In this briefing:
- Xinyi Energy IPO Preview: Second Time Lucky?
- Bank of Tianjin: 太好了, 不可能是真的
- HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
- Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
- Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
1. Xinyi Energy IPO Preview: Second Time Lucky?
Xinyi Energy Holdings Ltd (1671746D HK) has filed IPO prospectus once again to list its solar generation business that was spun-off from its parent company Xinyi Solar Holding Ltd. Xinyi Energy has 9 operational solar farms with a total capacity of ~950MW.
The company is set to acquire additional solar farms of 540MW capacity from its parent company in a separate transaction post IPO.
Xinyi Energy has not indicated the size and pricing of its offer, however, according to various media reports the company is expected to raise nearly HK$570M (around 12% of the previous offering of HK$4.5B). A significant portion of IPO proceeds is expected to be utilised towards upfront payment of 50% for acquiring solar farms from its parent company and the remainder for working capital and debt repayment. Although we have a positive view of the solar energy sector, the IPO pricing will determine our overall view of the company.
2. Bank of Tianjin: 太好了, 不可能是真的
Bank Of Tianjin (1578 HK) results at first look quite encouraging with firmer profitability, enhanced efficiency, improved capital adequacy, and increased provisioning.
Valuations are optically attractive: p/book of 0.5x, franchise valuation of 7%, earnings yield of 17%, and a total return ratio of 2.5x. These metrics are within the bargain hunter space.
However, optimism fades fast on closer inspection.
“Underlying” Income decreased by 21% YoY as the bank was squeezed by higher funding costs and non-interest expenses. Expenses on wholesale funding increased by 30% YoY. Debt funding now represents 71% of Gross Loans. Debt now stands at 4.3x SH. Funds. This type of funding has exploded by 10x since 2014. At the same time, deposits declined YoY. Deposits have increased by a more sedate 18% since 2014.
PT Profit would have been CNY1.4bn rather than CNY5.2bn but for hefty gains on securities. Loan loss provisions almost tripled YoY.
Regarding the Balance Sheet, Special Mention Loans rose sharply (+25% YoY) and represent 2.8x NPLs. A 127% and 108% YoY increase in “doubtful loans” and “loss loans” puts some perspective on a seemingly respectable NPL ratio of 1.64% and a LLR/NPLs of 250%.
Thus, Bank Of Tianjin (1578 HK) is cheap for a reason. We are reluctant to recommend taking a position at this juncture given the ongoing stresses in source of funding and asset quality.
3. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.
We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
In this insight, we highlight the WH Group, which led the inflows last week.
4. Dongzheng Auto Finance (东正汽车金融) IPO Review – Relaunched at Lower Price
Dongzheng Automotive Finance (2718 HK) (DAF) re-launched its IPO at a lower fixed price of HK$3.06 per share, expecting to raise about US$208m. We have covered the fundamentals and valuation of the company in:
- Dongzheng Auto Finance (东正汽车金融) Pre-IPO Review – Dependent on Dealership Network for Growth
- Dongzheng Auto Finance (东正汽车金融) IPO Review – Better off Buying the Parent
In this insight, we will only look at the company’s updated valuation and re-run the deal through IPO framework.
5. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
- The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
- The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
- Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
- US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
- Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
- Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
- Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
- Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
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