Bottom-Up EquitiesDaily Briefs

Equity Bottom-Up: DBS, Comfortdelgro Corp, Thai Beverage, Industrial Bank Co Ltd A, GSX Techedu, China Citic Bank Corp Ltd H, Sberbank Of Russia Pjsc, Hygeia Healthcare Group and more

In today’s briefing:

  • DBS Group Holdings – Quickly Losing Credibility
  • Comfort Delgro (CD): Zig and EV Charging Station
  • StubWorld: ThaiBev’s BeerCo Spin-Off One Step Closer
  • Industrial Bank – Not Out Of The Woods
  • GSX Post Archegos’ Liquidation, Chinese K12 Parents Survey – Q2 2021
  • China CITIC Bank – No Credit Deserved
  • Sberbank of Russia – Ukraine Risks Rising
  • Hygeia Healthcare Group (6078.HK) – The Investment Logic, the Key Catalyst and the Risk Factors

DBS Group Holdings – Quickly Losing Credibility

By Thomas J. Monaco

*AGM Leads To More Questions Than Answers: At its recent annual general meeting (AGM), DBS Group Holdings (DBS.SP) [DBS] highlighted several back to the future mainland China strategies and tried to justify its truly dumb acquisition in India. The management team didn’t do itself any favors; and 

*Another Fine Mess You’ve Gotten Us Into: CEO Gupta was completely put back on his heals and left defending its acquisition of Lakshmi Vilas Bank (LVB). Shareholders raised fundamental concerns over financial losses and LVB’s impact on DBS’ bottom-line. In our view, without some form of ring-fencing of LVB’s challenged assets it is unclear how this transaction would NOT have a negative material impact on DBS’ earnings and capital ratios over the near-term. 

Comfort Delgro (CD): Zig and EV Charging Station

By Henry Soediarko

One of the many reasons why drivers were lured to join Grab (0967655D SP) and Gojek (1379371D IJ) is that the app provides content that leads to a higher daily order. Grab went on to become a super App, offering a wide range of services from transport, food delivery to finance including insurance. Uber (UBER US) , a listed peer for Grab (0967655D SP) and Gojek (1379371D IJ) is currently trading at 8.69x PBR, 500% higher than Comfortdelgro Corp (CD SP) at 1.5x PBR. The taxi business contribution to the group’s revenue has been reduced to 13-14% to the group’s revenue due to the stiff competition from Grab and Gojek as well as from the pandemic.

Long being dubbed as the proxy to  Singapore’s tourism and residents’ transport provider stock, the foray into the EV charging station and Smart and Intelligent Mobility Technologies could shift the market’s opinion to Autonomous and Electric Vehicle and the stock may trade at a higher multiple. 

StubWorld: ThaiBev’s BeerCo Spin-Off One Step Closer

By David Blennerhassett

This week in StubWorld …

Following the no-objection notice from the SGX on the 4 February concerning its BeerCo IPO, Thai Beverage (THBEV SP) announced that the SGX has issued its conditional eligibility-to-list letter for the potential listing.  

Preceding my comments on ThaiBev are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

As always, more below the fold.

Industrial Bank – Not Out Of The Woods

By Thomas J. Monaco

*Weak 4Q20 Numbers: Industrial Bank (601166.CH) [Industrial] reported fairly disappointing 4Q20 earnings result of CNY 14.8 bn – declining CNY 4.5 bn (23.5%) on a linked quarter basis. From an operating perspective, Industrial struggled this quarter with negative operating jaws, as revenues declined CNY 925 mn (1.8%) whilst expenses increased CNY 3.4 bn (27.2%); and

*COVID Credit Hangover Persists: In our view, the stated credit figures far from tell the entire story. Net new NPLs amounted to CNY 20.6 bn or increasing an alarming 145.4% on an annualized basis. When one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light by CNY 36 bn, in our view, which amounts to about two quarters of pre-tax results at Industrial.    

GSX Post Archegos’ Liquidation, Chinese K12 Parents Survey – Q2 2021

By Junheng Li

We see posts by GSX Techedu (GSX US)  employees on Maimai mentioning that certain “celebrity instructors” in K11 and K12 may be leaving the platform after the spring semester as the tutors were instructed to cease recruiting new enrollments for the instructors.   We believe that “celebrity teachers” receive options with a lockup period when signing up with GSX.  The recent stock selloff could result in a significant number of departures of “celebrity instructors”.  GSX consistently claims that “celebrity teachers” are their moat, resulting in their reported unusually high profit margins that the entire K12 AST industry have hard time to comprehend.

China CITIC Bank – No Credit Deserved

By Thomas J. Monaco

*Poor Result Even Before Provision Cut:China CITIC Bank (998.HK) [CITIC] reported 2H20 results of CNY 23.6 bn, declining CNY 3.6 bn (13.3%) HOH. Unlike other mainland Chinese banks, CITIC gives almost no breakdown of revenues. Nevertheless, the poor HOH results were driven by negative operating jaws as revenues declined CNY 9.2 bn (9.1%) while operating expenses increased CNY 6.6 bn (27.8%); and

*Credit Still A Major Challenge: Riskier and chunkier real estate and construction NPLs increased 211 bp and 293 bp HOH, respectively. Further, we note zero reprieve in net new NPL growth at CNY 41.1 bn  – growing 106.9% on an annualized basis – this remains very troubling. We calculate that the accelerated net new NPL growth has caused CITIC to be underprovided for in the neighborhood of CNY 101 bn or nearly a full year of stated PBT.

Sberbank of Russia – Ukraine Risks Rising

By Thomas J. Monaco

*Russia Military Raises Threat Level: After years of an uneasy stalemate, Russia’s Southern Military Theater recently concluded major exercises in March. Despite their conclusion, 3-4 thousand Russian troops allegedly remain just 30 miles from Ukraine’s southern border. On March 27th, Russia indicated its displeasure with the lack of progress on ceasefire negotiations while the Ukrainian Parliament announced that the July ceasefire had broken down with continued skirmishes and border incursions;  

*Ukranian Bank Already Under Pressure: SberBank of Russia PJSC (SBER.RM) [Sberbank] has been operating its wholly-owned Ukraine subsidiary, AO Sberbank (AO), since 2007. AO has been operating profitably following improved cost efficiencies and lowered loss provisions despite being constrained by a high level of problem loans and exposure to COVID-19 affected sectors. Further, AO, along with most other Ukranian banks, has substantial government bond holdings whose ratings are already challenged; and   

* New Sanctions Likely Coming: We would any new additional sanctions to include: the Nord Stream II Pipeline, which is close to allowing the transshipment of natural gas under the Baltic Sea to Germany (bypassing Ukraine); further sanctions on the Russian financial sector which could exacerbate problems for the already challenged AO; and a ban on Russian sovereign debt as an investment.  

Hygeia Healthcare Group (6078.HK) – The Investment Logic, the Key Catalyst and the Risk Factors

By Xinyao (Criss) Wang

Recently, Hygeia released its 2020 financial results. The Company achieved revenue of RMB1.402 billion, up 29.1% YoY. Net profit was RMB177 million, up 345% YoY. The results beat expectations. In fact, there’s increasing certainty about the Hygeia’s performance, and the rally of stock price on March 30th, 2021 was the market’s best feedback on its financial results. 

The insights on the market potential and business model of Hygeia was in the article: Hygeia Healthcare Group (6078 HK) – Good Business Model with Large Market Potential. Read more: The following mainly analyzed the investment logic, operation situation, key catalyst and risk factors.

Related tickers: DBS (DBSM.SI), Comfortdelgro Corp (CMDG.SI), Thai Beverage (TBEV.SI), Industrial Bank Co Ltd A (601166.SS), GSX Techedu (GSX.N), China Citic Bank Corp Ltd H (0998.HK)

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