Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Group (6688 HK)</a> has priced above the initial market capitalisation range of USD200 to USD300bn, at USD317bn including its over-allotment option of shares</li>
<li>Ant’s IPO valuation reflects the assumptions in our ambitious scenario SOTP valuation</li>
<li>Based on earnings and EBITDA multiples, Ant Group looks attractive relative to payments companies and fast growth investment and wealth managers</li>
<li>Ant is at a slight discount to the China MegaTech comparables, and we believe that it warrants a premium valuation to its China peers</li>
<li>Ant’s premium growth potential in digital finance, leveraging off its leading digital payments footprint, indicates further upside potential to the shares post IPO, in our view</li>
<li>Risks to our positive view on Ant Group include increased regulatory restrictions in China, heightened geopolitical tensions impacting demand for the shares at IPO and weaker than expected GDP growth limiting growth potential, especially in China</li>
</ul>



Ant Group (6688 HK) has priced above the initial market capitalisation range of USD200 to USD300bn, at USD317bn including its over-allotment option of shares
Ant’s IPO valuation reflects the assumptions in our ambitious scenario SOTP valuation
Based on earnings and EBITDA multiples, Ant Group looks attractive relative to payments companies and fast growth investment and wealth managers
Ant is at a slight discount to the China MegaTech comparables, and we believe that it warrants a premium valuation to its China peers
Ant’s premium growth potential in digital finance, leveraging off its leading digital payments footprint, indicates further upside potential to the shares post IPO, in our view
Risks to our positive view on Ant Group include increased regulatory restrictions in China, heightened geopolitical tensions impacting demand for the shares at IPO and weaker than expected GDP growth limiting growth potential, especially in China


Ant Group (6688 HK): IPO Pricing Warrants a Re-Rating

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

*Another Poor Set Of Results Expected: Pre-market on November 11, 2020, AIA Group (1299.HK) [AIA] is set to release its usual limited set of results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 30% YOY on a constant exchange rate basis – remaining flat on a linked quarter basis, however - due largely to weaker volumes and margins; *It’s More Than VONB: AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales. Equity markets where AIA operates had setbacks: Hong Kong (down 4%); Singapore (down 5%); and Thailand (down 8%). AIA’s EV also suffered an 8% impairment due to an investment portfolio challenges – which is a continued worry for us given the global economic challenges that all corporates and sovereigns are facing; and   *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

*Another Poor Set Of Results Expected: Pre-market on November 11, 2020, AIA Group (1299.HK) [AIA] is set to release its usual limited set of results. By our calculation, AIA’s overall Value of New Business (VONB) is expected to decline 30% YOY on a constant exchange rate basis – remaining flat on a linked quarter basis, however - due largely to weaker volumes and margins; *It’s More Than VONB: AIA’s product mix remains sub-optimal with the single premium product remaining the focus due to the COVID-19 impact on face-to-face agency sales. Equity markets where AIA operates had setbacks: Hong Kong (down 4%); Singapore (down 5%); and Thailand (down 8%). AIA’s EV also suffered an 8% impairment due to an investment portfolio challenges – which is a continued worry for us given the global economic challenges that all corporates and sovereigns are facing; and   *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 60% plus YOY decline in VONB would not be out of the question as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

AIA Group – 3Q Results Will Remain Very Challenging

*Way Too Early Provision Reduction: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q20 net income of CNY 8.7 bn – increasing CNY 3.6 bn or 70% linked quarter. One factor, and one factor alone, was responsible for the increase  - provisions were pre-emptively reduced CNY 6.7 bn (29.5%) over the period despite a true decrease in credit risk;  *Credit Is WEAKER: Net new NPLs have increased CNY 23.0 bn linked quarter or a massive 223.1% on an annualized basis. Assuming the credit break in the PAB portfolio holds – which it likely will given the economic weakness attributed to COVID-19 – reserves would appear light by CNY 178 bn if we assume a 2x NPL ratio. This shortfall represents 62% 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.

 *Way Too Early Provision Reduction: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q20 net income of CNY 8.7 bn – increasing CNY 3.6 bn or 70% linked quarter. One factor, and one factor alone, was responsible for the increase  - provisions were pre-emptively reduced CNY 6.7 bn (29.5%) over the period despite a true decrease in credit risk;  *Credit Is WEAKER: Net new NPLs have increased CNY 23.0 bn linked quarter or a massive 223.1% on an annualized basis. Assuming the credit break in the PAB portfolio holds – which it likely will given the economic weakness attributed to COVID-19 – reserves would appear light by CNY 178 bn if we assume a 2x NPL ratio. This shortfall represents 62% 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. 

Ping An Insurance – Bank Fundamentals Worsening

*PAL Leads Improvement: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); and *P&amp;C Remains A Challenge: Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH, 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. Auto combined ratio improved temporarily during the lockdown by 360 bp to 94.7%, and certainly warrants watching a driving returns to normal in mainland China.

*PAL Leads Improvement: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below consensus. As a recovery appears underway with Ping An Life (PAL), Ping An results appeared to be well-supported by a HOH improvement of CNY 13.2 bn bn (40.4%) in net profits  - although its value of new business (VONB) declined CNY 3.9 bn (11.9%); and *P&amp;C Remains A Challenge: Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH, 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. Auto combined ratio improved temporarily during the lockdown by 360 bp to 94.7%, and certainly warrants watching a driving returns to normal in mainland China.

Ping An Insurance – Life Showing Signs Of Life

PICC Property & Casualty H / Equity Bottom-Up

*Weak 1H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY.  Excluding the one-off CNY 4.2 bn tax impact which occurred in 1H19, PICC P&amp;C’s pre-tax earnings actually grew by 4.1%;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.9 bn underwriting loss. Despite the decline in new premiums by 59% YOY, PICC P&amp;C reported a 32% YOY increase in earned premium within this unit. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 138.6%; and*Auto Enjoying Having No One On The Road: The auto insurance unit reported a CNY 6.6 bn underwriting profit, which increased 194% YOY, as its combined ratio improved 3.3% to 94.8%. This is attributed to the social distancing measures implemented in 1H20, which significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page on COVID-19.

*Weak 1H20 Results: PICC P&amp;C (2328.HK) [PICC P&amp;C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY.  Excluding the one-off CNY 4.2 bn tax impact which occurred in 1H19, PICC P&amp;C’s pre-tax earnings actually grew by 4.1%;*Credit Insurance Remains A Trouble Spot: Credit insurance line reported the largest deterioration in underwriting results, posting a CNY 2.9 bn underwriting loss. Despite the decline in new premiums by 59% YOY, PICC P&amp;C reported a 32% YOY increase in earned premium within this unit. This is most likely attributed to policies sold in 2019, in our view. Credit insurance also reported an astronomical combined ratio of 138.6%; and*Auto Enjoying Having No One On The Road: The auto insurance unit reported a CNY 6.6 bn underwriting profit, which increased 194% YOY, as its combined ratio improved 3.3% to 94.8%. This is attributed to the social distancing measures implemented in 1H20, which significantly reduced vehicle use - especially commercial vehicles (which tends to have higher claims). We view this as temporary, given how quickly mainland China is turning the page on COVID-19.   

China

Ping An Insurance (Group) Company of China Limited provides products and services through its five ecosystems in financial services, healthcare, auto services, real estate services and Smart City solutions. The Group's insurance business writes property, casualty, and life insurance products.

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Ping An Insurance Group of (PNGAY US)

Ant Group (6688 HK): IPO Pricing Warrants a Re-Rating

Ant Group's share price at IPO is above the original expected range; still, we expect solid share re-rating potential given its growth prospects...

Victor Galliano

AIA Group – 3Q Results Will Remain Very Challenging

AIA GROUP: Previewing 3Q Results, We Note VONB Challenges And Other Risks - Hong Kong Not Rebounding, Weak Equity Markets, and Further Investment...

Thomas J. Monaco

Ping An Insurance – Bank Fundamentals Worsening

PING AN INSURANCE: PING AN BANK Reported A Completely Manufactured 3Q20 Earnings Result, Cutting Provisions Despite Substantially Weaker Credit

Thomas J. Monaco

Ping An Insurance – Life Showing Signs Of Life

*PAL Leads Improvement: Ping An Insurance (2318.HK)[Ping An] reported a 1H20 operating profit of CNY 74.3 bn, increasing just 1% YOY and 5% below...

Thomas J. Monaco

PICC P&C – Still Too Much Credit

*Weak 1H20 Results: PICC P&C (2328.HK) [PICC P&C] reported 1H20 earnings of CNY 13.2 bn, which was 6% below consensus and down 22% YOY....

Thomas J. Monaco

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