Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.</div><div>These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.</div><div>
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.
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In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.


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.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/ngern-tid-lor" target="_blank" data-smartkarma-citation="entities:31103:1" rel="noopener">Ngern Tid Lor (NTL TB)</a>/TIDLOR is the leading auto-for-cash loan provider in Thailand with a 16% market share as measured by the outstanding vehicle title loans in 2019, according to Oliver Wyman. TIDLOR is an affiliate of <a href="https://www.smartkarma.com/entities/bank-of-ayudhya-pcl" target="_blank" data-smartkarma-citation="entities:136:1" rel="noopener">Bank Of Ayudhya (BAY TB)</a> (Krungsri), which is a strategic member of <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a>. At the IPO price range of THB34.00-36.50, TIDLOR will raise total gross proceeds of THB30.9-33.1 billion ($1.0-1.1 billion). The offer comprises a primary/secondary spilt of 23:77. A total of 32 domestic and foreign cornerstone investors will subscribe for a total of 626.0 million shares or 69.0% of the offer shares. The foreign cornerstone investors include FIL Investment Management, JP Morgan Asset Management, Lion Global Investors and Neuberger Berman. <div class="content-highlight">In <a href="https://www.smartkarma.com/insights/ngern-tid-lor-ipo-initiation-finance-on-four-wheels" target="_blank" data-smartkarma-citation="insights:50448" rel="noopener">Ngern Tid Lor IPO Initiation: Finance on Four Wheels</a>, we noted that the timing of the IPO is not ideal as a new COVID-19 outbreak has swept through Thailand. Nevertheless, for investors willing to ride the current market uncertainty, we believe that TIDLOR is well placed to capture the long-term opportunity of Thailand’s vehicle title loan market. Our valuation analysis suggests that TIDLOR is fairly valued at the proposed IPO price range.     </div>

Ngern Tid Lor (NTL TB)/TIDLOR is the leading auto-for-cash loan provider in Thailand with a 16% market share as measured by the outstanding vehicle title loans in 2019, according to Oliver Wyman. TIDLOR is an affiliate of Bank Of Ayudhya (BAY TB) (Krungsri), which is a strategic member of Mitsubishi UFJ Financial (MUFG) (8306 JP). At the IPO price range of THB34.00-36.50, TIDLOR will raise total gross proceeds of THB30.9-33.1 billion ($1.0-1.1 billion). The offer comprises a primary/secondary spilt of 23:77. A total of 32 domestic and foreign cornerstone investors will subscribe for a total of 626.0 million shares or 69.0% of the offer shares. The foreign cornerstone investors include FIL Investment Management, JP Morgan Asset Management, Lion Global Investors and Neuberger Berman. In Ngern Tid Lor IPO Initiation: Finance on Four Wheels, we noted that the timing of the IPO is not ideal as a new COVID-19 outbreak has swept through Thailand. Nevertheless, for investors willing to ride the current market uncertainty, we believe that TIDLOR is well placed to capture the long-term opportunity of Thailand’s vehicle title loan market. Our valuation analysis suggests that TIDLOR is fairly valued at the proposed IPO price range.     

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

*Results Materially Supported By Provision Reversals and Principal Transactions: Citigroup (C.US) [Citi] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 3.7 bn (89.0%) linked quarter. Citi reversed provisions of USD 2.1 bn - increasing 43.7x versus 4Q20. In addition to the negative provision, Citi’s results were also supported by a USD 2.0 bn (99.7%) increase in principal transaction gains;*Credit Weaker But Coverage Strong: Net new NPLs came in about 1/3 of the previous quarter’s result came in at USD 635 mn or increasing 48.0% on an annualized basis – still far worse than JPM for the last three consecutive quarters. Citi’s loan loss reserve declined to 422% of NPLs and 325 bp of total loans – but still pretty darn good for the known and potential risk in the loan portfolio; and *Puzzling EM Exit: Citi also announced strategic changes in the Global Consumer Bank (GCB), where they are exiting 13 markets, of which ten are in Asia-Pacific. As rationale for the move, new CEO Jane Fraser believe that Citi "does not have the scale" to compete in those markets which account for USD 7 bn in allocated equity and USD 70 bn in loans. We await clarity on the potential restructuring costs and the capital release from these divestitures.

*Results Materially Supported By Provision Reversals and Principal Transactions: Citigroup (C.US) [Citi] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 3.7 bn (89.0%) linked quarter. Citi reversed provisions of USD 2.1 bn - increasing 43.7x versus 4Q20. In addition to the negative provision, Citi’s results were also supported by a USD 2.0 bn (99.7%) increase in principal transaction gains;*Credit Weaker But Coverage Strong: Net new NPLs came in about 1/3 of the previous quarter’s result came in at USD 635 mn or increasing 48.0% on an annualized basis – still far worse than JPM for the last three consecutive quarters. Citi’s loan loss reserve declined to 422% of NPLs and 325 bp of total loans – but still pretty darn good for the known and potential risk in the loan portfolio; and *Puzzling EM Exit: Citi also announced strategic changes in the Global Consumer Bank (GCB), where they are exiting 13 markets, of which ten are in Asia-Pacific. As rationale for the move, new CEO Jane Fraser believe that Citi "does not have the scale" to compete in those markets which account for USD 7 bn in allocated equity and USD 70 bn in loans. We await clarity on the potential restructuring costs and the capital release from these divestitures.

*Results Better, But Likely Unsustainable: Bank of America (BAC.US) [BAC] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 2.4 bn (45.2%) linked quarter. Results were driven by two factors: a) a negative USD 1.9 bn, in contravention to overall credit performance; and b) a USD 2.1 bn (147.3%) increase trading activities, the sustainability of which we call into question; and*BAC Still Needs To Focus On Credit Quality: Given the USD 774 mn in NCOs (33 bp annualized of total loans), we note that net new NPLs reversed course – increasing a a high 74.8% on an annualized basis. JPM and Citigroup each reported declines. Relative to NPLs, however, reserves – while still significant – declined 67.4% to 3.00x while declining 24 bp to 1.79% against total loans.

*Results Better, But Likely Unsustainable: Bank of America (BAC.US) [BAC] reported 1Q21 bottom-line results of USD 7.6 bn, increasing USD 2.4 bn (45.2%) linked quarter. Results were driven by two factors: a) a negative USD 1.9 bn, in contravention to overall credit performance; and b) a USD 2.1 bn (147.3%) increase trading activities, the sustainability of which we call into question; and*BAC Still Needs To Focus On Credit Quality: Given the USD 774 mn in NCOs (33 bp annualized of total loans), we note that net new NPLs reversed course – increasing a a high 74.8% on an annualized basis. JPM and Citigroup each reported declines. Relative to NPLs, however, reserves – while still significant – declined 67.4% to 3.00x while declining 24 bp to 1.79% against total loans.

Bank of America – Not Exactly A Shining Result

<a href="https://www.smartkarma.com/entities/ngern-tid-lor" target="_blank" data-smartkarma-citation="entities:31103:1" rel="noopener">Ngern Tid Lor (NTL TB)</a>/TIDLOR is the leading auto-for-cash loan provider in Thailand with a 16% market share as measured by the outstanding vehicle title loans in 2019, according to Oliver Wyman. It is also a non-life insurance broker with the biggest branch network in Thailand. TIDLOR is an affiliate of <a href="https://www.smartkarma.com/entities/bank-of-ayudhya-pcl" target="_blank" data-smartkarma-citation="entities:136:1" rel="noopener">Bank Of Ayudhya (BAY TB)</a> (Krungsri), which is a strategic member of <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a>. TIDLOR has launched an IPO to raise up to THB33 billion ($1.1 billion). The offer comprises a primary/secondary spilt of 23:77. The selling shareholders are Krungsri and CVC Capital Partners. <div class="content-highlight">The timing of the IPO is not ideal as a new COVID-19 outbreak has swept through Thailand which has forced <a href="https://www.smartkarma.com/entities/thai-beverage-pcl" target="_blank" data-smartkarma-citation="entities:3656:1" rel="noopener">Thai Beverage (THBEV SP)</a> to pull the plug on the listing of BeerCo. Despite the COVID-19 pandemic, TIDLOR delivered a creditable performance in 2020 underpinned by strong operations and asset quality. For investors willing to ride the current market uncertainty, we believe that TIDLOR is well placed to capture the long-term opportunity of Thailand’s vehicle title loan market.   </div>

Ngern Tid Lor (NTL TB)/TIDLOR is the leading auto-for-cash loan provider in Thailand with a 16% market share as measured by the outstanding vehicle title loans in 2019, according to Oliver Wyman. It is also a non-life insurance broker with the biggest branch network in Thailand. TIDLOR is an affiliate of Bank Of Ayudhya (BAY TB) (Krungsri), which is a strategic member of Mitsubishi UFJ Financial (MUFG) (8306 JP). TIDLOR has launched an IPO to raise up to THB33 billion ($1.1 billion). The offer comprises a primary/secondary spilt of 23:77. The selling shareholders are Krungsri and CVC Capital Partners. The timing of the IPO is not ideal as a new COVID-19 outbreak has swept through Thailand which has forced Thai Beverage (THBEV SP) to pull the plug on the listing of BeerCo. Despite the COVID-19 pandemic, TIDLOR delivered a creditable performance in 2020 underpinned by strong operations and asset quality. For investors willing to ride the current market uncertainty, we believe that TIDLOR is well placed to capture the long-term opportunity of Thailand’s vehicle title loan market.   

Ngern Tid Lor IPO Initiation: Finance on Four Wheels

Japan

Mitsubishi UFJ Financial Group, Inc. (MUFG) is a holding company established through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Mitsubishi UFJ Financial (MUFG) (8306 JP)

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Mitsubishi UFJ Financial (MUFG) (8306 JP)

Pair Trading Ideas - Asian Financials

We highlight potential trades among liquid large cap Asian financial stocks that are correlated and exhibit mean reversion. We recommend closing...

Brian Freitas

Ngern Tid Lor IPO: Valuation Insights

At the IPO price range of THB34.00-36.50, TIDLOR will raise total gross proceeds of $1.0-1.1 billion. Our valuation analysis suggests that TIDLOR...

Arun George

Citigroup – Shifting Winds

CITIGROUP: Citi reported a QOQ 1Q21 bottom-line result increase of 89.0% due to provision reversals and principal transactions. Net new NPLs...

Thomas J. Monaco

Bank of America – Not Exactly A Shining Result

BANK OF AMERICA: BAC's QOQ 1Q21 bottom-line increased 45.2% driven by reserve releases and trading (not sustainable). Net new NPLs reversed course...

Thomas J. Monaco

Ngern Tid Lor IPO Initiation: Finance on Four Wheels

TIDLOR has launched an IPO to raise up to THB33 billion ($1.1 billion). For investors willing to ride the current market uncertainty, we believe...

Arun George

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