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

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>We revisit our Ant Group SOTP valuation from August in this report, updating the changes in the market valuations of comparable entities, in each of Ant’s key divisions</li>
<li>We also change our valuation comparables for Ant’s CreditTech division to other Chinese CreditTechs, from the commercial banks previously used in the August report</li>
<li>The breakdown of divisional valuations, relative to our August valuation, has resulted in a shift away from Payments and InvestmentTech, and is now more in favour of CreditTech, where we see “Big Data” enhancing its value</li>
<li>Our SOTP post-money equity valuations, under three scenarios, range from a conservative USD215bn to an ambitious USD300bn, with a base case valuation of USD260bn</li>
<li>The SOTP valuations “sanity check” versus our earnings forecasts are reassuring, with attractive valuations for the base case versus global payments companies and China MegaTechs</li>
<li>Risks to our constructive view on the Ant Group valuation scenarios include increased US-China geo-political tensions leading to increased government action against Chinese payments apps and these tensions adversely impacting the appetite of US based funds at IPO, especially public sector pension funds</li>
</ul>


We revisit our Ant Group SOTP valuation from August in this report, updating the changes in the market valuations of comparable entities, in each of Ant’s key divisions
We also change our valuation comparables for Ant’s CreditTech division to other Chinese CreditTechs, from the commercial banks previously used in the August report
The breakdown of divisional valuations, relative to our August valuation, has resulted in a shift away from Payments and InvestmentTech, and is now more in favour of CreditTech, where we see “Big Data” enhancing its value
Our SOTP post-money equity valuations, under three scenarios, range from a conservative USD215bn to an ambitious USD300bn, with a base case valuation of USD260bn
The SOTP valuations “sanity check” versus our earnings forecasts are reassuring, with attractive valuations for the base case versus global payments companies and China MegaTechs
Risks to our constructive view on the Ant Group valuation scenarios include increased US-China geo-political tensions leading to increased government action against Chinese payments apps and these tensions adversely impacting the appetite of US based funds at IPO, especially public sector pension funds


Ant Group: SOTP Valuation Scenarios Revisited

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/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>I have covered various aspects of the deal in my earlier notes, link to which are below.</p>
<p>In my earlier insight, I had also specifically looked at how the dual listing would impact index inclusion in <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>. Since that note, FTSE has announced the results of its market consultation on inclusion of Shanghai STAR Market and MSCI recently announced its plans for Ant as well. </p>
</div><p></p><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>
</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. 
I have covered various aspects of the deal in my earlier notes, link to which are below.
In my earlier insight, I had also specifically looked at how the dual listing would impact index inclusion in Ant Group (蚂蚁集团) Pre-IPO: Dual Listing Makes Early Index Inclusion Tricky. Since that note, FTSE has announced the results of its market consultation on inclusion of Shanghai STAR Market and MSCI recently announced its plans for Ant as well. 
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

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<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> , the personal financial services platform in China has filed for an IPO in the US. In our previous insights, we examined the company’s business model, its business segments and margins.</p><p>Retail credit facilitation is the company’s largest business which accounted for about 82% of the total operating income in 1H2020. The company discontinued its peer-to-peer lending products in August 2019, and a majority of the company’s loans are funded through third-party funding and credit enhancement partners. Lufax’s microloan and consumer finance subsidiaries’ funding accounted for only 0.7% of the volume of new loans generated during 1H2020.</p><p>In this insight, we have compared the company’s retail credit facilitation business against its CrediTech peers.</p><p><strong>Read our previous insights on Lufax's IPO:</strong></p><p><a href="https://www.smartkarma.com/insights/lufax-ipo-unsecured-loans-drive-top-line-growth-but-risks-remain-despite-capital-light-model" target="_blank" data-smartkarma-citation="insights:44132" rel="noopener">Lufax IPO: Unsecured Loans Drive Top Line Growth but Risks Remain Despite Capital-Light Model</a> </p><p><a href="https://www.smartkarma.com/insights/lufax-ipo-shift-in-product-mix-and-higher-customer-acquisition-cost-eat-into-profits" target="_blank" data-smartkarma-citation="insights:44179" rel="noopener">Lufax IPO: Shift in Product Mix and Higher Customer Acquisition Cost Eat into Profits</a> </p>

Lufax Holdings (LU US) , the personal financial services platform in China has filed for an IPO in the US. In our previous insights, we examined the company’s business model, its business segments and margins.Retail credit facilitation is the company’s largest business which accounted for about 82% of the total operating income in 1H2020. The company discontinued its peer-to-peer lending products in August 2019, and a majority of the company’s loans are funded through third-party funding and credit enhancement partners. Lufax’s microloan and consumer finance subsidiaries’ funding accounted for only 0.7% of the volume of new loans generated during 1H2020.In this insight, we have compared the company’s retail credit facilitation business against its CrediTech peers.Read our previous insights on Lufax's IPO:Lufax IPO: Unsecured Loans Drive Top Line Growth but Risks Remain Despite Capital-Light Model Lufax IPO: Shift in Product Mix and Higher Customer Acquisition Cost Eat into Profits 

Lufax IPO: Peer Comparison Reveals Change in Strategy Weighs Heavy on Company Performance

<p>Lufax Holdings, one of the largest financial services platforms in China has filed for an IPO in the US. The Shanghai-headquartered firm offers personal lending for small business owners and salaried employees, as well as tailor-made wealth management solutions to China’s fast growing middle-class and affluent population.</p><p>The company is backed by financial giant Ping An Group and is expected to raise up to US$3bn, and is rumored to be one of the biggest Chinese IPOs in the US since Alibaba’s US$25bn listing in the US in 2014.</p><p>This is the <strong>First</strong> of a series of reports on Lufax Holding’s IPO and in this insight, we take a look at the company’s business model, sources of revenues and analysis on the company’s retail credit facilitation business (the core income generator for Lufax).</p>

Lufax Holdings, one of the largest financial services platforms in China has filed for an IPO in the US. The Shanghai-headquartered firm offers personal lending for small business owners and salaried employees, as well as tailor-made wealth management solutions to China’s fast growing middle-class and affluent population.The company is backed by financial giant Ping An Group and is expected to raise up to US$3bn, and is rumored to be one of the biggest Chinese IPOs in the US since Alibaba’s US$25bn listing in the US in 2014.This is the First of a series of reports on Lufax Holding’s IPO and in this insight, we take a look at the company’s business model, sources of revenues and analysis on the company’s retail credit facilitation business (the core income generator for Lufax).

Lufax IPO: Unsecured Loans Drive Top Line Growth but Risks Remain Despite Capital-Light Model

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)

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

Ant Group: SOTP Valuation Scenarios Revisited

Our updated SOTP valuation for Ant Group is an essential divisional yardstick by which to assess valuation pre-IPO, with our proprietary estimates...

Victor Galliano

Ant Group Pre-IPO: Quick Take on FTSE and MSCI's Clearer Guidelines

Ant Financial plans to raise up to USD30/35bn via a dual listing on both Hong Kong Exchange and Shanghai STAR board. I have covered various...

Sumeet Singh

Lufax IPO: Peer Comparison Reveals Change in Strategy Weighs Heavy on Company Performance

In this insight, we compare and contrast Lufax's retail credit business against its peers Ant, 360 Finance and LexinFintech to examine the...

Shifara Samsudeen, ACMA, CGMA

Lufax IPO: Unsecured Loans Drive Top Line Growth but Risks Remain Despite Capital-Light Model

In this insight, we take a look at Lufax Holding's business model, sources of revenue and its core income generating segment, Retail Credit...

Shifara Samsudeen, ACMA, CGMA

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