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 Bottom-Up

<ul>
<li>We see clear evidence that the <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc-a723bd63-0890-486f-aaa0-3bb9ad2b95ce" target="_blank" data-smartkarma-citation="entities:21976:1" rel="noopener">HSBC Holdings (HSBA LN)</a> super-tanker is turning</li>
<li>Balance sheet strength at YE 2020, with delivery across most plan metrics in 2020 showing commitment</li>
<li>Execution on costs, the digital transformation, sustainably lower cost of risk going forward and the deepened Asia pivot, with an emphasis on Wealth and Personal Banking revenues, should be core drivers of returns</li>
<li>Potential disposals of France retail banking and possibly the US retail operations would also enhance returns and free up “trapped” RWAs</li>
<li>We believe that 2022E consensus ROE estimates are too conservative and that HSBC could potentially be on a c 8% dividend yield over the medium term</li>
<li>Risks to our positive view on HSBC include slower than expected execution on costs, and tougher competition in Asia retail banking, as well as worse than expected credit quality leading to a lower than expected reduction in cost of risk charges</li>
</ul>


We see clear evidence that the HSBC Holdings (HSBA LN) super-tanker is turning
Balance sheet strength at YE 2020, with delivery across most plan metrics in 2020 showing commitment
Execution on costs, the digital transformation, sustainably lower cost of risk going forward and the deepened Asia pivot, with an emphasis on Wealth and Personal Banking revenues, should be core drivers of returns
Potential disposals of France retail banking and possibly the US retail operations would also enhance returns and free up “trapped” RWAs
We believe that 2022E consensus ROE estimates are too conservative and that HSBC could potentially be on a c 8% dividend yield over the medium term
Risks to our positive view on HSBC include slower than expected execution on costs, and tougher competition in Asia retail banking, as well as worse than expected credit quality leading to a lower than expected reduction in cost of risk charges


HSBC (HSBA LN): The Super-Tanker Is Turning

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

*Poor Set Of Results, Which Should Have Been Worse: Standard Chartered Plc (STAN.LN/2888.HK) [STAN] reported 2H20 losses of USD 315 mn, declining USD 1.4 bn (122.5%) HOH as it struggled across the board. Negative operating jaws for STAN are troublesome to say the least, as HOH we note that STAN’s revenues declined USD 1.4 bn (16.0%) whilst expenses increased USD 1.0 bn (20.4%); and*Credit Challenges Are Top Of Mind As Well: STAN had a HOH increase in unmarkable Level 3 assets of (20.1%), and level of net new NPLs during 2H20 amounted to USD 1.0 bn – increasing 23.8% on an annualized basis. By our analysis, STAN should not have cut provisions and instead should have ‘manned-up’and taken an addition USD 4.8 bn in provisions. This is prior to any risk assessment for its increasing level of Level 3 assets. The shortfall represents 10% of stated equity, which begs the question of why it’s paying dividends and buying back shares in this condition.

*Poor Set Of Results, Which Should Have Been Worse: Standard Chartered Plc (STAN.LN/2888.HK) [STAN] reported 2H20 losses of USD 315 mn, declining USD 1.4 bn (122.5%) HOH as it struggled across the board. Negative operating jaws for STAN are troublesome to say the least, as HOH we note that STAN’s revenues declined USD 1.4 bn (16.0%) whilst expenses increased USD 1.0 bn (20.4%); and*Credit Challenges Are Top Of Mind As Well: STAN had a HOH increase in unmarkable Level 3 assets of (20.1%), and level of net new NPLs during 2H20 amounted to USD 1.0 bn – increasing 23.8% on an annualized basis. By our analysis, STAN should not have cut provisions and instead should have ‘manned-up’and taken an addition USD 4.8 bn in provisions. This is prior to any risk assessment for its increasing level of Level 3 assets. The shortfall represents 10% of stated equity, which begs the question of why it’s paying dividends and buying back shares in this condition.     

*Negative Jaws:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 4Q20 net profit of SGD 1.1 bn, a SGD 102 mn (9.9%) increase on a linked quarter basis. Were it not for the 0.7% tax rate as opposed to the 12.2% tax rate during 3Q20, OCBC’s bottom-line performance would have come in at SGD 994 mn  - down SGD 34 mn (3.3%). In addition, OCBC continues to suffer from negative operating jaws, with revenues declining 2.6% and costs increasing 2.3%;*Credit Improving In Reality: We have become more optimistic. By our calculation, we find that net new NPL growth continued to be negative on an annualized basis at SGD 78 mn or 8.0% annualized (versus 2.3% annualized).  We also find that reserves are now where they need to be, which is a far cry from where currently DBS Group Holdings (DBS.SP) is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20.

*Negative Jaws:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 4Q20 net profit of SGD 1.1 bn, a SGD 102 mn (9.9%) increase on a linked quarter basis. Were it not for the 0.7% tax rate as opposed to the 12.2% tax rate during 3Q20, OCBC’s bottom-line performance would have come in at SGD 994 mn  - down SGD 34 mn (3.3%). In addition, OCBC continues to suffer from negative operating jaws, with revenues declining 2.6% and costs increasing 2.3%;*Credit Improving In Reality: We have become more optimistic. By our calculation, we find that net new NPL growth continued to be negative on an annualized basis at SGD 78 mn or 8.0% annualized (versus 2.3% annualized).  We also find that reserves are now where they need to be, which is a far cry from where currently DBS Group Holdings (DBS.SP) is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20. 

Oversea Chinese Banking Corp. – Mixed Bag, But AQ Improving

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers.

*Continued Weak Great Eastern Core Returns: Great Eastern Holdings (GE.SP) [Great Eastern] reported 2H20 bottom-line results of SGD 688.5 mn, improving SGD 348.6 mn (102.5%) HOH. However, when we exclude 2H20’s net gains on sale of SGD 3.8 bn, core operating results were far from impressive at a loss of SGD 3.1 bn versus operating income SGD 217.3 mn in 1H20; and*Poor Readacross to Regional Insurers: Higher overall costs at Great Eastern during the half driven by claims and a change in contract liability increases would imply a negative readacross to AIA (1299.HK), Prudential (PRU.LN), ManuLife (MFC.CN), and of course the mainland Chinese insurers. 

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

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

Bank Of Queensland / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/bank-of-queensland-ltd" target="_blank" data-smartkarma-citation="entities:16606:1" rel="noopener">Bank Of Queensland (BOQ AU)</a> plans to raise around US$276m (A$350m) via an institutional placement and another US$790m (A$1bn) via an entitlement offering to fund its purchase of ME bank. We have covered the prior placement as well in Nov 2019, <a href="https://www.smartkarma.com/insights/bank-of-queensland-placement-discount-looks-enticing-but-the-deal-appears-opportunistic" target="_blank" rel="noopener">Bank of Queensland Placement - Discount Looks Enticing but the Deal Appears Opportunistic.</a>

Bank Of Queensland (BOQ AU) plans to raise around US$276m (A$350m) via an institutional placement and another US$790m (A$1bn) via an entitlement offering to fund its purchase of ME bank. We have covered the prior placement as well in Nov 2019, Bank of Queensland Placement - Discount Looks Enticing but the Deal Appears Opportunistic.

Bank of Queensland Placement - Is Transformative but Might Not Be as Great in the Short-Term

Singapore

DBS Group Holdings Limited and its subsidiaries provide a variety of financial services.  The Company offers services including mortgage financing, lease and hire purchase financing, nominee and trustee, funds management, corporate advisory and brokerage .  DBS Group also acts as the primary dealer in Singapore government securities.

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DBS (DBS SP)

HSBC (HSBA LN): The Super-Tanker Is Turning

Cost gains, digital transformation, lower cost of risk going forward and the deepened Asia pivot on revenue growth, should be core drivers of...

Victor Galliano

Standard Chartered - What A Mess

STANDARD CHARTERED: STAN reported 2H20 losses of USD 315 mn, declining 122.5% HOH as it struggled across the board. Negative operating jaws for...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Mixed Bag, But AQ Improving

OVERSEA CHINESE BANKING CORP: Were it not for the 0.7% tax rate as opposed to the 12.2% tax rate during 3Q20, OCBC’s bottom-line would've declined...

Thomas J. Monaco

Oversea Chinese Banking Corp. – Great Eastern HOH Operating Results Flop

OVERSEA CHINESE BANKING CORP: Great Eastern reported hefty 2H20 core operating losses. Higher overall costs HOH imply a negative readacross to...

Thomas J. Monaco

Bank of Queensland Placement - Is Transformative but Might Not Be as Great in the Short-Term

Bank Of Queensland (BOQ AU) plans to raise around US$276m via an institutional placement and another US$790m via an entitlement offering to fund...

Sumeet Singh

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