court meeting on 30 August (cheques dispatched on or before 7 October). At the current price of HK$20.45 per share, the gross spread to the offer price stands at 1.7%.

Chong Hing’s Scheme Document, IFA Opinion

Hong Kong

Operates as an investment holding company, which provides banking, financial and other related services

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Dah Sing Banking (2356 HK)

China Zheshang Bank- Substandard Loans 66% of NPLs from 21% | NCO's Avg RMB7.5bn Vs RMB1.6bn In Past

Substandard loans are now 66% of NPLs up from 21% two years ago, potentially flattering credit costs. NCO's though are surging, possibly a good...

Daniel Tabbush

China Merchants Bank - New Results: Property Dev. NPLs at 5.5% from 4.1%... 25% Lower Credit Costs

CMB shows surging property development NPLs, and overdue loans by 1-3 years, which is completely at odds with its 25% lower provision expenses in...

Daniel Tabbush

What Now For BEA After Elliott Walks?

This buyback removes a significant long-term overhang. At the current price, BEA is simply inexpensive. I'd be picking up shares around these levels.

David Blennerhassett

Bank of East Asia – Premature Provision Cut

BANK OF EAST ASIA: BEA reported 1H21 HOH results improvement of 34.3% supported by both a reduced loss provision and net interest income...

Thomas J. Monaco

Chong Hing’s Scheme Document, IFA Opinion

We broadly agree with the IFA analysis with the exception that the privatisation precedent comparison could be improved. The proposal will likely...

Arun George

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