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.

Equity Capital Markets

<ul>
<li>The latest Ant Group prospectus provides limited company data for 3Q20</li>
<li>Alipay MAUs are up 2.8% in the quarter, and 10.9% in the nine months</li>
<li>Ant Group revenue and gross profit figures, margins and trends are all positive</li>
<li>Regarding CreditTech, the latest delinquency figures to September 2020 reflect an improving trend for both consumer and SMB credits originated</li>
<li>The limited but positive trends in the data support our 2020 forecasts for Ant Group, in our view</li>
<li>The start-up of Ant Bank (Hong Kong) Ltd has a competitive advantage with its AlipayHK partnership</li>
<li>Risks include increased geopolitical tensions between the USA and China, potentially affecting IPO demand from US institutions, as well as the adverse impact on Ant Group’s international expansion plans for the Alipay app in particular</li>
</ul>


The latest Ant Group prospectus provides limited company data for 3Q20
Alipay MAUs are up 2.8% in the quarter, and 10.9% in the nine months
Ant Group revenue and gross profit figures, margins and trends are all positive
Regarding CreditTech, the latest delinquency figures to September 2020 reflect an improving trend for both consumer and SMB credits originated
The limited but positive trends in the data support our 2020 forecasts for Ant Group, in our view
The start-up of Ant Bank (Hong Kong) Ltd has a competitive advantage with its AlipayHK partnership
Risks include increased geopolitical tensions between the USA and China, potentially affecting IPO demand from US institutions, as well as the adverse impact on Ant Group’s international expansion plans for the Alipay app in particular


Ant Group: Limited but Positive 3Q20 Data Disclosed

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p><a href="https://www.smartkarma.com/entities/lufax-holdings" target="_blank" data-smartkarma-citation="entities:29690:1" rel="noopener">Lufax Holdings (LU US)</a> (Lufax) aims to raise around US$3bn via its US listing. The company is backed by <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a> (Ping An).</p></div><div><p>Lufax is a technology-empowered personal financial services platform in China. The company aims to address the demand for personal lending among small business owners, as well as salaried workers in China. It also provides wealth management solutions to China’s middle class and affluent population.</p></div><div>
<p>I covered the positive aspects of the deal in my earlier note, <a href="https://www.smartkarma.com/insights/lufax-pre-ipo-the-positives-able-to-grow-despite-the-headwinds" target="_blank" rel="noopener">Lufax Pre-IPO - The Positives - Able to Grow Despite the Headwinds</a> and the negative aspects in<a href="https://www.smartkarma.com/insights/lufax-pre-ipo-the-negatives-remains-in-flux" target="_blank" rel="noopener"> Lufax Pre-IPO - The Negatives - Remains in Flux.</a></p>
<p>In this insight, I'll undertake a peer comparison.</p>
</div>

Lufax Holdings (LU US) (Lufax) aims to raise around US$3bn via its US listing. The company is backed by Ping An Insurance (H) (2318 HK) (Ping An).Lufax is a technology-empowered personal financial services platform in China. The company aims to address the demand for personal lending among small business owners, as well as salaried workers in China. It also provides wealth management solutions to China’s middle class and affluent population.
I covered the positive aspects of the deal in my earlier note, Lufax Pre-IPO - The Positives - Able to Grow Despite the Headwinds and the negative aspects in Lufax Pre-IPO - The Negatives - Remains in Flux.
In this insight, I'll undertake a peer comparison.


Lufax Pre-IPO - Peer Review - Bigger than Ant’s CreditTech, in Revenue

<div><p><a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a> plans to raise up to USD30/35bn via a dual listing on both Hong Kong Exchange and Shanghai STAR board. </p></div><div><p>We have covered various aspects of the deal in our earlier notes, link to which are below.</p></div><div>
<p>In this insight, I'll talk about takeaways from its PHIP filing and updates provided by <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> on the deal structure.</p>
<p></p>
</div><div><div><h3>Our previous coverage on Ant Group</h3></div></div><div><ul style="list-style-type: disc;">
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/ant-financial-ipo-early-thought-what-s-new-about-the-listing-news" target="_blank" rel="noopener">Ant Financial IPO Early Thought: Understand the Fintech Empire, Growth and Risk Factors</a></p></li>
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/ant-financial-ipo-early-thought-understand-the-fintech-empire-growth-and-risk-factors" target="_blank" rel="noopener">Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News</a></p></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/ant-group-ipo-first-take-no-1-fintech-from-all-angles" target="_blank" rel="noopener">Ant Group (蚂蚁集团) IPO First-Take: No. 1 Fintech from All Angles</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/ant-group-ipo-numbers-suggest-it-s-more-tech-than-financials" target="_blank" rel="noopener">Ant Group (蚂蚁集团) IPO: Numbers Suggest It’s More Tech than Financials</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-things-to-clarify-questions-to-ask-falling-fees-margins-cash-flow" target="_blank" rel="noopener">Ant Group (蚂蚁集团) Pre-IPO: Things to Clarify/​Questions to Ask - Falling Fees, Margins, Cash Flow</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-dual-listing-makes-early-index-inclusion-tricky" target="_blank" rel="noopener">Ant Group (蚂蚁集团) Pre-IPO: Dual Listing Makes Early Index Inclusion Tricky</a></li>
<li><a href="https://www.smartkarma.com/insights/alipay-s-advantage-over-wechat-pay-in-physical-stores" target="_blank" rel="noopener">AliPay’s Advantage over WeChat Pay in Physical Stores</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/ant-group-running-neck-and-neck-with-tencent-in-direct-financial-services" target="_blank" rel="noopener">Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services</a></li>
<li><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-impact-assessment-of-the-new-rule-for-financial-holding-companies" target="_blank" rel="noopener">Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies</a></li>
<li><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-peer-comparison-payments-baffling-scale-small-tweaks-for-large-profits" target="_blank" rel="noopener">Ant Group Pre-IPO: Peer Comparison - Payments - Baffling Scale, Small Tweaks for Large Profits</a></li>
<li><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-peer-comparison-credittech-larger-scale-similar-growth-lower-credit-risk" target="_blank" rel="noopener">Ant Group Pre-IPO: Peer Comparison - CreditTech - Larger Scale, Similar Growth, Lower Credit Risk</a></li>
<li><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-first-stab-at-valuation" target="_blank" rel="noopener">Ant Group Pre-IPO: First Stab at Valuation</a></li>
<li><a href="https://www.smartkarma.com/insights/ant-group-pre-ipo-quick-take-on-ftse-and-msci-s-clearer-guidelines" target="_blank" rel="noopener">Ant Group Pre-IPO: Quick Take on FTSE and MSCI’s Clearer Guidelines</a></li>
</ul></div>

Ant Financial (1051260D CH) plans to raise up to USD30/35bn via a dual listing on both Hong Kong Exchange and Shanghai STAR board. We have covered various aspects of the deal in our earlier notes, link to which are below.
In this insight, I'll talk about takeaways from its PHIP filing and updates provided by Alibaba Group (BABA US) on the deal structure.

Our previous coverage on Ant Group
Ant Financial IPO Early Thought: Understand the Fintech Empire, Growth and Risk Factors
Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News
Ant Group (蚂蚁集团) IPO First-Take: No. 1 Fintech from All Angles
Ant Group (蚂蚁集团) IPO: Numbers Suggest It’s More Tech than Financials
Ant Group (蚂蚁集团) Pre-IPO: Things to Clarify/​Questions to Ask - Falling Fees, Margins, Cash Flow
Ant Group (蚂蚁集团) Pre-IPO: Dual Listing Makes Early Index Inclusion Tricky
AliPay’s Advantage over WeChat Pay in Physical Stores

Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services
Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies
Ant Group Pre-IPO: Peer Comparison - Payments - Baffling Scale, Small Tweaks for Large Profits
Ant Group Pre-IPO: Peer Comparison - CreditTech - Larger Scale, Similar Growth, Lower Credit Risk
Ant Group Pre-IPO: First Stab at Valuation
Ant Group Pre-IPO: Quick Take on FTSE and MSCI’s Clearer Guidelines


Ant Group Pre-IPO: Deal Structure, PHIP Updates, Short-Term Trades

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

<p>The <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.</p>
<p>Four asset managers were approved by the CSRC to launch ETFs on the <a href="https://www.smartkarma.com/entities/sse-science-and-technology-innovation-board-50-index" target="_blank" data-smartkarma-citation="entities:29279:1" rel="noopener">SSE STAR 50 (STAR50 INDEX)</a> and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.</p>
<p>With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.</p>
<p><a href="https://www.smartkarma.com/entities/ant-financial-services-group" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial (1051260D CH)</a> could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.</p>

The SSE STAR 50 (STAR50 INDEX) (short for 'The Science and Technology Innovation Board 50 Index') was first published on 23 July this year. The index is free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market. The STAR50 Index has outperformed its peers and has narrowly underperformed the Chinext Index on a year to date basis.
Four asset managers were approved by the CSRC to launch ETFs on the SSE STAR 50 (STAR50 INDEX) and they raised CNY 20bn (CNY 5bn each), the maximum allowed, in one day. Total subscriptions were around CNY 100bn.
With a relatively large AUM benchmarked to a volatile index with volatile stocks, plus a lot of large listings coming through, there will be some interesting moves in stocks at the upcoming December rebalance. The index methodology specifies that there cannot be more than 5 inclusions and exclusions in a single review, and we will hit that number very easily. In the absence of the 5 name change limit, we would have had close to 12 inclusions and exclusions. With the 5 name changes, the one-way turnover will be in excess of 22%.
Ant Financial (1051260D CH) could be included in the index at the December review. If it is not included in December, then its a sure inclusion in the March 2021 review.

STAR Board: STAR50 Index - The December Rebalance Is Going to Be BIG

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

Equity Bottom-Up

<p> <strong><em>*Way Too Early Provision Reduction: </em></strong>Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q20 net income of CNY 8.7 bn – increasing CNY 3.6 bn or 70% linked quarter. One factor, and one factor alone, was responsible for the increase  - provisions were pre-emptively reduced CNY 6.7 bn (29.5%) over the period despite a true decrease in credit risk; </p><p> <strong><em>*Credit Is WEAKER: </em></strong>Net new NPLs have increased CNY 23.0 bn linked quarter or a massive 223.1% on an annualized basis. Assuming the credit break in the PAB portfolio holds – which it likely will given the economic weakness attributed to COVID-19 – reserves would appear light by CNY 178 bn if we assume a 2x NPL ratio. This shortfall represents 62% of stated equity; and</p><p> <em><strong>*Fundamentally Challenged Still:</strong></em> Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. </p>

 *Way Too Early Provision Reduction: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q20 net income of CNY 8.7 bn – increasing CNY 3.6 bn or 70% linked quarter. One factor, and one factor alone, was responsible for the increase  - provisions were pre-emptively reduced CNY 6.7 bn (29.5%) over the period despite a true decrease in credit risk;  *Credit Is WEAKER: Net new NPLs have increased CNY 23.0 bn linked quarter or a massive 223.1% on an annualized basis. Assuming the credit break in the PAB portfolio holds – which it likely will given the economic weakness attributed to COVID-19 – reserves would appear light by CNY 178 bn if we assume a 2x NPL ratio. This shortfall represents 62% of stated equity; and *Fundamentally Challenged Still: Despite the Investor Day cheerleading session, Ping An P&amp;C operating profits declined CNY 2.6 bn (29.2%) HOH in 1H20, as the overall combined ratio eroded 1.5% to 98.1% due primarily to continued weakness within the credit insurance unit where the combined ratio came in at 125.6% (up 32.4%). The credit insurance segment reported a CNY 3.5 bn underwriting loss, due to defaults on underlying loans. 

Ping An Insurance – Bank Fundamentals Worsening

China

Ant Group Co., Ltd. develops online payment platforms. The Company produces credit system and financial services platforms which provide consumers and small businesses with safe and convenient inclusive financial services globally. Ant Group provides its services worldwide.

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Ant Group (6688 HK)

Ant Group: Limited but Positive 3Q20 Data Disclosed

Ant Group 3Q20 data from the latest prospectus is light but supportive of our 2020 forecasts with constructive delinquency data trends for...

Victor Galliano

Lufax Pre-IPO - Peer Review - Bigger than Ant’s CreditTech, in Revenue

Lufax Holdings (LU US) aims to raise around US$3bn via its US listing. The company is backed by Ping An Insurance (2318 HK).

Sumeet Singh

Ant Group Pre-IPO: Deal Structure, PHIP Updates, Short-Term Trades

Ant Group plans to raise up to USD35bn in its IPO. We have covered various aspects of the deal in our earlier notes. In this note, I'll talk about...

Sumeet Singh

STAR Board: STAR50 Index - The December Rebalance Is Going to Be BIG

The STAR50 index has seen a lot of interest following its launch in July with over CNY 20bn raised by 4 ETFs. We look at the index methodology, the...

Brian Freitas

Ping An Insurance – Bank Fundamentals Worsening

PING AN INSURANCE: PING AN BANK Reported A Completely Manufactured 3Q20 Earnings Result, Cutting Provisions Despite Substantially Weaker Credit

Thomas J. Monaco

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