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.

Equity Capital Markets

WeDoctor Holdings / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/wedoctor-holdings" target="_blank" data-smartkarma-citation="entities:28931:1" rel="noopener">WeDoctor Holdings (1737089D HK)</a> is the largest digital medical service platform in China as measured by both the number of internet hospitals as of 31 December 2020 and the volume of digital medical consultations provided in 2019, according to Frost &amp; Sullivan. We Doctor was filed for an HKEx IPO to raise around $2-3 billion, according to press reports. We Doctor counts <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a>, Hillhouse Capital, <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a>, Sequoia Capital, <a href="https://www.smartkarma.com/entities/goldman-sachs-group-inc" target="_blank" data-smartkarma-citation="entities:785:1" rel="noopener">Goldman Sachs Group (GS US)</a> and Qiming Venture Partners as shareholders. In response to the COVID-19 outbreak, individuals have become increasingly focused on personal health and wellbeing which has driven user acceptance of online healthcare platforms. The proportion of digitalisation in the Chinese health market is expected to increase rapidly from 3.3% in 2019 to 24.0% of total healthcare expenditure in 2030, according to Frost and Sullivan.<div class="content-highlight">Consequently, and despite the choppy markets and waning enthusiasm for Chinese tech, the shares of <a href="https://www.smartkarma.com/entities/ping-an-healthcare-and-technology-company-limited" target="_blank" data-smartkarma-citation="entities:27008:1" rel="noopener">Ping An Healthcare and Technology Company Limited (1833 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a> and <a href="https://www.smartkarma.com/entities/jd-health-international-inc" target="_blank" data-smartkarma-citation="entities:29677:1" rel="noopener">JD Health (6618 HK)</a> are up 10%, 1% and 62% YTD, respectively. Overall, for investors willing to brave the IPO markets, we believe that We Doctor is an attractive play on the accelerating digitalisation of China’s healthcare market.</div>

WeDoctor Holdings (1737089D HK) is the largest digital medical service platform in China as measured by both the number of internet hospitals as of 31 December 2020 and the volume of digital medical consultations provided in 2019, according to Frost &amp; Sullivan. We Doctor was filed for an HKEx IPO to raise around $2-3 billion, according to press reports. We Doctor counts Tencent Holdings (700 HK), Hillhouse Capital, AIA Group Ltd (1299 HK), Sequoia Capital, Goldman Sachs Group (GS US) and Qiming Venture Partners as shareholders. In response to the COVID-19 outbreak, individuals have become increasingly focused on personal health and wellbeing which has driven user acceptance of online healthcare platforms. The proportion of digitalisation in the Chinese health market is expected to increase rapidly from 3.3% in 2019 to 24.0% of total healthcare expenditure in 2030, according to Frost and Sullivan.Consequently, and despite the choppy markets and waning enthusiasm for Chinese tech, the shares of Ping An Healthcare and Technology Company Limited (1833 HK), Alibaba Health Information Technology (241 HK) and JD Health (6618 HK) are up 10%, 1% and 62% YTD, respectively. Overall, for investors willing to brave the IPO markets, we believe that We Doctor is an attractive play on the accelerating digitalisation of China’s healthcare market.

We Doctor IPO Initiation: Patient Revolution

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

*Outclassed By US Counterparts:Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse Group (CSGN.VX) [Credit Suisse] which didn’t have close to the full Archegos Capital Management picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos; and  *Capital Implications Are Significant At Credit Suisse:The problem for Credit Suisse is the potential peak level of losses that likely will cause it to breach regulatory triggers. Several factors must still be adjusted from consensus forecasts: CHF 2.0 bn from Greensill (not including Sanjeev Gupta/GFG’ Liberty Commodities insolvency filing); CHF 2.0 bn Mozambique debt scandal; and the potential CHF 7.0 bn Archegos exposure.  In addition, operational risk weightings/capital requirements are likely to increase. In aggregate, we find that Credit Suisse’s CET1 would decline to 10.8% against the likely increased CET1 target and intimates a potential capital raise, dividend cut, and share buyback suspension.

*Outclassed By US Counterparts:Goldman Sachs &amp; Co. (GS.US) [Goldman], in typically fashion, always to seems to have the best information at the earliest possible instance, and as a result were able to act early and decisively – coming through the Archegos liquidations thus far relatively unscathed.  Other prime brokers, including Credit Suisse Group (CSGN.VX) [Credit Suisse] which didn’t have close to the full Archegos Capital Management picture, were caught with their pants down in what was supposed to be an orderly unwind descended into chaos; and  *Capital Implications Are Significant At Credit Suisse:The problem for Credit Suisse is the potential peak level of losses that likely will cause it to breach regulatory triggers. Several factors must still be adjusted from consensus forecasts: CHF 2.0 bn from Greensill (not including Sanjeev Gupta/GFG’ Liberty Commodities insolvency filing); CHF 2.0 bn Mozambique debt scandal; and the potential CHF 7.0 bn Archegos exposure.  In addition, operational risk weightings/capital requirements are likely to increase. In aggregate, we find that Credit Suisse’s CET1 would decline to 10.8% against the likely increased CET1 target and intimates a potential capital raise, dividend cut, and share buyback suspension.

Credit Suisse Group – Capital Raise Likely Coming

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate).

*Taking It On The Chin…Again:Having finally seen enough of this feckless global investment bank, S&amp;P Global Ratings has finally come around (took you long enough) and downgraded its outlook on all Credit Suisse entities to negative from stable. Putting S&amp;P over the edge was Credit Suisse’ exposure to Archegos Capital Management (Archegos) share liquidation as a result of margin calls whereby the bank is amongst the most exposed;  and*Ratings Agency Concerns: While Credit Suisse seems to be in competition with Deutsche Bank (DBK.GY) as the world’s most poorly managed bank, we find it incredulous that its actually S&amp;P calling out Credit Suisse for risk management. There are too many market participants have very little discipline, and to make matters worse, central banks have been all too happy to remove the moral hazard involved with excessive risk taking. In our view, the credit ratings agency model is permanently broken as waterfall risks in various corporates, rated pools and tranches have become increasingly significant with the markets unable to self-regulate and regulators either unable to regulate (or told not to regulate). 

Credit Suisse Group – Hit Parade Continues

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<a href="https://www.smartkarma.com/entities/jpmorgan-chase-co" target="_blank" data-smartkarma-citation="entities:277:1" rel="noopener">JPMorgan Chase &amp; Co's (JPM US)</a> fortress foundation needs repair. Rather than a rock-solid balance sheet, JPM’s capital foundation needs to be strengthened to handle the leverage load. It has the lowest Supplementary Leverage Ratio (SLR) amongst the largest US banks and its Tier 1 securities suffer, in part, due to this. It is time to lighten the leverage exposure and add a layer of capital. This creates an investment opportunity.As the pandemic-induced economic crisis unfolded last year, we noted that JPM Tier 1 securities were over-bought relative to the leverage exposure risk at the institution. Please see: <a href="https://www.smartkarma.com/compose/insight/49670/Bank%20Credit%20Weekly:%20US%20Capital%20Buffer%20Risk%20&amp;%20Q1%20Earnings%20Reports-%20JPMorgan%20Looks%20Slightly%20Overbought.%20Read%20more:%20https:/skr.ma/uQHaQ" target="_blank" rel="noopener">Bank Credit Weekly: US Capital Buffer Risk &amp; Q1 Earnings Reports- JPMorgan Looks Slightly Overbought.</a>The Fed exemption of Treasury securities and deposits with the central bank from the SLR bought JPM time. Fast forward one year later to the expiration of these exemptions and, despite ample opportunity, JPMorgan did not issue Tier 1 securities until only two weeks ago when it brought a $25 par security. In additional to raising needed capital, the firm recently threatened to stop taking deposits. It may price itself out of the deposit market, temporarily, but this is not a long-term strategy. The SLR is the binding capital constrain on the firm’s asset growth. JPM needs to obtain or retain more Tier 1 capital. We quantify this within.We believe that JPM could easily bring a 10-year Tier 1 bond to the market and find between US$2 to US$3bn in demand, thereby taking the total Tier 1 financing needs, or balance sheet optimization equivalent, down materially for the remainder of the year. Based on its recently issued Preferred, we believe JPM could achieve a price of Treasuries plus circa 300bps in a 10-year Tier 1 note.Aside from its SLR level, JPMorgan’s credit metrics are on-par with, if not superior to, most other large systemically important financial institutions. And yet, as we present within, JPM’s Tier 1 bonds trade at a discount to materially weaker banks located outside the US. Furthermore, we find that JPMorgan’s 2025 callable Tier 1 bond is at least 40bps oversold as, in our view, its call option is overvalued by the same amount.JPM faces an inflection point with respect to its capital adequacy. Concurrently, the Fed may re-adjust the SLR requirements before year-end; however, we believe it would be foolish of JPM not to take the opportunity to increase its SLR in an improving economic environment. It should re-enforce the foundation of its fortress balance sheet. We believe investors should pre-position for this eventuality. We recommend overweighting JPMorgan’s Tier 1 securities.

JPMorgan Chase &amp; Co's (JPM US) fortress foundation needs repair. Rather than a rock-solid balance sheet, JPM’s capital foundation needs to be strengthened to handle the leverage load. It has the lowest Supplementary Leverage Ratio (SLR) amongst the largest US banks and its Tier 1 securities suffer, in part, due to this. It is time to lighten the leverage exposure and add a layer of capital. This creates an investment opportunity.As the pandemic-induced economic crisis unfolded last year, we noted that JPM Tier 1 securities were over-bought relative to the leverage exposure risk at the institution. Please see: Bank Credit Weekly: US Capital Buffer Risk &amp; Q1 Earnings Reports- JPMorgan Looks Slightly Overbought.The Fed exemption of Treasury securities and deposits with the central bank from the SLR bought JPM time. Fast forward one year later to the expiration of these exemptions and, despite ample opportunity, JPMorgan did not issue Tier 1 securities until only two weeks ago when it brought a $25 par security. In additional to raising needed capital, the firm recently threatened to stop taking deposits. It may price itself out of the deposit market, temporarily, but this is not a long-term strategy. The SLR is the binding capital constrain on the firm’s asset growth. JPM needs to obtain or retain more Tier 1 capital. We quantify this within.We believe that JPM could easily bring a 10-year Tier 1 bond to the market and find between US$2 to US$3bn in demand, thereby taking the total Tier 1 financing needs, or balance sheet optimization equivalent, down materially for the remainder of the year. Based on its recently issued Preferred, we believe JPM could achieve a price of Treasuries plus circa 300bps in a 10-year Tier 1 note.Aside from its SLR level, JPMorgan’s credit metrics are on-par with, if not superior to, most other large systemically important financial institutions. And yet, as we present within, JPM’s Tier 1 bonds trade at a discount to materially weaker banks located outside the US. Furthermore, we find that JPMorgan’s 2025 callable Tier 1 bond is at least 40bps oversold as, in our view, its call option is overvalued by the same amount.JPM faces an inflection point with respect to its capital adequacy. Concurrently, the Fed may re-adjust the SLR requirements before year-end; however, we believe it would be foolish of JPM not to take the opportunity to increase its SLR in an improving economic environment. It should re-enforce the foundation of its fortress balance sheet. We believe investors should pre-position for this eventuality. We recommend overweighting JPMorgan’s Tier 1 securities.

US Banks and the SLR Situation: Overweight JPM Tier 1 Securities

Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

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

Cross Asset Strategy

Dividend yields for the S&amp;P 500 are 1.5%; the only time they were lower in the past 150 years was in 2000 (1% before the "dot-com crash" of 2000). We expect the S&amp;P 500 earnings yield to rebound from its low of 2.5% through a combination of stronger EPS growth and falling stock prices. The 14% of GDP fiscal stimulus will strengthen the recovery; already the end of the SLR-relaxation amounts to a slight tightening of monetary conditions from April 2021. The pledge of US$120 billion of monthly bond purchases will need to be relaxed after May 2021, and further tightening is likely at the FOMC meeting at the end of June, via either a 12.5bp rise in Fed Funds rate or an increase in the 0.1% interest rate paid on banks' reserves. The US$ will strengthen.Over the past 3 months (starting 27 December 2020), the US has legislated an aggregate fiscal stimulus of US$2.8 trillion (14% of GDP), of which the first part (US$0.9 trillion) has been almost entirely disbursed in the current quarter. Unsurprisingly, FOMC members expect US real GDP to rebound to a spectacular 6.5% growth in 2021. The unemployment rate has already declined to 6.2% in February 2021 (from 6.7% in Nov-Dec 2020, and 10.2% in July 2020); although much higher than February 2020 (3.5%), the current unemployment rate is not far above the traditional 5-6% rate considered the non-accelerating-inflation rate of unemployment (NAIRU), which is estimated to have fallen to 4-5% for the 2005-30 period. Given that jobs in the pandemic-hit hospitality sector are unlikely to come back for awhile, we estimate that NAIRU this year is close to 5%, a level of unemployment that is likely to be reached before 4Q 2021. Manufacturing is leading the US recovery: the ISM's manufacturing PMI was equal to a 3-year high (last exceeded 17 years ago) in February 2021 despite inclement weather. The Philadelphia Fed's manufacturing outlook reached a 48-year high this month. Inflation is likely to edge up as unemployment declines toward the NAIRU, making it untenable for the Fed to keep to its pledge of buying US$120 billion of bonds monthly without countervailing actions to reduce the money-multiplier. The first such step removes the SLR relaxations from the beginning of next month. The second is likely to be an increase in the interest rate paid on banks' reserves (from their 0.1% current level) or an outright increase in the Fed Funds rate (to 0.25%) at the June FOMC meeting. We are bearish on risk assets (equities and EMs) over the next half year, and would recommend continuing to rotate away from technology stocks to cyclicals, consumer cyclicals and banks.

Dividend yields for the S&amp;P 500 are 1.5%; the only time they were lower in the past 150 years was in 2000 (1% before the "dot-com crash" of 2000). We expect the S&amp;P 500 earnings yield to rebound from its low of 2.5% through a combination of stronger EPS growth and falling stock prices. The 14% of GDP fiscal stimulus will strengthen the recovery; already the end of the SLR-relaxation amounts to a slight tightening of monetary conditions from April 2021. The pledge of US$120 billion of monthly bond purchases will need to be relaxed after May 2021, and further tightening is likely at the FOMC meeting at the end of June, via either a 12.5bp rise in Fed Funds rate or an increase in the 0.1% interest rate paid on banks' reserves. The US$ will strengthen.Over the past 3 months (starting 27 December 2020), the US has legislated an aggregate fiscal stimulus of US$2.8 trillion (14% of GDP), of which the first part (US$0.9 trillion) has been almost entirely disbursed in the current quarter. Unsurprisingly, FOMC members expect US real GDP to rebound to a spectacular 6.5% growth in 2021. The unemployment rate has already declined to 6.2% in February 2021 (from 6.7% in Nov-Dec 2020, and 10.2% in July 2020); although much higher than February 2020 (3.5%), the current unemployment rate is not far above the traditional 5-6% rate considered the non-accelerating-inflation rate of unemployment (NAIRU), which is estimated to have fallen to 4-5% for the 2005-30 period. Given that jobs in the pandemic-hit hospitality sector are unlikely to come back for awhile, we estimate that NAIRU this year is close to 5%, a level of unemployment that is likely to be reached before 4Q 2021. Manufacturing is leading the US recovery: the ISM's manufacturing PMI was equal to a 3-year high (last exceeded 17 years ago) in February 2021 despite inclement weather. The Philadelphia Fed's manufacturing outlook reached a 48-year high this month. Inflation is likely to edge up as unemployment declines toward the NAIRU, making it untenable for the Fed to keep to its pledge of buying US$120 billion of bonds monthly without countervailing actions to reduce the money-multiplier. The first such step removes the SLR relaxations from the beginning of next month. The second is likely to be an increase in the interest rate paid on banks' reserves (from their 0.1% current level) or an outright increase in the Fed Funds rate (to 0.25%) at the June FOMC meeting. We are bearish on risk assets (equities and EMs) over the next half year, and would recommend continuing to rotate away from technology stocks to cyclicals, consumer cyclicals and banks. 

Biden's Huge Stimulus Is Obliging the Fed to Edge Away from Unlimited QE

United States

The Goldman Sachs Group, Inc., a bank holding company, is a global investment banking and securities firm specializing in investment banking, trading and principal investments, asset management and securities services.  The Company provides services to corporations, financial institutions, governments, and high-net worth individuals.

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Goldman Sachs Group (GS US)

We Doctor IPO Initiation: Patient Revolution

We Doctor was filed for an HKEx IPO to raise around $2-3 bn. For investors willing to brave the IPO markets, We Doctor is an attractive play on the...

Arun George

Credit Suisse Group – Capital Raise Likely Coming

CREDIT SUISSE GROUP: Credit Suisse didn’t have close to the full family office picture. Potential aggregate losses likely will cause it to breach...

Thomas J. Monaco

Credit Suisse Group – Hit Parade Continues

CREDIT SUISSE GROUP: S&P Global Ratings has finally downgraded its outlook on all Credit Suisse entities to negative resultant over its exposure to...

Thomas J. Monaco

US Banks and the SLR Situation: Overweight JPM Tier 1 Securities

JPM’s fortress foundation needs repair. It has the lowest SLR buffer, and its Tier 1 suffers from this. Leverage slimming and a deeper capital...

Hank Calenti, CFA

Biden's Huge Stimulus Is Obliging the Fed to Edge Away from Unlimited QE

The 14% of GDP stimulus will oblige the Fed to tighten policy by mid-year, strengthening the US$.S&P500 dividend yield (1.5%) has been lower only...

Prasenjit K. Basu

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