Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

Postal Savings Bank of China C / Equity Bottom-Up

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves.

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves. 

Postal Savings Bank of China – Growing Into Recovery

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Strategic and systemically-important Postal Savings Bank dedicates itself to mainly consumer credit (57% of Loan book), with mortgages commanding a high weighting, but also corporate segments (35% of credit), backed mainly by source of funding from time deposits (64%) but also transaction accounts (36%).FY20/19 results show subpar fundamental trends. Results can be characterized by light deterioration in general as changes in key variables were not so pronounced. There was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in headline Asset Quality, in Efficiency, in NIM plus Spread, and in Equity/Assets though not all Capitalization ratios given the capital raise, while robust Provisioning was fortified further. “Core Income” showed stolid growth YoY, supported by above-system credit expansion, and to a lesser extent by a robust increase in fee and commissions, while a surprisingly high increase in LLPs reduced Comprehensive Income growth to 8.3% YoY.<div class="content-highlight"> A FV of 5%, a PBV of 0.76x, a Dividend Yield of 4.4%, an Earnings Yield of 13.3% and a Total Return Ratio of 1.6x are not unappealing, though on the face of it, less optically attractive than other SOE banks. Relative valuation may signal that PSBC is in fact a lower risk than some other SOEs especially after the capital raise last year which cushions against higher requirements, the low Debt/Equity, high LCR and NSFR, the elevated Provisioning, and the low LDR: this may also relate to a consumer-centric profile in contrast to other more corporate-heavy banks. PSBC commands a subpar PH Score™ (3.5) which captures value-quality trends, including a moderately supportive valuation variable. This Score may seem harsh to the bank given the “near misses” in our binary system, a mildly positive picture relative to peers, and given a sufficient Reserving level and the adept control of receding risk. The bank, in contrast to other SOEs, still has ample scope to perform better on Efficiency front. We are prepared to give PSBC the benefit of doubt despite the PH Score™.</div>

Strategic and systemically-important Postal Savings Bank dedicates itself to mainly consumer credit (57% of Loan book), with mortgages commanding a high weighting, but also corporate segments (35% of credit), backed mainly by source of funding from time deposits (64%) but also transaction accounts (36%).FY20/19 results show subpar fundamental trends. Results can be characterized by light deterioration in general as changes in key variables were not so pronounced. There was a modest reduction in Profitability and in Liquidity. There was also lightweight erosion in headline Asset Quality, in Efficiency, in NIM plus Spread, and in Equity/Assets though not all Capitalization ratios given the capital raise, while robust Provisioning was fortified further. “Core Income” showed stolid growth YoY, supported by above-system credit expansion, and to a lesser extent by a robust increase in fee and commissions, while a surprisingly high increase in LLPs reduced Comprehensive Income growth to 8.3% YoY. A FV of 5%, a PBV of 0.76x, a Dividend Yield of 4.4%, an Earnings Yield of 13.3% and a Total Return Ratio of 1.6x are not unappealing, though on the face of it, less optically attractive than other SOE banks. Relative valuation may signal that PSBC is in fact a lower risk than some other SOEs especially after the capital raise last year which cushions against higher requirements, the low Debt/Equity, high LCR and NSFR, the elevated Provisioning, and the low LDR: this may also relate to a consumer-centric profile in contrast to other more corporate-heavy banks. PSBC commands a subpar PH Score™ (3.5) which captures value-quality trends, including a moderately supportive valuation variable. This Score may seem harsh to the bank given the “near misses” in our binary system, a mildly positive picture relative to peers, and given a sufficient Reserving level and the adept control of receding risk. The bank, in contrast to other SOEs, still has ample scope to perform better on Efficiency front. We are prepared to give PSBC the benefit of doubt despite the PH Score™. 

PSBC: Subpar Trends but Risk May Be Subsiding

Silver Point

Thomas J. Monaco

Independent Insight Provider

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

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

Postal Savings Bank of China – Excess Provisioning

*Don’t Be Misled By Better Numbers: Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 4Q20 results of CNY 87.2 bn, increasing CNY 7.3 bn or 9.2% linked quarter. The linked quarter improvement, in our view, can solely be attributed to an unjustified and massive linked quarter reduction in loss provisions of CNY 31.3 bn (57.7%).  In addition, 4Q20 results can be highlighted by ICBC’s negative operating jaws; and *Credit Risk Rising: As ICBC is the benchmark name to which all mainland Chinese banks are measured, an increase of such magnitude is more than alarming – and intimates mainland Chinese bank credit risk is moving in oppositive directions to their counterparts in India. When one considers the current break in credit quality reserves would appear to be incredibly light – in the neighborhood of CNY 410 bn which amounts to over a year of pre-tax results at ICBC.

*Don’t Be Misled By Better Numbers: Industrial and Commercial Bank of China (1398.HK) [ICBC] reported 4Q20 results of CNY 87.2 bn, increasing CNY 7.3 bn or 9.2% linked quarter. The linked quarter improvement, in our view, can solely be attributed to an unjustified and massive linked quarter reduction in loss provisions of CNY 31.3 bn (57.7%).  In addition, 4Q20 results can be highlighted by ICBC’s negative operating jaws; and *Credit Risk Rising: As ICBC is the benchmark name to which all mainland Chinese banks are measured, an increase of such magnitude is more than alarming – and intimates mainland Chinese bank credit risk is moving in oppositive directions to their counterparts in India. When one considers the current break in credit quality reserves would appear to be incredibly light – in the neighborhood of CNY 410 bn which amounts to over a year of pre-tax results at ICBC.   

Industrial and Commercial Bank of China – Troubling Result

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.

Alibaba Group Holding  / Equity Bottom-Up

<ul>
<li>Globally, banking regulators are upping their scrutiny of Big Techs in finance, with China at the forefront of the regulatory effort to “level the playing field” between Big Techs and its banks</li>
<li>China stands out globally for the broad and rapid establishment of its Big Techs across the domestic finance ecosystem, led by <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> </li>
<li>Regulatory constraints on Ant Group’s online finance operations could potentially curtail the growth of its credit business; yet it has recently been reported that Ant is calling for a higher share of commissions from transactions on its payments platform</li>
<li>This could provide Ant with a revenue boost to its payments business, but we still see the big risk to Ant’s prospects (and its revised valuation) coming from tighter restrictions to its lending business and possibly the asset management arm, as well as the introduction of the e-Yuan eroding its leadership in digital payments</li>
<li>Consequently, we remain cautious on <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>, and we stick with our view that key beneficiaries are smaller FinTechs like <a href="https://www.smartkarma.com/entities/lexinfintech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26036:1" rel="noopener">Lexinfintech Holdings (LX US)</a> and, in the bank sector, the domestic bank <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a>
</li>
<li>Risks to our view include lighter touch regulation from PBoC on the large FinTechs including Ant; another risk is Ant Group being able to avoid a meaningful loss of market share in payments and being able to deliver stronger than expected returns from asset management operations to more than offset the restrictions on credit operations</li>
</ul>


Globally, banking regulators are upping their scrutiny of Big Techs in finance, with China at the forefront of the regulatory effort to “level the playing field” between Big Techs and its banks
China stands out globally for the broad and rapid establishment of its Big Techs across the domestic finance ecosystem, led by Ant Financial Services Group (6688 HK) 
Regulatory constraints on Ant Group’s online finance operations could potentially curtail the growth of its credit business; yet it has recently been reported that Ant is calling for a higher share of commissions from transactions on its payments platform
This could provide Ant with a revenue boost to its payments business, but we still see the big risk to Ant’s prospects (and its revised valuation) coming from tighter restrictions to its lending business and possibly the asset management arm, as well as the introduction of the e-Yuan eroding its leadership in digital payments
Consequently, we remain cautious on Alibaba Group (BABA US), and we stick with our view that key beneficiaries are smaller FinTechs like Lexinfintech Holdings (LX US) and, in the bank sector, the domestic bank Postal Savings Bank of China (1658 HK)

Risks to our view include lighter touch regulation from PBoC on the large FinTechs including Ant; another risk is Ant Group being able to avoid a meaningful loss of market share in payments and being able to deliver stronger than expected returns from asset management operations to more than offset the restrictions on credit operations


China

Postal Savings Bank of China Co., Ltd. provides banking services. The Company offers deposits, loans, fund settlement, and other services. Postal Savings Bank of China provides its services to individuals, enterprises, and other clients.

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Postal Savings Bank of China C (1658 HK)

Postal Savings Bank of China – Growing Into Recovery

If the backdrop is improving, than de-risking is not the way to go. This large China bank not only shows some of the most robust credit growth, but...

Daniel Tabbush

PSBC: Subpar Trends but Risk May Be Subsiding

PSBC has certain advantages over other Chinese SOEs. 2020 results were about "near misses" though risk seems to have subsided. Shares are not...

Paul Hollingworth

Postal Savings Bank of China – Excess Provisioning

POSTAL SAVINGS BANK: PSB reported a 40.8% decline in QOQ results, as loss provisioning was too high relative to risk is peaking; and an operating...

Thomas J. Monaco

Industrial and Commercial Bank of China – Troubling Result

ICBC: ICBC reported a 9.2% QOQ increase in 4Q20 results, which is solely attributed to an unjustified and massive linked quarter reduction in loss...

Thomas J. Monaco

Ant Group: Alibaba’s Albatross?

Ant is demanding higher transactions fees on its payment platform, which could help but it should not offset the PBoC's constraints on its credit...

Victor Galliano

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