Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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This week in StubWorld ...
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<a href="https://www.smartkarma.com/entities/people-s-insurance-co-group-of-china-ltd-h" target="_blank" data-smartkarma-citation="entities:362:1" rel="noopener">People's Insurance Co. (PICC) (1339 HK)</a>'s ratio versus <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a> is at an all-time low; and the implied stub is around its Covid-low. 
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Preceding my comments on PICC are the weekly setup/unwind tables for Asia-Pacific Holdcos.
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These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.
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This week in StubWorld ...



People's Insurance Co. (PICC) (1339 HK)'s ratio versus PICC Property &amp; Casualty H (2328 HK) is at an all-time low; and the implied stub is around its Covid-low. 



Preceding my comments on PICC are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: PICC (1339 HK)'s All-Time Low Vs. PICC P&C (2328 HK)

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

Industrial Bank Co Ltd A / Equity Bottom-Up

EXECUTIVE SUMMARYAccording to our model PH Score™, Industrial Bank commands above average value-quality characteristics.  The valuation variable within the model (as elsewhere in China) helps the Score but other variables are broadly benign. Adding technical factors and the low valuation, Industrial Bank ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. Elsewhere in China, recent bank data show subpar or mixed fundamental momentum and trends. This is not the case with Industrial Bank. However, it would be wrong to think that the bank was not affected by general systemic asset quality challenges.On a LTM basis, the bank's PH Score™ of 8.5 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in NIM/Spread (impressive), in headline Asset Quality, as well as the valuation variable, though Liquidity, as measured by the rising LDR, eroded and the Provisioning metric utilised by the model softened somewhat.A FV of 9% and a PBV of 0.72x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 17.0% and a Dividend Yield of 4.2% underpin the valuation thesis though China and the world have cheaper banks. We are less enthusiastic about finding the cheapest banks per se but rather more interested in capturing the combination between fundamental progression -or quantamental trends- with valuation. Industrial Bank is focused on mainly corporate lending but also has a strong mortgage business. Given Leverage (Debt/Equity) and a more risky Funding Structure, revolving around wholesale markets and time deposits, though transaction accounts account for 41% of deposits, we see Industrial Bank as a more speculative opportunity in the Chinese Banking Space.

EXECUTIVE SUMMARYAccording to our model PH Score™, Industrial Bank commands above average value-quality characteristics.  The valuation variable within the model (as elsewhere in China) helps the Score but other variables are broadly benign. Adding technical factors and the low valuation, Industrial Bank ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. Elsewhere in China, recent bank data show subpar or mixed fundamental momentum and trends. This is not the case with Industrial Bank. However, it would be wrong to think that the bank was not affected by general systemic asset quality challenges.On a LTM basis, the bank's PH Score™ of 8.5 reflects progression in Profitability, in Efficiency, in Capital Adequacy, in NIM/Spread (impressive), in headline Asset Quality, as well as the valuation variable, though Liquidity, as measured by the rising LDR, eroded and the Provisioning metric utilised by the model softened somewhat.A FV of 9% and a PBV of 0.72x are not unattractive. These are below thresholds of 10% and 1x, respectively. An Earnings Yield of 17.0% and a Dividend Yield of 4.2% underpin the valuation thesis though China and the world have cheaper banks. We are less enthusiastic about finding the cheapest banks per se but rather more interested in capturing the combination between fundamental progression -or quantamental trends- with valuation. Industrial Bank is focused on mainly corporate lending but also has a strong mortgage business. Given Leverage (Debt/Equity) and a more risky Funding Structure, revolving around wholesale markets and time deposits, though transaction accounts account for 41% of deposits, we see Industrial Bank as a more speculative opportunity in the Chinese Banking Space.

Industrial Bank: Trends Are Better than Peers

Founder of Antler Capital

Stanley Tsai, CFA

Thematic (Sector/Industry)

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).
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<td style="width: 726.047px;">Exhibit 1: China Financials | Silver Linings Playbook</td>
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Source: Our analysis
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Related Insights
<a href="https://www.smartkarma.com/insights/china-macro-consumers-remain-on-the-sidelines-as-their-home-equity-grows" target="_blank" data-smartkarma-citation="insights:53210" rel="noopener">China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows</a> 
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<a href="https://www.smartkarma.com/insights/boc-aviation-2588-hk-the-stars-don-t-look-bigger-but-they-do-look-brighter" target="_blank" data-smartkarma-citation="insights:52283" rel="noopener">BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter</a>

In the spirit of the long-awaited UEFA Euro 2020, we present our inaugural "China Financials: Silver Linings Playbook", which summarizes our views on the names that are best positioned to navigate an environment of progressively slower credit growth, tighter liquidity and rising defaults. 
Our screen consists of 100+ stocks in the A/H share universe, as well as a select number of international / non-traditional names that have significant exposures to China's financial system. We have a preference for larger-cap and liquid names, which are then filtered by our opinions on their fundamentals, value, momentum and recent trading volumes. We also try to make our selections versatile and less vulnerable to single-factor movements.
Each player's position on the pitch and the team formation itself convey incremental information about our thoughts on the sector's performance over a three to six-month horizon. To the extent possible, we intend to update our ideas on a periodic basis. This provides a feedback loop with our other ongoing research on the industry.
However, our team selections are not investment recommendations. Instead, they are meant to give structure to our analysis. The playbook allows us to articulate our views on the sector in a timely, concise manner. Our objective is to ensure we don't throw the baby out with the bathwater as sentiments on the sector remain bleak.
With that out of the way, the following is our starting XI. We will dive deeper into our rationale for our selections in the remainder of this insight (Exhibit 1).



Exhibit 1: China Financials | Silver Linings Playbook





Source: Our analysis




Related Insights
China Macro: Consumers Remain on the Sidelines, as Their Home Equity Grows 
Glut and Famine: We Might See Snow in China This Summer 
China Macro: PPI Peaks, while CPI Eases Tightening Fears 
China Macro: Exports Disappoint, but It's Still Early in the Game 
Glut and Famine: China's Monetary Conditions a Notch Tighter in May 
ICBC: The Bond Identity | A Zero-Growth Dividend Discount Story 
BOC Aviation (2588 HK): The Stars Don't Look Bigger, but They Do Look Brighter

China Financials: Silver Linings Playbook

Bond market data and technology, BondEvalue

BondEvalue

Bond market data and technology

BondEvalue is a Singapore-based Fintech that specializes in bond market data and technology. The company's information services business offers bond market data on hard-currency corporate & sovereign bonds across Asia, Middle East, Europe and the Americas. The data, which includes bond prices, yields, news and analytics, is offered to end investors via interactive Mobile and Web Apps. Investors can sign up for a free trial of the service either via the company's website (https://bondevalue.com) or by downloading the BondEvalue Mobile App (http://onelink.to/wej7jq). BondEvalue is also developing an electronic bond exchange, BondbloX in Singapore that allows investors to trade bonds electronically in smaller sizes (US$1,000 or equivalent). For more information, visit https://www.bondblox.com/

Bond Market Data and Technology

Credit

US markets inched up ahead of the weekly unemployment report and May payrolls data. Both S&amp;P and Nasdaq were up 0.1%. The energy sector was up 1.7% followed by real estate, which was up 1.4%. US 10Y Treasury yields were tighter by 2bp at 1.59% and continued to trade in a tight range of 1.55-1.64%. European markets also moved up to near record highs with energy and consumer stocks leading. CAC closed higher by 0.5%, FTSE 0.4% and DAX 0.2%. US IG CDS spreads were flat and HY spreads were 1bp tighter. EU main spreads were 0.1bp tighter and crossover spreads tightened 1.4bp. Asian equities are off to a mixed start with Nikkei and Shanghai up 0.4%, and 0.1% and Hang Seng down 0.3% with Asia ex-Japan CDS spreads widening 0.2bp.

6 New $ Deals Incl. Industrial Bank; Macro; Rating Changes; New Issues; ; Talking Heads; Top Gain...

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

China Merchants Bank H / Equity Bottom-Up

*Good 1Q21 Bottom-Line: China Merchants Bank (3968.HK) [CMB] reported 1Q21 results of CNY 32.0 bn, increasing CNY 11.3 bn (54.4%) linked quarter. Results were driven by net interest income improvement; robust fee growth; and an operating expense reduction; and *Credit Wall Continues To Grow: Net new problem loans continue to accelerate at an Indian bank pace of CNY 18.9 bn or 138.5% on an annualized basis, accelerating form the 04.7% growth rate posted in 4Q20. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 184% - suggesting that even the mighty are falling.

*Good 1Q21 Bottom-Line: China Merchants Bank (3968.HK) [CMB] reported 1Q21 results of CNY 32.0 bn, increasing CNY 11.3 bn (54.4%) linked quarter. Results were driven by net interest income improvement; robust fee growth; and an operating expense reduction; and *Credit Wall Continues To Grow: Net new problem loans continue to accelerate at an Indian bank pace of CNY 18.9 bn or 138.5% on an annualized basis, accelerating form the 04.7% growth rate posted in 4Q20. Provided (and its not a stretch) that the net new NPL ratio trajectory holds, reserve cover of NPLs will drop to 184% - suggesting that even the mighty are falling. 

China Merchants Bank – Pig Still In Python

China

Industrial Bank Co.,Ltd. provides banking services. The Company offers deposits, loans, fund management, foreign currency management, and other services. Industrial Bank provides its services to individuals, enterprises, and other clients.

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Industrial Bank Co Ltd A (601166 CH)

StubWorld: PICC (1339 HK)'s All-Time Low Vs. PICC P&C (2328 HK)

The current NAV discount and implied stub are around all-time low levels. The market is assigning HK$27.4bn less for the stub ops year to date, and...

David Blennerhassett

Industrial Bank: Trends Are Better than Peers

Industrial Bank is reporting positive fundamental momentum. Given value-quality merits, the shares can outperform peers in the Chinese Banking Space.

Paul Hollingworth

China Financials: Silver Linings Playbook

Our Silver Linings Playbook outlines our views on the China financials names that are most likely to remain resilient in the face of macro...

Stanley Tsai, CFA

6 New $ Deals Incl. Industrial Bank; Macro; Rating Changes; New Issues; ; Talking Heads; Top Gain...

US markets inched up ahead of the weekly unemployment report and May payrolls data. Both S&P and Nasdaq were up 0.1%. The energy sector was up...

BondEvalue

China Merchants Bank – Pig Still In Python

CHINA MERCHANTS BANK: CMB reported a 1Q21 QOQ results increase of 54.4% driven by net interest income; fee growth; and lower expenses. Net new...

Thomas J. Monaco

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52-week Range

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