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

*Recovery Continues: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] attended a competitor virtual conference last week, confirming that the positive trends in from 1Q21 are set to continue; and*Credit Improvement Re-Affirmed: We remain optimistic. According to management, credit quality trends remain quite favorable but still expects a gradual deterioration from loans under moratorium. Much of the anticipated deterioration in credit is likely to continue to come from Malaysia and Indonesia. For 1Q21, we calculated that net new NPL growth amounted to a very reasonable SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low.

*Recovery Continues: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] attended a competitor virtual conference last week, confirming that the positive trends in from 1Q21 are set to continue; and*Credit Improvement Re-Affirmed: We remain optimistic. According to management, credit quality trends remain quite favorable but still expects a gradual deterioration from loans under moratorium. Much of the anticipated deterioration in credit is likely to continue to come from Malaysia and Indonesia. For 1Q21, we calculated that net new NPL growth amounted to a very reasonable SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low.

Oversea Chinese Banking Corp. – Affirming Positive Trends

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

CTOS Digital (CTOS) aims to raise up to US$291m via its Malaysian IPO. It is majority owned by Creador, a PE firm. CTOS is an investment holding whose subsidiaries are principally involved in the business of credit reporting, digital software related services, software development, outsourcing and training services and investment holding. CTOS was the largest credit reporting agency (CRA) in Malaysia with an estimated market share in terms of revenue of 71.2% in 2020 according to the IMR Report. Its associate, Experian, was the second largest credit reporting agency (CRA) in Malaysia, with an estimated market share in terms of revenue of 17.5%.We covered most aspects of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/ctos-digital-pre-ipo-credit-where-credit-s-due" target="_blank" rel="noopener">CTOS Digital Pre-IPO - Credit where credit’s due</a>.In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

CTOS Digital (CTOS) aims to raise up to US$291m via its Malaysian IPO. It is majority owned by Creador, a PE firm. CTOS is an investment holding whose subsidiaries are principally involved in the business of credit reporting, digital software related services, software development, outsourcing and training services and investment holding. CTOS was the largest credit reporting agency (CRA) in Malaysia with an estimated market share in terms of revenue of 71.2% in 2020 according to the IMR Report. Its associate, Experian, was the second largest credit reporting agency (CRA) in Malaysia, with an estimated market share in terms of revenue of 17.5%.We covered most aspects of the deal in our earlier note, CTOS Digital Pre-IPO - Credit where credit’s due.In this note, we will run the deal through our ECM framework and talk about the deal dynamics.

CTOS Digital IPO - Market Leader, Strong PE Record and Cornerstone

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results.

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results. 

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

0.9x P/B. That's the only number that matters here.
Yue Xiu (the investment arm of the Guangzhou municipal government) has made an Offer, by way of a Scheme, for <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> shares not owned, at HK$20.80/share, a 51.2% premium to last close, and a 97% premium to the day preceding the last trading day.
The Cancellation Price, which is a 10.1% discount to the NAV, will NOT be increased.
Standard Scheme conditions apply. Chong Hing is Hong Kong-incorporated, therefore there is no headcount test.
Despite the impressive premium, the P/B multiple is less than half the average P/B multiple for Hong Kong banks over the past twenty years, and less than half the most recent takeover multiple of Wing Hang Bank, which was taken out by <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">OCBC (OCBC SP)</a> in 2014 at 1.81x P/B in a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0629/ltn20140629025.pdf" target="_blank" rel="noopener">US$4.9bn deal</a>.
More below the fold.

0.9x P/B. That's the only number that matters here.
Yue Xiu (the investment arm of the Guangzhou municipal government) has made an Offer, by way of a Scheme, for Chong Hing Bank (1111 HK) shares not owned, at HK$20.80/share, a 51.2% premium to last close, and a 97% premium to the day preceding the last trading day.
The Cancellation Price, which is a 10.1% discount to the NAV, will NOT be increased.
Standard Scheme conditions apply. Chong Hing is Hong Kong-incorporated, therefore there is no headcount test.
Despite the impressive premium, the P/B multiple is less than half the average P/B multiple for Hong Kong banks over the past twenty years, and less than half the most recent takeover multiple of Wing Hang Bank, which was taken out by OCBC (OCBC SP) in 2014 at 1.81x P/B in a US$4.9bn deal.
More below the fold.

Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light

Singapore

Oversea-Chinese Banking Corporation Limited offers a comprehensive range of financial services.  The Company's services include deposit-taking, corporate, enterprise and personal lending, international trade financing, investment banking, private banking, treasury, stockbroking, insurance, credit cards, cash management, asset management and other financial and related services.

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OCBC (OCBC SP)

Oversea Chinese Banking Corp. – Affirming Positive Trends

Oversea Chinese Banking Corp: OCBC confirmed that the positive trends are set to continue, and that credit quality remains favorable but with...

Thomas J. Monaco

CTOS Digital IPO - Market Leader, Strong PE Record and Cornerstone

CTOS Digital (CTOS) aims to raise up to US$291m via its Malaysian IPO. It is majority owned by Creador, a PE firm. CTOS is the largest credit...

Sumeet Singh

CIMB Group – A Positive Turn

CIMB GROUP: CIMB core results improved 5.1x linked quarter, driven by NIM expansion, loan growth, and decline in loss provisions. Loss reserves are...

Thomas J. Monaco

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Asia’s Tier 2 notes slightly outperformed AT1 in May. Shorter-duration bonds outperformed although there was greater differentiation in longer...

Hank Calenti, CFA

Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light

I think this is being done too cheaply. Yet, no other suitor will emerge. Ultimately, this is where long-suffering shareholders cash out. Assuming...

David Blennerhassett

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