Category

Financials Sector

Brief Finance: Koramco Energy Plus REIT IPO and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Koramco Energy Plus REIT IPO
  2. Another Top Executive Leaves HDFC Bank, But Don’t Try Finding the News in the Media
  3. HSBC – Not Quintessential Recovery Bank
  4. Hong Kong Exchanges & Clearing – Further To Run
  5. AEON Financial Services – ASEAN Weakness Results In Dividend Cut

1. Koramco Energy Plus REIT IPO

Gas 2

We have a Bullish view on this IPO mainly because this REIT has a stable structure with solid gas station assets that has a good probability of being able to generate 6% + annual dividends. Plus, the recent big property hikes in Korea is likely to lead to more investors who will be attracted to the stable REIT structure of this deal. We would take this deal. 

Koramco Energy Plus REIT IPO is expected to be completed in Korea in the next few weeks. The expected IPO price per share is 5,000 won and there are 21.3 million shares offered in the IPO. The bookbuilding for the institutional investors starts on July 28th. 

This is an interesting IPO where the 187 gas stations acquired from SK Networks are used as the base assets for this REIT. This is the first major gas station related REIT in Korea. This REIT has established a stable profit structure by signing a long-term lease contract of at least 10 years (which can be extended another five years) with Hyundai Oilbank as the main tenant.

2. Another Top Executive Leaves HDFC Bank, But Don’t Try Finding the News in the Media

Munishquittweet10july2020

It is the season for long serving business head verticals to exit HDFC Bank (HDFCB IN). Following the abrupt departures  of Abhay Aima (former Group Head – private banking) and Ashok Khanna (ex-Group Head – automobile loans) comes news of Munish Mittal (Group Head – Information Technology and Chief Information Officer [CIO]) quitting the bank on July 10, 2020.

In the true tradition of recent senior-level departures at HDFC Bank, the bank’s highly visible and active communications department did not bother to inform stakeholders or even its own staff. Instead it was left to an anonymous source to tweet that Munish Mittal’s last date was July 10, 2020, as was the case for one of his deputies in the department. The business media as usual did not consider the departure of the CIO at India’s number 1 bank by market capitalisation (one which prides itself on its digital strategy) to be newsworthy, or found it too onerous to verify by querying the bank. Responding to a query by this writer, HDFC Bank said that the 51-year old Mittal, who joined the bank on August 1996 and rose to be the CIO, had decided to take a break, and wanted to enrol for a 2-year course at a foreign university.

There is something fundamentally wrong in the system when a prominent bank does not disclose senior level management exits, and it is left to anonymous sources or whistleblowers to inform the market. The business media, which exist to report such news, refuse to do elementary journalism and decline even to contact the bank to verify the news. In HDFC Bank it is all the more worrying as Aditya Puri, the CEO since the bank’s inception, is finally stepping down in October 2020, and the successor is not yet known to the market. In this situation, it adds to the uncertainty when we find heads of important verticals suddenly leaving.

Today, the largest bank by market capitalisation, in a country where the index has a significant weightage towards banking and the financial sector, declines to provide market sensitive information; the media  chose to report only information which the company itself officially releases, and deliberately avoid reporting any information which may embarrass the company. The market is treading on dangerous ground when HDFC Bank is yet to officially acknowledge the controversial exits of Aima and Khanna, and the media has only just reported Khanna’s unceremonious exit; but nobody seems concerned that the market is deprived of market sensitive information by the institutions tasked with the universal disbursal of such information.

3. HSBC – Not Quintessential Recovery Bank

Image 89047806221594515029344

It is not easy to be excited about HSBC Holdings (HSBA LN) even if there are increasing signs of recovery in many areas where this global behemoth operates. And maybe that is the point: it is a global behemoth. It has demonstrated a poor ability at buying banks, at managing costs, and at benefitting from its unique footprint. Its sprawling operations make it a less leveraged, pure recovery play relative to domestic peers; and maybe this is the point, its leverage to recovery is muted by its shortcomings. A tiny domestic and fairly basic commercial bank, is a whole different story; there is less leakage, more recovery income can find its way to the bottom line. This is not HSBC. 

4. Hong Kong Exchanges & Clearing – Further To Run

* Solid Prospects: Hong Kong Exchanges & Clearing’s (388.HK) [HKEx] share price has increased HKD 152.40 (72.1%) since its pandemic panic trough of March 21, 2020. The run appears to price in the entire suite of US-listed mainland Chinese ADRs to be ambitiously shifted to HKEx along with market velocity. HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx;

*June Ahead of Expectations: HKEx June volumes were ahead of expectations in both the cash and the derivatives markets; and

*Just Pay The Dividend: HKEx is sitting on an enormous level of excess cash of over USD 3 bn which likely will be managed more properly when a less deal happy CEO takes over the helm by October 2021. 

5. AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;

* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  – declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,

*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.  

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Brief Finance: Shriram Transport Finance – A Bridge Is For Sale In Brooklyn and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Shriram Transport Finance – A Bridge Is For Sale In Brooklyn
  2. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO
  3. Mega Financial: Premium Rating for Eroding Fundamental Trends

1. Shriram Transport Finance – A Bridge Is For Sale In Brooklyn

*Weak Earnings Across The Board: Shriram Transport Finance (SHTF.IN) [Shriram] reported FY 4Q20 net income of INR 2.2 bn – missing consensus by 8%-10%, declining INR 6.6  (74.6%) linked quarter as business momentum has effectively grinds to a halt;

*Credit Getting Messy: Although stated gross NPLs at Shriram have actually declined INR 2.1 bn (2.3%), they still represent a grotesque 8.36% of total loans and as of May 2020, about 70% of Shriram’s loan book is under moratorium. To make matters worse, we find that Shriram is well-under reserved and has over-stated earnings in FY 4Q20 alone – by INR 6.6 bn or 300%; and

*Liquidity Risk?: Shriram did not apply for a moratorium on repayments to banks when Reserve Bank of India (RBI) announced the first moratorium as it was carrying sufficient liquidity. Subsequently, since the announcement of a second moratorium, and a liquidity rundown in April and May owing to repayments Shriram is now applying to its banks for moratoriums – giving us concerns about Shriram’s ability to manage liquidity in this current environment.

2. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

Image 70247221131592045045257

On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

3. Mega Financial: Premium Rating for Eroding Fundamental Trends

Mega Financial Holding Co., (2886 TT) is a stock which catches our attention. Located in a fashionable jurisdiction, for many of the right reasons given pandemic response and fiscal legroom, a positive GDP, as well as its technological prowess, the bank exhibits just the kind of combination which  suggests that a period of relative under performance lies ahead. A rock bottom PH Score™ , a high RSI, and a rich valuation function as an underweight or short trifecta. Maybe, something else is at work but based on our model, anchored by number dynamics, we see more risk than opportunity for the share price.

It must be emphasised that Taiwan is a low PH Score™ space trading at a premium to other regional markets. One of the problems with premium markets is that they are susceptible to bad news or events which can surprise. It is hardly as if geopolitical risk is not present.

Mega Financial commands a very low PH Score™ of 1.65, an overbought RSI signal, and a FV of 18%: shares thus find themselves in the bottom decile of our VFM global rankings. 

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

With VFM (Valuation, Fundamentals, Momentum), we score banks by PH Score™ , Technicals, and an additional Valuation filter.

Trading at a Price/Book and Earnings Yield of 1.32x and 5.5%, respectively, at premium ratings, just underlines the lack of a bullish investment case at Mega Financial on a regional and/or global stage. We recognise that a Dividend Yield of 5.4% is not at all bad but the DPR looks too high. We warn that a low PH Score™ can act as a headwind. The main caveat to our bear thesis is some form of corporate activity.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Finance: HSBC – Not Quintessential Recovery Bank and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. HSBC – Not Quintessential Recovery Bank
  2. Hong Kong Exchanges & Clearing – Further To Run
  3. AEON Financial Services – ASEAN Weakness Results In Dividend Cut
  4. Relative Value – Manappuram ’23 Vs. Muthoot ’23
  5. Ping An Rally Fuel to Challenge the 95 Macro Hurdle

1. HSBC – Not Quintessential Recovery Bank

Image 46927698731594515029345

It is not easy to be excited about HSBC Holdings (HSBA LN) even if there are increasing signs of recovery in many areas where this global behemoth operates. And maybe that is the point: it is a global behemoth. It has demonstrated a poor ability at buying banks, at managing costs, and at benefitting from its unique footprint. Its sprawling operations make it a less leveraged, pure recovery play relative to domestic peers; and maybe this is the point, its leverage to recovery is muted by its shortcomings. A tiny domestic and fairly basic commercial bank, is a whole different story; there is less leakage, more recovery income can find its way to the bottom line. This is not HSBC. 

2. Hong Kong Exchanges & Clearing – Further To Run

* Solid Prospects: Hong Kong Exchanges & Clearing’s (388.HK) [HKEx] share price has increased HKD 152.40 (72.1%) since its pandemic panic trough of March 21, 2020. The run appears to price in the entire suite of US-listed mainland Chinese ADRs to be ambitiously shifted to HKEx along with market velocity. HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx;

*June Ahead of Expectations: HKEx June volumes were ahead of expectations in both the cash and the derivatives markets; and

*Just Pay The Dividend: HKEx is sitting on an enormous level of excess cash of over USD 3 bn which likely will be managed more properly when a less deal happy CEO takes over the helm by October 2021. 

3. AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;

* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  – declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,

*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.  

4. Relative Value – Manappuram ’23 Vs. Muthoot ’23

Image 39349422841594371391877

Both Muthoot Finance (MUTH IN) and Manappuram Finance (MGFL IN) are gold loan companies with very similar businesses. The major difference is the larger size of Muthoot and the somewhat larger share of non-gold loans in Manappuram’s portfolio. Given this, we feel the spread differential of over 200 bps between bonds of the 2 companies due ’23 is excessive at present. As such, Manappuram represents better value.

Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

5. Ping An Rally Fuel to Challenge the 95 Macro Hurdle

Ping%20an%20for%20sk

Ping An Insurance (H) (2318 HK) has exploded higher off of the strong 70 macro base line support. We see a fresh rally opportunity after a July give back to pocket support (83) to challenge the bigger 95 macro barrier with longer term scope to finally break the 70 to 95 range that has held Ping An captive since late 2017.

Given the breakout in A shares and H shares, attention now turns to tier two names that show catch up potential behind the likes of BABA and Tencent.

Macro base support is now firm at the 70 level that will hold up in coming years.

MACD is attempting to clear noted trendline resistance and may need more than one attempt for a successful breakout.

The buy volumes spike is supportive looking forward but does run the risk of a sharp give back in price and a pullback we want to buy.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Finance: Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO
  2. Mega Financial: Premium Rating for Eroding Fundamental Trends

1. Bitauto (BITA US): Done Deal. Keep An Eye on Yixin’s MGO

Image 70247221131592045045257

On the 13 September 2019, Tencent Holdings (700 HK) and Hammer Capital tabled a preliminary non-binding proposal for Bitauto Holdings Ltd Adr (BITA US) at US$16/ADS, a ~20.6% premium to last close and a 36.1% premium to the 30-day VWAP. This was discussed in Tencent’s Potential Downstream Offer For Yixin

On Friday (12 June), Bitauto announced it has entered into a definitive Merger Agreement with Tencent and Hammer at the previously-announced Offer price of US$16/ADS. 

Shareholders holding 55.3% of shares out have agreed to vote in favour of the Merger. The proposal needs two-thirds. This is a done deal.

The quirky takeaway from this Merger will be how the downstream unconditional MGO unfolds for Yixin Group Ltd (2858 HK), currently 43.74%-held by Bitauto.

2. Mega Financial: Premium Rating for Eroding Fundamental Trends

Mega Financial Holding Co., (2886 TT) is a stock which catches our attention. Located in a fashionable jurisdiction, for many of the right reasons given pandemic response and fiscal legroom, a positive GDP, as well as its technological prowess, the bank exhibits just the kind of combination which  suggests that a period of relative under performance lies ahead. A rock bottom PH Score™ , a high RSI, and a rich valuation function as an underweight or short trifecta. Maybe, something else is at work but based on our model, anchored by number dynamics, we see more risk than opportunity for the share price.

It must be emphasised that Taiwan is a low PH Score™ space trading at a premium to other regional markets. One of the problems with premium markets is that they are susceptible to bad news or events which can surprise. It is hardly as if geopolitical risk is not present.

Mega Financial commands a very low PH Score™ of 1.65, an overbought RSI signal, and a FV of 18%: shares thus find themselves in the bottom decile of our VFM global rankings. 

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

With VFM (Valuation, Fundamentals, Momentum), we score banks by PH Score™ , Technicals, and an additional Valuation filter.

Trading at a Price/Book and Earnings Yield of 1.32x and 5.5%, respectively, at premium ratings, just underlines the lack of a bullish investment case at Mega Financial on a regional and/or global stage. We recognise that a Dividend Yield of 5.4% is not at all bad but the DPR looks too high. We warn that a low PH Score™ can act as a headwind. The main caveat to our bear thesis is some form of corporate activity.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Finance: Hong Kong Exchanges & Clearing – Further To Run and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Hong Kong Exchanges & Clearing – Further To Run
  2. AEON Financial Services – ASEAN Weakness Results In Dividend Cut
  3. Relative Value – Manappuram ’23 Vs. Muthoot ’23
  4. Ping An Rally Fuel to Challenge the 95 Macro Hurdle
  5. ICICI Bank Placement – Early Look – Another US$2bn Raising

1. Hong Kong Exchanges & Clearing – Further To Run

* Solid Prospects: Hong Kong Exchanges & Clearing’s (388.HK) [HKEx] share price has increased HKD 152.40 (72.1%) since its pandemic panic trough of March 21, 2020. The run appears to price in the entire suite of US-listed mainland Chinese ADRs to be ambitiously shifted to HKEx along with market velocity. HKEx looks to be the beneficiary of derivatives and ETF business development, and the IPO listing share for HKEx;

*June Ahead of Expectations: HKEx June volumes were ahead of expectations in both the cash and the derivatives markets; and

*Just Pay The Dividend: HKEx is sitting on an enormous level of excess cash of over USD 3 bn which likely will be managed more properly when a less deal happy CEO takes over the helm by October 2021. 

2. AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;

* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  – declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,

*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.  

3. Relative Value – Manappuram ’23 Vs. Muthoot ’23

Image 39349422841594371391877

Both Muthoot Finance (MUTH IN) and Manappuram Finance (MGFL IN) are gold loan companies with very similar businesses. The major difference is the larger size of Muthoot and the somewhat larger share of non-gold loans in Manappuram’s portfolio. Given this, we feel the spread differential of over 200 bps between bonds of the 2 companies due ’23 is excessive at present. As such, Manappuram represents better value.

Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

4. Ping An Rally Fuel to Challenge the 95 Macro Hurdle

Ping%20an%20for%20sk

Ping An Insurance (H) (2318 HK) has exploded higher off of the strong 70 macro base line support. We see a fresh rally opportunity after a July give back to pocket support (83) to challenge the bigger 95 macro barrier with longer term scope to finally break the 70 to 95 range that has held Ping An captive since late 2017.

Given the breakout in A shares and H shares, attention now turns to tier two names that show catch up potential behind the likes of BABA and Tencent.

Macro base support is now firm at the 70 level that will hold up in coming years.

MACD is attempting to clear noted trendline resistance and may need more than one attempt for a successful breakout.

The buy volumes spike is supportive looking forward but does run the risk of a sharp give back in price and a pullback we want to buy.

5. ICICI Bank Placement – Early Look – Another US$2bn Raising

Previous%20offering

ICICI Bank Ltd (ICICIBC IN) announced yesterday that its board had approved a fund raising of up to US$2bn (INR150bn) in one or more tranches via issuing equity shares.

The company will take shareholders approval for the same via a postal ballot.

In this insight, I’ll take an early look at the deal. 

The pipeline for large Indian financials raising appears to be building up with HDFC and Axis already ahead in the queue, see:

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Finance: AEON Financial Services – ASEAN Weakness Results In Dividend Cut and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. AEON Financial Services – ASEAN Weakness Results In Dividend Cut
  2. Relative Value – Manappuram ’23 Vs. Muthoot ’23
  3. Ping An Rally Fuel to Challenge the 95 Macro Hurdle
  4. ICICI Bank Placement – Early Look – Another US$2bn Raising
  5. HKEx (388.HK): Trading Volume in June Is Even Stronger, A-Share Future Is Near Term Catalyst

1. AEON Financial Services – ASEAN Weakness Results In Dividend Cut

* Poor Operating Result:Aeon Financial Service (8570.JP) [AFS] reported a FY 1Q20 operating loss of JPY 0.8 bn, and a net loss of JPY 1.1 bn. The poor result was driven by JPY 30.7 bn in net loss provisions, as credit quality across AFS deteriorated well beyond expectations resultant of the global slowdown attributed to COVID-19;

* ASEAN Risk: Aeon Thana Sinsap (ATS.TB) [ATS], AFS’ 54.3% owned subsidiary) reported a 46% YOY decline results to THB 530 mn, as ATS temporarily closed 70 branches for about six weeks through mid-May due to COVID-19, and offered credit assistance to customers in line with the Bank of Thailand’s relief measures. Aeon Credit Service Berhad (ACSM.HK) reported results of MYR 26.3 mn  – declining 69% YOY in 1Q to MYR 26.3 mn. The Malaysian government’s Movement Control Order (MCO) to prevent the spread of COVID-19 had a negative impact on local business activities,

*Dividend Cut: FY 2/21 DPS guidance of JPY 23 is a sharp reduction in DPS – but in line with the projected profit decline and works out to a dividend payout ratio of 50%-100%. This was a negative surprise as AFS had made a convincing argument for dividend stability at the FY 2/20 earnings briefing. If a 2nd wave of COVID-19 occurs, we’d expect the dividend to decline to zero.  

2. Relative Value – Manappuram ’23 Vs. Muthoot ’23

Image 39349422841594371391877

Both Muthoot Finance (MUTH IN) and Manappuram Finance (MGFL IN) are gold loan companies with very similar businesses. The major difference is the larger size of Muthoot and the somewhat larger share of non-gold loans in Manappuram’s portfolio. Given this, we feel the spread differential of over 200 bps between bonds of the 2 companies due ’23 is excessive at present. As such, Manappuram represents better value.

Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

3. Ping An Rally Fuel to Challenge the 95 Macro Hurdle

Ping%20an%20for%20sk

Ping An Insurance (H) (2318 HK) has exploded higher off of the strong 70 macro base line support. We see a fresh rally opportunity after a July give back to pocket support (83) to challenge the bigger 95 macro barrier with longer term scope to finally break the 70 to 95 range that has held Ping An captive since late 2017.

Given the breakout in A shares and H shares, attention now turns to tier two names that show catch up potential behind the likes of BABA and Tencent.

Macro base support is now firm at the 70 level that will hold up in coming years.

MACD is attempting to clear noted trendline resistance and may need more than one attempt for a successful breakout.

The buy volumes spike is supportive looking forward but does run the risk of a sharp give back in price and a pullback we want to buy.

4. ICICI Bank Placement – Early Look – Another US$2bn Raising

Previous%20offering

ICICI Bank Ltd (ICICIBC IN) announced yesterday that its board had approved a fund raising of up to US$2bn (INR150bn) in one or more tranches via issuing equity shares.

The company will take shareholders approval for the same via a postal ballot.

In this insight, I’ll take an early look at the deal. 

The pipeline for large Indian financials raising appears to be building up with HDFC and Axis already ahead in the queue, see:

5. HKEx (388.HK): Trading Volume in June Is Even Stronger, A-Share Future Is Near Term Catalyst

Image

HKEX (388 HK)  just released its June market statistics, which is better than street’s expectation. June usually marks the beginning of weak summer trading season. However HKEx’ June month ADT (Average Daily Turnover) has jumped 10% month-to-month rebound to HKD 125.6 billion. The ADT for the first 6 month this year has reached HKD 117.5 billion, an increase of 20% over the same period last year. Hong Kong also has a busy month in IPO market. The major IPO deals in June include NetEase (9999 HK)  who raised HKD 24 billion, JD.com (HK) (9618 HK)  who raised HKD 30 billion, and Kangji Medical (9997 HK)  who raised HKD 3.6 billion. Total funds raised for the first 6 months of 2020 was $225.8 billion, an increase of 51% when compared with $149.2 billion for the same period last year.

China A-share market also rallied in recent weeks. A-share daily turnover has surged to pass RMB 1.5 trillion on past Monday with Shanghai Composite Index jumped almost 6% in a day. The average trading volume of A-share has exceeded RMB 900 billion , which was the highest level in three and a half months,  as investor sentiment has picked up on a stream of economic data pointing to steady economy recovery. Stock Connect program also registered one of its best trading volume since its launch. On Southbound connect program, mainland investors have pumped HKD 276.5 billion in buying Hong Kong-listed shares year-to-date. It is the highest level in past 3 years. On Northbound connect, the trading volume is even higher, reaching the record daily RMB 191 billion this week. Foreign institutional investors are increasing their A-share allocation given the global indices inclusion and China’s economy recovery. 

Lastly, we expect that MSCI A-share future will be approved by regulator near term. Given the China A-share inclusion in MSCI and FTSE family, we believe the demand for MSCI China A-share future will surge when it is launched. Using HSI future contract as a reference (HSI future is mostly actively traded product on HKEx), we think MSCI China A-share future could contribute additional 6% revenue for HKEX (388 HK)  for the 1st year. We have written in HKEx (388.HK): Trading Volume in May Points to Upside and New License Agreement with MSCI, We estimate that MSCI China and MSCI China A-share future and option contract could grow to 30% of total derivative volume in 3-5 years. This will likely lift HKEx total profitability by 15% in 3-5 years. 

With all the positive development and the rising China A-share trading activities, we raise HKEx Securities ADT to HKD 200 billion (including trading volume at HKEx and Stock Connect Northbound) in FY20-21E and 40x forward P/E. We raise HKEx TP to HKD 380.

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Brief Finance: Mega Financial: Premium Rating for Eroding Fundamental Trends and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. Mega Financial: Premium Rating for Eroding Fundamental Trends

1. Mega Financial: Premium Rating for Eroding Fundamental Trends

Mega Financial Holding Co., (2886 TT) is a stock which catches our attention. Located in a fashionable jurisdiction, for many of the right reasons given pandemic response and fiscal legroom, a positive GDP, as well as its technological prowess, the bank exhibits just the kind of combination which  suggests that a period of relative under performance lies ahead. A rock bottom PH Score™ , a high RSI, and a rich valuation function as an underweight or short trifecta. Maybe, something else is at work but based on our model, anchored by number dynamics, we see more risk than opportunity for the share price.

It must be emphasised that Taiwan is a low PH Score™ space trading at a premium to other regional markets. One of the problems with premium markets is that they are susceptible to bad news or events which can surprise. It is hardly as if geopolitical risk is not present.

Mega Financial commands a very low PH Score™ of 1.65, an overbought RSI signal, and a FV of 18%: shares thus find themselves in the bottom decile of our VFM global rankings. 

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

With VFM (Valuation, Fundamentals, Momentum), we score banks by PH Score™ , Technicals, and an additional Valuation filter.

Trading at a Price/Book and Earnings Yield of 1.32x and 5.5%, respectively, at premium ratings, just underlines the lack of a bullish investment case at Mega Financial on a regional and/or global stage. We recognise that a Dividend Yield of 5.4% is not at all bad but the DPR looks too high. We warn that a low PH Score™ can act as a headwind. The main caveat to our bear thesis is some form of corporate activity.

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Brief Finance: MUFG – ACOM Monthly Data Disappoints and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. MUFG – ACOM Monthly Data Disappoints

1. MUFG – ACOM Monthly Data Disappoints

*Weak May 2020 Data: ACOM (8572.JP) released poor May 2020 monthly performance data on June 10th which exhibited negative consumer lending growth for the first time since 2014  – declining 0.6% YOY during the month. ACOM is chronically understates kaburai risk;

* No Guidance Still: Senior management did not issue FY3/21 guidance, we remain in the dark regarding treatment of credit costs and its overseas operations; and  

* MUFG Should Struggle Globally Too: The lack of provisioning is far from the only problem MUFG must manage. Post-COVID-19, we calculate that MUFG America’s will have a regulatory capital shortfall of up to USD 6.5 bn or 40% of MUFG America’s stated equity; continued impairments on subsidiaries; significant Softbank (9984.JP) exposure; and Morgan Stanley’s (MS.US) MUFG dilutive E*Trade (ETFC.US) transaction.

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Brief Finance: MUFG – ACOM Monthly Data Disappoints and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. MUFG – ACOM Monthly Data Disappoints
  2. IIFL Finance Ltd. – Downgrade to Sell

1. MUFG – ACOM Monthly Data Disappoints

*Weak May 2020 Data: ACOM (8572.JP) released poor May 2020 monthly performance data on June 10th which exhibited negative consumer lending growth for the first time since 2014  – declining 0.6% YOY during the month. ACOM is chronically understates kaburai risk;

* No Guidance Still: Senior management did not issue FY3/21 guidance, we remain in the dark regarding treatment of credit costs and its overseas operations; and  

* MUFG Should Struggle Globally Too: The lack of provisioning is far from the only problem MUFG must manage. Post-COVID-19, we calculate that MUFG America’s will have a regulatory capital shortfall of up to USD 6.5 bn or 40% of MUFG America’s stated equity; continued impairments on subsidiaries; significant Softbank (9984.JP) exposure; and Morgan Stanley’s (MS.US) MUFG dilutive E*Trade (ETFC.US) transaction.

2. IIFL Finance Ltd. – Downgrade to Sell

Image 52460742941591861384510

Prices on bonds of IIFL Holdings (IIFL IN)  have risen from 67 cents to the dollar on May 7 to current levels of 84 due to the global improvement in risk appetite . We currently downgrade the bonds to sell. While we expect the company to survive the crisis, in the near term, we think downside risks outweigh rewards for bondholders, especially given the rally. Specifically, we will need to watch liquidity for the next quarter. 

Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

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Brief Finance: MUFG – ACOM Monthly Data Disappoints and more

By | Daily Briefs, Financials Sector

In this briefing:

  1. MUFG – ACOM Monthly Data Disappoints
  2. IIFL Finance Ltd. – Downgrade to Sell
  3. HSBC & JPM – Steepening Yield Curve Differences

1. MUFG – ACOM Monthly Data Disappoints

*Weak May 2020 Data: ACOM (8572.JP) released poor May 2020 monthly performance data on June 10th which exhibited negative consumer lending growth for the first time since 2014  – declining 0.6% YOY during the month. ACOM is chronically understates kaburai risk;

* No Guidance Still: Senior management did not issue FY3/21 guidance, we remain in the dark regarding treatment of credit costs and its overseas operations; and  

* MUFG Should Struggle Globally Too: The lack of provisioning is far from the only problem MUFG must manage. Post-COVID-19, we calculate that MUFG America’s will have a regulatory capital shortfall of up to USD 6.5 bn or 40% of MUFG America’s stated equity; continued impairments on subsidiaries; significant Softbank (9984.JP) exposure; and Morgan Stanley’s (MS.US) MUFG dilutive E*Trade (ETFC.US) transaction.

2. IIFL Finance Ltd. – Downgrade to Sell

Image 52460742941591861384510

Prices on bonds of IIFL Holdings (IIFL IN)  have risen from 67 cents to the dollar on May 7 to current levels of 84 due to the global improvement in risk appetite . We currently downgrade the bonds to sell. While we expect the company to survive the crisis, in the near term, we think downside risks outweigh rewards for bondholders, especially given the rally. Specifically, we will need to watch liquidity for the next quarter. 

Fundamental credit research focused on Asian high yield, including coverage of areas which are generally overlooked such as Indian finance companies and non-USD denominated credit (SGD).  Sector agnostic. Research process consists of rigorous bottom-up company analysis combined with spotting market dislocations to provide trade ideas.

3. HSBC & JPM – Steepening Yield Curve Differences

Image 66301775751591782414941

The steepening yield curve in the US is a positive for banks. This is because they can rebuild their net interest margins, their core interest income. As long rates rise where short rates remains close to zero, banks can see a major improvement as longer dated earning assets see an improved net yield. This is certainly a positive development for US banks, along with weekly mortgage loan applications, improved job creation and far less job losses. But not all banks are the same, and some have a worse track record than others.

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