Daily Brief Financials: Bank Rakyat Indonesia, KB Financial, Pakuwon Jati, Central China Real Estate, NFT and more

• BRI’s margins are highest of major Asean banks at nearly 9% and growing
• Asset-Liability management (ALM), core to banking, can see NIM remain strong
• Credit costs remain high relative to the past, there is scope for a ratcheting downward

• Six of the seven South Korean banks screen favourably on valuation versus returns metrics to June 2022; we like KB Financial, whilst Woori Financial is a wait and see story
• KB has undemanding valuations, and one of the lowest PEG ratios; it delivers steady pre-provision returns, has sound core capital ratio of close to 13% and healthy credit quality ratios
• Woori Financial and potentially KakaoBank are two names to review post 3Q22 results, with Woori and KakaoBank having seen their 2Q22 cost of risk rise sharply; we seek positive catalysts

We view Pakuwon Jati (PWON) as “Low Risk” on the LARA scale, on account of the company’s prudent financial policy in recent years, strong balance sheet, good access to capital and track record of achieving growth amid challenging market conditions. PWON has strong credit metrics compared to Indonesian peers, and it has withstood the downturn in Indonesian real estate. We like the company’s high share of recurring income (slightly more than half of group revenues) and diversified property portfolio (spanning the residential, retail, office and hotel segments), which mitigate its history of debt restructuring. The key risk is a change in consumer behaviour, which might result in low mall traffic long after COVID-19 related lockdowns have ended.

Our fundamental Credit Bias is “Stable”, as the robust balance sheet should help PWON weather economic downturns.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. The real estate industry is not exposed to many of the ESG risks common in other sectors.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Central China Securities
• Sunac China Holdings

• By now you’ve heard of NFTs. I mean, if you’re reading this newsletter and you haven’t — you’ve taken a wrong turn on the internet.
• NFTs (Non-Fungible Tokens) have gripped millions of people worldwide and had countless journalists, marketing execs and boardroom members scratching their head with the thought.
• So let’s start with why NFTs, as a technology, need to be built using a blockchain.