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

Thematic (Sector/Industry)

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; * COVID-19 Challenges At US Franchises: Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and* Exhaustive Megbank Challenges: Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on capital markets businesses. However, as a sector, these subsidiaries are NIM-challenged, wholesale funded, and have bloated cost structures (like their parent companies) - all of which challenge operating returns; * COVID-19 Challenges At US Franchises: Our “burn down” results for MUFGA were a surprise. We calculate that MUFG Americas’ (8306.JP) [MUFGA] 4Q19 CET1/Tier 1 capital ratios would decline from 14.1% to 3.9% - implying a regulatory capital shortfall, while the same analysis suggests COVID-19 will be a multi-year earnings event for both SMBC Americas (8316.JP) [SMBCA] and Mizuho Americas (8411.JP); and* Exhaustive Megbank Challenges: Japanese Megabanks were struggling to meet their FY (March) 2020 and 2021 business plans. Chronic weak returns, weak/negative growth in Japan, increased reliance of volatile capital markets revenues, impairments charges on previous acquisitions, EPS deal dilution, Softbank Group (9984.JP) exposures, and growth in Asia (Ex-Japan) risk just as the USD significantly strengthened all continue to hamper Megabank returns – even before the impact of COVID-19.  

Japan Mega Banks – Avenue of the Americas

Equity Bottom-Up

* Decent 2019 Results:Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider,  reported 2019 net income of NTD 15.5 bn, increasing 15.7% YOY – as lower credit costs and non-operating gains more than offset the accounting changes which negatively impact fee revenues;  * Recovering Results in March: Chailease reported preliminary revenue of NTD 4.8 bn for March 2020, up 2% YOY and 8% MOM. Taiwan, mainland China and ASEAN reported 1Q20 revenue grew by 21%, negative 8%, and 18% YOY, respectively. Mainland Chinese revenue resumed growth at 14% MOM, as most of the impact from the COVID-19 pandemic occurred in February; and* Mainland China Credit Watch:According to management, 2% of mainland China clients have asked for a grace period (maximum of 3 months) and 1% will need to restructure repayment terms. We estimate that this would bring the mainland Chinese delinquency ratio to between 4.8%-5.0%.

* Decent 2019 Results:Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider,  reported 2019 net income of NTD 15.5 bn, increasing 15.7% YOY – as lower credit costs and non-operating gains more than offset the accounting changes which negatively impact fee revenues;  * Recovering Results in March: Chailease reported preliminary revenue of NTD 4.8 bn for March 2020, up 2% YOY and 8% MOM. Taiwan, mainland China and ASEAN reported 1Q20 revenue grew by 21%, negative 8%, and 18% YOY, respectively. Mainland Chinese revenue resumed growth at 14% MOM, as most of the impact from the COVID-19 pandemic occurred in February; and* Mainland China Credit Watch:According to management, 2% of mainland China clients have asked for a grace period (maximum of 3 months) and 1% will need to restructure repayment terms. We estimate that this would bring the mainland Chinese delinquency ratio to between 4.8%-5.0%. 

Chailease Holding – Return to Growth In 1Q20

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/889/original/2020-04-01_12-59-11.png?1585713567" class="editor-image img-responsive" data-smartkarma-image-id="125889"></figure><div class="content-caption">Source • Japan Analytics</div>DIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC (5 HK) </a>and <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a> moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/125/899/original/2020-04-01_13-47-18.png?1585716458" class="editor-image img-responsive" data-smartkarma-image-id="125899"></figure><div class="content-caption">Source • Japan Analytics</div>30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/126/905/original/2020-04-07_13-29-26.png?1586233784" class="editor-image img-responsive" data-smartkarma-image-id="126905"></figure><div class="content-caption">Source • Japan Analytics</div>WHO'S CUTTING NEXT? - Some serial dividend 'cutters', like <a href="https://www.smartkarma.com/entities/nipro-corp" target="_blank" data-smartkarma-citation="entities:18346:1" rel="noopener">Nipro (8086 JP)</a> above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

Source • Japan AnalyticsDIVIDENDS AT RISK - As noted in our daily Results &amp; Revisions Updates in the last few days, Japanese companies are starting to shore up their cash flow but cutting or eliminating their dividends. Following HSBC (5 HK) and Standard Chartered (STAN LN) moves on April 1st, a wave of similar moves is expected in Japan. Although dividends are thought to be very 'sticky' in this market,  on average,  of the 75% of non-financial companies that pay dividends, 14% reduce their payouts each year. In FY2009 and FY2010, this ratio rose to one-third.Source • Japan Analytics30% HAIRCUT - The 'stickiness' of Japanese dividends is clear from the trends in absolute values. The total amount of cash dividends paid by non-financial companies declined by 30% from 2008 to 2010 or by ¥1.8 trillion. Since the 2010 'low', total cash dividends paid by these companies have increased by 168% to ¥11.8 trillion, a 'trailing yield' of 2.4%. A 30% dividend haircut to ¥8.3 trillion would reduce the yield on current market cap to 1.7%, slightly above the 2010 low of 1.63%.Source • Japan AnalyticsWHO'S CUTTING NEXT? - Some serial dividend 'cutters', like Nipro (8086 JP) above, have already announced a cut for the fiscal year just ended. In the DETAIL section below, we shall attempt to highlight those larger (Market Cap &gt; ¥50b) companies with the greatest risk of having to cut their dividends.

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

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.

Quantitative Analysis

<div>In our weekly HK Connect Flow series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.</div><div>Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. </div><div>
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Last week, mainland investors continue to bottom fishing equities in the Hong Kong market with UD 1.4 bn of inflows. We highlight inflows into <a href="https://www.smartkarma.com/entities/hsbc-holdings-plc" target="_blank" data-smartkarma-citation="entities:516:1" rel="noopener">HSBC Holdings (5 HK)</a>, and outflows from <a href="https://www.smartkarma.com/entities/ping-an-insurance-grp-co-of-china-ltd" target="_blank" data-smartkarma-citation="entities:12880:1" rel="noopener">Ping An Insurance (H) (2318 HK)</a>, <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>, and <a href="https://www.smartkarma.com/entities/xiaomi-corp" target="_blank" data-smartkarma-citation="entities:24409:1" rel="noopener">Xiaomi Corp (1810 HK)</a>.
</div>

In our weekly HK Connect Flow series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations.Since the opening of Hong Kong Connect scheme in 2014, southbound Chinese money started to play an increasingly important role in the Hong Kong stock market. In a Hong Kong exchange report released in July 2019, the exchange highlighted that flows from mainland China accounted for 12% of the total trading volume in the market and is ahead of the US investors' 10% and UK investors' 7% share respectively. 
We split the stocks eligible for the Hong Kong Connect trade into three groups: HSCEI component stocks, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.
Last week, mainland investors continue to bottom fishing equities in the Hong Kong market with UD 1.4 bn of inflows. We highlight inflows into HSBC Holdings (5 HK), and outflows from Ping An Insurance (H) (2318 HK), Tencent Holdings (700 HK), and Xiaomi Corp (1810 HK).


* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.

* Pandemic Stay At Home Orders To Be Extended:  Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the tipping point of major corona virus outbreaks. Virginia and Maryland have ordered their state lockdowns to be extended through June 10th (12 weeks). The City of Toronto also announced the cancellation of city programs. Several other factors too would suggest that the Trump administration’s stay at home order - now through April 30th – will again be extended;* SME Risk Increasing With Each Passing Day: The longer the stay at home order for the Corona Crisis lasts, the longer small-to-medium sized entities (SMEs) [the driver of US economic growth] will remain impaired.  As it stands, SMEs contribute about 1/3 to US GDP, employ about 50% of the private workforce, and have contributed 2/3 of the net employment gains since 2011. The Small Business Administration (SBA) has warned of a 28 day process, which is an eternity (18 days into the stay at home order) given the average 27 days of SME cash reserves;  and* Liquidity Risks Elsewhere Are Increasing: The ongoing market liquidity crisis (hedge funds/sovereign wealth/CLOs/REITs/HNW/State of Illinois, et al) shows no signs of abating.  

Choke Hold On American SMEs and Ongoing Liquidity Crisis

United Kingdom

HSBC Holdings plc is the holding company for the HSBC Group. The Company provides a variety of international banking and financial services, including retail and corporate banking, trade, trusteeship, securities, custody, capital markets, treasury, private and investment banking, and insurance.  The Group operates worldwide.

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HSBC Holdings (HSBA LN)

Japan Mega Banks – Avenue of the Americas

* All That Glitters Isn’t Gold: Structurally, the Megabank American franchises are well-capitalized, have strong credit metrics, and are reliant on...

Thomas J. Monaco

Chailease Holding – Return to Growth In 1Q20

* Decent 2019 Results:Chailease Holding (5871.TT) [Chailease], Taiwan’s top leasing services provider, reported 2019 net income of NTD 15.5 bn,...

Thomas J. Monaco

🇯🇵 JAPAN • Dividends At Risk - The Serial 'Cutters'

DIVIDENDS AT RISK - As noted in our daily Results & Revisions Updates in the last few days, Japanese companies are starting to shore up their...

Campbell Gunn

HK Connect: HSBC, Tencent, Xiaomi

In our weekly HK Connect Flow series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed...

Ke Yan, CFA, FRM

Choke Hold On American SMEs and Ongoing Liquidity Crisis

* Pandemic Stay At Home Orders To Be Extended: Excluding the Northeast Corridor and West Coast, major American cities would appear to be at the...

Thomas J. Monaco

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