IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a>/CHB provides banking and related financial services in Hong Kong and the Mainland. It has 34 branches in Hong Kong, 10 branches and sub-branches in Mainland China and one branch in Macau.On Wednesday, CHB announced a privatisation offer from Yuexiu Holdings, the largest shareholder which holds 74.97% of outstanding shares. The offeror will offer HK$20.80 per scheme share less a possible dividend adjustment. The offer price is a juicy premium of 97.0% to the last full trading day price of HK$10.56 per share (5 May prior to the trading halt). <div class="content-highlight">The key condition is the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). Yuexiu Holdings acquired 326.3 million CHB shares (75.0% of outstanding shares at that time) through a partial offer at HK$35.69 per share in 2014. While the current offer price is materially below the previous partial offer price, we think that the substantial premium of the current offer price to long-term average share prices and P/B multiples makes it likely to be a done deal. </div>

Chong Hing Bank (1111 HK)/CHB provides banking and related financial services in Hong Kong and the Mainland. It has 34 branches in Hong Kong, 10 branches and sub-branches in Mainland China and one branch in Macau.On Wednesday, CHB announced a privatisation offer from Yuexiu Holdings, the largest shareholder which holds 74.97% of outstanding shares. The offeror will offer HK$20.80 per scheme share less a possible dividend adjustment. The offer price is a juicy premium of 97.0% to the last full trading day price of HK$10.56 per share (5 May prior to the trading halt). The key condition is the scheme approved by at least 75% disinterested shareholders (&lt;10% disinterested shareholders rejection). Yuexiu Holdings acquired 326.3 million CHB shares (75.0% of outstanding shares at that time) through a partial offer at HK$35.69 per share in 2014. While the current offer price is materially below the previous partial offer price, we think that the substantial premium of the current offer price to long-term average share prices and P/B multiples makes it likely to be a done deal. 

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

Equity Bottom-Up

On the 25 October 2013, <a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a> ("CHB") <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2013/1025/ltn20131025786.pdf" target="_blank" rel="noopener">announced</a> an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a>, <a href="https://www.smartkarma.com/entities/dah-sing-banking-group-ltd" target="_blank" data-smartkarma-citation="entities:342:1" rel="noopener">Dah Sing Banking (2356 HK)</a>, and Wing Hang Bank, the latter of which was taken out by <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">OCBC (OCBC SP)</a> in 2014 at 1.81x P/B in a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0629/ltn20140629025.pdf" target="_blank" rel="noopener">US$4.9bn deal</a>.
The partial Offer for CHB closed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0205/ltn201402051310.pdf" target="_blank" rel="noopener">5 February 2014</a>. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
<h3>The New News</h3>
CHB was suspended at <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0506/2021050600453.pdf" target="_blank" rel="noopener">10.45am</a> this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/204/617/original/image_68039818121620283783177.png?1620283785" class="editor-image img-responsive" data-smartkarma-image-id="204617"></figure>

On the 25 October 2013, Chong Hing Bank (1111 HK) ("CHB") announced an agreement with Yue Xiu (the investment arm of the Guangzhou municipal government) to acquire a maximum of 75% of the bank for a consideration of HK$11.5bn (HK$35.7/share, a 2.1x P/B).  The deal was subject to approval from the HKMA. It was Yue Xiu's intention to maintain the bank's listing.
That Offer was widely seen as supportive for the remaining family-owned banks in Hong Kong such as Bank of East Asia (23 HK), Dah Sing Banking (2356 HK), and Wing Hang Bank, the latter of which was taken out by OCBC (OCBC SP) in 2014 at 1.81x P/B in a US$4.9bn deal.
The partial Offer for CHB closed on the 5 February 2014. Shares closed yesterday at HK$10.56/share (and 0.4x P/B), down ~70% from the Partial Offer Price. BEA and DSB have similarly languished, down 33% and 42% respectively in the last five years.
The New News
CHB was suspended at 10.45am this morning, but not before gaining 30% to close at HK$13.76/share. That's worth a second look.


Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Risk markets rallied on expectations that a meaningful economic restart will be brought forward following news of <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer's (PFE US)</a> preliminary success rate of 90% in its Coronavirus vaccine trials. Combined with a Goldilocks election outcome whereby President Trump loses the election, but Joe Biden does not win a mandate, Caa rated corporates continued to tighten by more than the Asia High Yield (HY) index and other components of the US HY complex.Following two days of initial euphoria, markets consolidated on news of increased Coronavirus contagion. The growing footprint of Coronavirus related, pre-Christmas, restrictions across Europe and the US may be a headwind for economic growth over the near term.In the rate markets, a sharp jump in US yields early in the week retraced as the week progressed and attracted end-user buying, particularly in Asia. Japanese investors were reported to have been strong buyers of 7- to 10-year Treasuries. One of the developing risks at this point is that the reflation trade does not resurface while federal stimulus is constrained, and near-term economic prospects reduce. A tepid increase in yields could limit the effectiveness of any fresh Fed action. Against this background, almost all Asia-headquartered bonds tightened relative to their benchmark spreads as vaccine progress and US Treasury curve steepening increased prospects for higher net interest margins. Amongst Additional Tier 1 bonds, Thai-headquartered banks led advances as the Bank of Thailand lifted a dividend ban and stated that the financial institutions have sufficient capital and loan-loss provisions to withstand the impact of COVID-19. This sounds like cheer-leading and we are tempted to fade this rally. Concurrently, Turkish HY Senior Unsecured bank bonds materially outperformed their global peers in anticipation of more orthodox monetary and economic policies. Given the starting point for a potential Turkish bank bond rally, we may see higher returns from Turkish- as opposed to Thai-bank bonds.In the debt capital markets, over US$30 billion was raised by financial institutions in USD, Euros and Sterling across the credit continuum. When we noted last week that issuers were likely to bring 2021 issuance needs forward, we did not anticipate a flood like this. In what may have been the busiest bank bond issuance week of the year, the amount issued was almost one-half the amount brought in the prior eight weeks.Market Outlook: Over the near term, positive vaccine news combined with a goldilocks US election outcome lowers the likelihood of excessive US federal stimulus. This should cap additional upward pressure on US Treasury yields until vision increases on likely H2 ’21 US economic growth, post-vaccine distribution. Reflation remains on hold. This could limit US dollar weakness and limit positive impacts on reflationary beneficiaries such as bank valuations and Emerging Markets (EM) assets. Over the medium term, a less expansionary US fiscal policy should reduce upward pressure on U.S. rates and is likely to support yield-seeking, including EM fixed income securities over time.

Risk markets rallied on expectations that a meaningful economic restart will be brought forward following news of Pfizer's (PFE US) preliminary success rate of 90% in its Coronavirus vaccine trials. Combined with a Goldilocks election outcome whereby President Trump loses the election, but Joe Biden does not win a mandate, Caa rated corporates continued to tighten by more than the Asia High Yield (HY) index and other components of the US HY complex.Following two days of initial euphoria, markets consolidated on news of increased Coronavirus contagion. The growing footprint of Coronavirus related, pre-Christmas, restrictions across Europe and the US may be a headwind for economic growth over the near term.In the rate markets, a sharp jump in US yields early in the week retraced as the week progressed and attracted end-user buying, particularly in Asia. Japanese investors were reported to have been strong buyers of 7- to 10-year Treasuries. One of the developing risks at this point is that the reflation trade does not resurface while federal stimulus is constrained, and near-term economic prospects reduce. A tepid increase in yields could limit the effectiveness of any fresh Fed action. Against this background, almost all Asia-headquartered bonds tightened relative to their benchmark spreads as vaccine progress and US Treasury curve steepening increased prospects for higher net interest margins. Amongst Additional Tier 1 bonds, Thai-headquartered banks led advances as the Bank of Thailand lifted a dividend ban and stated that the financial institutions have sufficient capital and loan-loss provisions to withstand the impact of COVID-19. This sounds like cheer-leading and we are tempted to fade this rally. Concurrently, Turkish HY Senior Unsecured bank bonds materially outperformed their global peers in anticipation of more orthodox monetary and economic policies. Given the starting point for a potential Turkish bank bond rally, we may see higher returns from Turkish- as opposed to Thai-bank bonds.In the debt capital markets, over US$30 billion was raised by financial institutions in USD, Euros and Sterling across the credit continuum. When we noted last week that issuers were likely to bring 2021 issuance needs forward, we did not anticipate a flood like this. In what may have been the busiest bank bond issuance week of the year, the amount issued was almost one-half the amount brought in the prior eight weeks.Market Outlook: Over the near term, positive vaccine news combined with a goldilocks US election outcome lowers the likelihood of excessive US federal stimulus. This should cap additional upward pressure on US Treasury yields until vision increases on likely H2 ’21 US economic growth, post-vaccine distribution. Reflation remains on hold. This could limit US dollar weakness and limit positive impacts on reflationary beneficiaries such as bank valuations and Emerging Markets (EM) assets. Over the medium term, a less expansionary US fiscal policy should reduce upward pressure on U.S. rates and is likely to support yield-seeking, including EM fixed income securities over time.

Bank Credit Weekly: Vaccine Rally, Then Consolidation, Drives Outperformance & Turkey Vs Thai Banks

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

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

Hong Kong

Dah Sing Banking Group Limited, through its subsidiaries, provides personal banking, commercial banking, and treasury services.  The Group's operations are primarily based in Hong Kong.

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Dah Sing Banking (2356 HK)

Chong Hing’s Privatisation Bid

CHB announced a privatisation offer at HK$20.80 per scheme share less a possible dividend adjustment. We think that the substantial premium of the...

Arun George

Last Week in Event SPACE: Singapore Press, Tabcorp, Invesco Office, Justbon, IHH Healthcare, JD.com

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Chong Hing Bank (1111 HK): Takeover Talk As Shares Pop

A 30% gain ahead of suspension suggests there is evident news leakage of something big afoot, which would have a positive read-across for the other...

David Blennerhassett

Bank Credit Weekly: Vaccine Rally, Then Consolidation, Drives Outperformance & Turkey Vs Thai Banks

Positive vaccine news and the US election result lowers the likelihood of excessive US stimulus. This should cap pressure on Treasury yields and...

Hank Calenti, CFA

Oversea Chinese Banking Corp. – Solid

OVERSEA CHINESE BANKING CORP.: Credit Showing Signs Of Recovery With Negative NPL Growth - Offsetting Weakness In NIMs and Insurance.

Thomas J. Monaco

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