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

*Unbelievable: DBS Group Holdings (DBS.SP) [DBS] reported 1Q21 results of SGD 2.0 bn, increasing SGD 997 mn (98.5%) on a linked quarter basis. Results were driven primarily by two factors: a) loss provisions declined SGD 567 mn (98.3%) which is bizarre in light of its troubled Indian acquisition, Lakshmi Vilas Bank (LVB), risk is not controlled; and b) fee revenue growth of SGD 604 mn (52.8%) which includes an undisclosed level of non-operating gains;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. Net new NPLs continue to increase – up SGD 85 mn or increasing 5.6% on an annualized basis. Reserves should be shored up in the neighborhood of SGD 2.5bn to reflect this risk; and**Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

*Unbelievable: DBS Group Holdings (DBS.SP) [DBS] reported 1Q21 results of SGD 2.0 bn, increasing SGD 997 mn (98.5%) on a linked quarter basis. Results were driven primarily by two factors: a) loss provisions declined SGD 567 mn (98.3%) which is bizarre in light of its troubled Indian acquisition, Lakshmi Vilas Bank (LVB), risk is not controlled; and b) fee revenue growth of SGD 604 mn (52.8%) which includes an undisclosed level of non-operating gains;*Watch Your Credit: We struggle continue to believe that DBS’ due diligence had actually caught all of LVB’s risk (see discussion below), and remain unconvinced that the moratorium exits are anything more than additional reliance on government schemes and relief programs. DBS has disclosed absolutely nothing about Shenzhen Rural Commercial Bank’s (SRCB) fundamentals. Net new NPLs continue to increase – up SGD 85 mn or increasing 5.6% on an annualized basis. Reserves should be shored up in the neighborhood of SGD 2.5bn to reflect this risk; and**Deal Distractions Mount:  While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on those of other financial institutions.

DBS Group Holdings – Not Sure Whether To Laugh Or Cry

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.

Equity Capital Markets

SF Real Estate Investment Trust (SFREIT), a logistics-focused REIT, aims to raise around US$300m in its Hong Kong IPO. SF REIT is sponsored by SF Holdings, listed in Shenzhen.At the time of listing, SFREIT will own three properties located in Hong Kong, Foshan and Wuhu, all of which are modern logistics properties. The assets have an aggregated gross lettable area of approximately 307,617.5 sqm with an appraised value of HK$6.1bn, as at Mar 2021. The average occupancy of the properties was 95.3%, with a weighted average age of 3.5 years and weighted average remaining land tenure of 37.9 years.

SF Real Estate Investment Trust (SFREIT), a logistics-focused REIT, aims to raise around US$300m in its Hong Kong IPO. SF REIT is sponsored by SF Holdings, listed in Shenzhen.At the time of listing, SFREIT will own three properties located in Hong Kong, Foshan and Wuhu, all of which are modern logistics properties. The assets have an aggregated gross lettable area of approximately 307,617.5 sqm with an appraised value of HK$6.1bn, as at Mar 2021. The average occupancy of the properties was 95.3%, with a weighted average age of 3.5 years and weighted average remaining land tenure of 37.9 years.

SF REIT Pre-IPO - One Trick Pony, Who’s Not Doing the Trick

*Stake Purchase In Mainland Bank: DBS Group Holdings (DBS.SP) [DBS] for the second time in five months announced a transaction. The latest being its intention to acquire a 13% stake in the privately-held Shenzhen Rural Commercial Bank (SRCB) for CNY 5.29 bn (USD 814.3 mn), in a move that will accelerate its Greater Bay Area expansion strategy;*Very Expensive Transaction: DBS did disclose that this stake will be priced at a stated P/BV of 1.01x. By our calculation, the post-money P/BV amounts to 0.92x – which is still 41.5% (USD 338 mn) higher than the average valuation (0.65x P/BV) for a mainland Chinese bank; and*Deal Distractions Mount: On November 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on that of other financial institutions.

*Stake Purchase In Mainland Bank: DBS Group Holdings (DBS.SP) [DBS] for the second time in five months announced a transaction. The latest being its intention to acquire a 13% stake in the privately-held Shenzhen Rural Commercial Bank (SRCB) for CNY 5.29 bn (USD 814.3 mn), in a move that will accelerate its Greater Bay Area expansion strategy;*Very Expensive Transaction: DBS did disclose that this stake will be priced at a stated P/BV of 1.01x. By our calculation, the post-money P/BV amounts to 0.92x – which is still 41.5% (USD 338 mn) higher than the average valuation (0.65x P/BV) for a mainland Chinese bank; and*Deal Distractions Mount: On November 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. While SRCB dos not appear to be riddled with problems the way LVB is, no doubt there will be issues to contend with.  DBS apparently isn’t done with its shopping spree, being in the running for parts of Citigroup's (C.US) consumer business in Asia. Frankly, DBS needs to focus on improving its own legacy issues before it starts both taking on that of other financial institutions.

*Update Confirms Weak Outlook: Negative rental reversion rates persist in Hong Kong, as do negative tenant sales. We continue to await another round of negative revaluation of property due to lower rents and/or higher cap rates; and  *No Serious Capital Management Strategy Exists: Management of Link appears hellbent on destroying shareholder value.As gearing was 19.2% at September 2020, management continues to believe that it has abundant headroom to add debt for acquisition. Instead of weighing a buyback’s return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling. Maybe a re-re-review of its acquisition strategy will occur by earnings when Link’s new mainland China acquisition strategy truly flops.

*Update Confirms Weak Outlook: Negative rental reversion rates persist in Hong Kong, as do negative tenant sales. We continue to await another round of negative revaluation of property due to lower rents and/or higher cap rates; and  *No Serious Capital Management Strategy Exists: Management of Link appears hellbent on destroying shareholder value.As gearing was 19.2% at September 2020, management continues to believe that it has abundant headroom to add debt for acquisition. Instead of weighing a buyback’s return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling. Maybe a re-re-review of its acquisition strategy will occur by earnings when Link’s new mainland China acquisition strategy truly flops.

Event-Driven

On 22nd Mar 2021, <a href="https://www.smartkarma.com/entities/capitaland-ltd" target="_blank" data-smartkarma-citation="entities:55:1" rel="noopener">Capitaland (CAPL SP)</a> announced a strategic restructuring of CAPL and listing of CapitaLand Investment Management.Having looked at the company in a prior life as a Singapore Real Estate Analyst, I'll share my thoughts on the likely impact of the deal.

On 22nd Mar 2021, Capitaland (CAPL SP) announced a strategic restructuring of CAPL and listing of CapitaLand Investment Management.Having looked at the company in a prior life as a Singapore Real Estate Analyst, I'll share my thoughts on the likely impact of the deal.

CapitaLand Restructuring - CLIM Should Have Been a Pure Fee Business

Singapore

CapitaLand Ascendas REIT is an industrial real estate investment trust. The Trust invests in business and science park properties, integrated development, amenities, and retail (IDAR) properties, high-specifications industrial properties and data centers, light industrial and flatted factories, and logistics and distribution centers.

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CapitaLand Ascendas REIT (CLAR SP)

DBS Group Holdings – Not Sure Whether To Laugh Or Cry

DBS GROUP HOLDINGS: DBS reported a 98.5% QOQ 1Q21 results increase due to lower provision and non-operating gains. Given all of these...

Thomas J. Monaco

SF REIT Pre-IPO - One Trick Pony, Who’s Not Doing the Trick

SF Real Estate Investment Trust (SFREIT), a logistics-focused REIT, aims to raise around US$300m in its Hong Kong IPO. SF REIT is sponsored by SF...

Sumeet Singh

DBS Group Holdings – Pricey China Deal

DBS GROUP HOLDINGS: DBS is acquiring a 13% stake in the privately-held SRCB for USD 814.3 mn. P/BV amounts to 0.92x – which is still 41.5% higher...

Thomas J. Monaco

Link REIT – Cash Burning Holes

LINK REIT: Negative rental reversion rates and tenant sales persist in Hong Kong, negative revaluation of property continues. Link is hellbent on...

Thomas J. Monaco

CapitaLand Restructuring - CLIM Should Have Been a Pure Fee Business

On 22nd Mar 2021, Capitaland (CAPL SP) announced a strategic restructuring of CAPL and listing of CLIM. Having looked at the company in a prior...

Sumeet Singh

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