Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

Recognizing the importance and value-add of Factor Investing in fixed income, Lucror developed the Smart Quant Navigator (SQN), an intuitive platform that helps clients devise and implement factor-based strategies ranging from pure quant to active fundamental, with integrated ESG.

Our company has been at the forefront of developments in the fixed income markets, identifying opportunities and consistently delivering new products and value-adding solutions to clients. Lucror has close relationships with the largest and most reputable asset managers, family offices, hedge funds, investment and wealth managers globally.

Credit

<p>Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.</p><ul><li><a href='#lucror-entity-479'>Evergrande Real Estate Group</a></li></ul>

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.Evergrande Real Estate Group

Morning Views Asia: Evergrande Real Estate Group

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>*HKMA Maybe Reverses Course:</em></strong> After ensuring that China Evergrande Group (3333.HK) had enough liquidity to cover its excessive mainland Chinese liabilities with subsidies from the banks that it regulates, the Hong Kong Monetary Authority (HKMA) has now asked these same banks to report their overall risk exposure to Evergrande – given the potential systemic risk posed to both Hong Kong’s and mainland China’s financial system. </p>

*HKMA Maybe Reverses Course: After ensuring that China Evergrande Group (3333.HK) had enough liquidity to cover its excessive mainland Chinese liabilities with subsidies from the banks that it regulates, the Hong Kong Monetary Authority (HKMA) has now asked these same banks to report their overall risk exposure to Evergrande – given the potential systemic risk posed to both Hong Kong’s and mainland China’s financial system. 

China Evergrande Group – Up Is Down In Hong Kong

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Nature Home Holding Company / Event-Driven

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<p>Back on the 27 July, wood flooring manufacturer <a href="https://www.smartkarma.com/entities/nature-home-holding-company" target="_blank" data-smartkarma-citation="entities:20543:1" rel="noopener">Nature Home Holding Company (2083 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0727/2021072701813.pdf" target="_blank" rel="noopener">announced</a> an Offer from its founding shareholders, by way of a Scheme, at HK$1.70/share. The Offer Price will not be increased. <a href="https://www.smartkarma.com/entities/dehua-tb-new-decoration-a" target="_blank" data-smartkarma-citation="entities:4444:1" rel="noopener">Dehua Tb New Decoration A (002043 CH)</a> has given an irrevocable rollover undertaking for its 19.6% stake. </p>
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<p>The Scheme Document was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0913/2021091301428.pdf" target="_blank" rel="noopener">despatched</a> on the 14 September with the Court Meeting scheduled for the 6 October. Provided all resolutions pass, cheques are expected to be despatched on or before the 26 October.</p>
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<p>The Offer looked done and the gross/annualised spread tightened into 2%/26.5% on the 19 September.</p>
<p>Then the wheels fell off, with the gross spread widening out to 38% as I type, and trading well below the undisturbed price.</p>
<p>Nature Homes had previously flagged concerns with outstanding trade receivables with <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>, and potentially the ubiquitous negative news surrounding China's second-largest developer is having a knock-on-affect. Plus there are a number of other factors at work that <em>could</em> be bucketed under buyer's remorse.</p>
<p>But the Offeror &amp; concert parties cannot simply walk away from this deal. Not without breaching the Takeover's Code. And which shareholder will <em>not</em> vote this through given where it is trading? </p>
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<p>More below the fold.</p>
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Back on the 27 July, wood flooring manufacturer Nature Home Holding Company (2083 HK) announced an Offer from its founding shareholders, by way of a Scheme, at HK$1.70/share. The Offer Price will not be increased. Dehua Tb New Decoration A (002043 CH) has given an irrevocable rollover undertaking for its 19.6% stake. 


The Scheme Document was despatched on the 14 September with the Court Meeting scheduled for the 6 October. Provided all resolutions pass, cheques are expected to be despatched on or before the 26 October.


The Offer looked done and the gross/annualised spread tightened into 2%/26.5% on the 19 September.
Then the wheels fell off, with the gross spread widening out to 38% as I type, and trading well below the undisturbed price.
Nature Homes had previously flagged concerns with outstanding trade receivables with Evergrande Real Estate Group (3333 HK), and potentially the ubiquitous negative news surrounding China's second-largest developer is having a knock-on-affect. Plus there are a number of other factors at work that could be bucketed under buyer's remorse.
But the Offeror &amp; concert parties cannot simply walk away from this deal. Not without breaching the Takeover's Code. And which shareholder will not vote this through given where it is trading? 


More below the fold.


Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<p>It all started with the injury that Chen, the top female badminton player, suffered during China National Games two weeks ago that went viral and fans took it to <a href="https://www.smartkarma.com/entities/weibo-corp-adr" target="_blank" data-smartkarma-citation="entities:3826:1" rel="noopener">Weibo Corp (WB US)</a> . It is unlikely that the injured toe will cause a massive product recall as it is not a life-threatening injury but it definitely warrants some further investigation by the R&amp;D team that may lead to either an increase of R&amp;D cost, an increase in the COGS that will decrease GPM or extra marketing costs as part of giving players more shoes to prevent injuries. </p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/231/932/original/image?1632657827" class="editor-image img-responsive" data-smartkarma-image-id="231932"></figure>

It all started with the injury that Chen, the top female badminton player, suffered during China National Games two weeks ago that went viral and fans took it to Weibo Corp (WB US) . It is unlikely that the injured toe will cause a massive product recall as it is not a life-threatening injury but it definitely warrants some further investigation by the R&amp;D team that may lead to either an increase of R&amp;D cost, an increase in the COGS that will decrease GPM or extra marketing costs as part of giving players more shoes to prevent injuries. 


<p>Trading at only 9x PER with a 5% dividend yield, <a href="https://www.smartkarma.com/entities/xinyi-glass-holdings-ltd" target="_blank" data-smartkarma-citation="entities:11940:1" rel="noopener">Xinyi Glass Holdings (868 HK)</a>  does not sound expensive at all especially when it combines with the index inclusion effect since September 2021. However, its biggest selling product is float glass which the management has confirmed that ties to the performance of the construction sector in China, which is currently under government scrutiny due to the stalled growth and overleverage. </p>
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<a href="https://www.smartkarma.com/entities/flat-glass-group-ltd" target="_blank" data-smartkarma-citation="entities:1108:1" rel="noopener">Flat Glass (6865 HK)</a> 's majority of revenues come from PV glass with a tiny exposure in float glass and household glass. PV glass made up around 83% of the revenue while the other products such as Household Glass, Architectural Glass, and Float Glass made up around 5%, 8%, and 1% respectively. The company benefits from the increasing demand for clean energy. </div>
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<div>One can say that it may be too late to start shorting Xinyi Glass as the share price has decreased by around 30%  in 3 months. However, given the bleak short-term outlook of the property sector in China, the 60% of Xinyi Glass’ revenue from Float Glass may decrease by 25-50% and the price multiple should be lower too.</div>
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<div>On the other hand, going long Flat Glass means participating in the growth of the clean energy and ESG sector that is currently a hot topic in the market plus participating in the Grid Parity in China.</div>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/231/931/original/image_32347912521632655334114.png?1632655334" class="editor-image img-responsive" data-smartkarma-image-id="231931"></figure>
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<div class="content-remarks">source: Reuters</div>
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Trading at only 9x PER with a 5% dividend yield, Xinyi Glass Holdings (868 HK)  does not sound expensive at all especially when it combines with the index inclusion effect since September 2021. However, its biggest selling product is float glass which the management has confirmed that ties to the performance of the construction sector in China, which is currently under government scrutiny due to the stalled growth and overleverage. 

Flat Glass (6865 HK) 's majority of revenues come from PV glass with a tiny exposure in float glass and household glass. PV glass made up around 83% of the revenue while the other products such as Household Glass, Architectural Glass, and Float Glass made up around 5%, 8%, and 1% respectively. The company benefits from the increasing demand for clean energy. 



One can say that it may be too late to start shorting Xinyi Glass as the share price has decreased by around 30%  in 3 months. However, given the bleak short-term outlook of the property sector in China, the 60% of Xinyi Glass’ revenue from Float Glass may decrease by 25-50% and the price multiple should be lower too.

On the other hand, going long Flat Glass means participating in the growth of the clean energy and ESG sector that is currently a hot topic in the market plus participating in the Grid Parity in China.




source: Reuters


Short Xinyi Glass (868) Vs Long Flat Glass (6865)

China

China Evergrande Group is an integrated residential property developer. The Company, through its subsidiaries, operates in property development, investment, management, finance, internet, health, culture, and tourism markets.

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Evergrande (3333 HK)

Morning Views Asia: Evergrande Real Estate Group

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region,...

Lucror Analytics

China Evergrande Group – Up Is Down In Hong Kong

EVERGRANDE: After ensuring that Evergrande had enough liquidity to cover its excessive with subsidies from the local banks, the HKMA has asked them...

Thomas J. Monaco

Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out

Given HK events have been a bloodbath this year, I thought this may trade wide. But not this wide. If you have the risk appetite, then get involved...

David Blennerhassett

Li Ning (2331): Toe Injury

The injured toe will lead to either an increase in R&D cost, an increase in the COGS that will decrease GPM or extra marketing costs as part of...

Henry Soediarko

Short Xinyi Glass (868) Vs Long Flat Glass (6865)

Xinyi Glass’ 60% revenue from Float Glass may decrease by 25-50% and the price multiple should be lower too. Going long Flat Glass rides the growth...

Henry Soediarko

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