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

*Weak Results in Investment and P&amp;C: Ping An Insurance (2318.HK) [Ping An] reported 3Q21 results of CNY 23.6 bn, declining CNY 7.1 bn (23.2%) linked quarter.  Much of the struggle this quarter remained Ping An’s investment portfolio – likely a long-term thematic, where the net investment yield plummet 30 bp to 4.4%. Excluding Ping An Bank (000001.CH) [PAB] whose results were completely managed, all other business units disappointed linked quarter; and*Concerns Increase At Bank And With Expansion Plans:  PAB reported 3Q21 results of CNY 11.7 bn. Don’t shoot off the streamers just yet, credit quality was abysmal and Ping An clearly pulled on its bank lever. By our analysis, we find that credit remains incredibly challenged as net new NPLs are now accelerating at Indian bank pace of CNY 12.4 bn or 159.8% annualized.  Assuming that the accelerated credit break in the PAB portfolio continues to remain at its current level, we find that PAB’s reserves remain CNY 19 bn light.

*Weak Results in Investment and P&amp;C: Ping An Insurance (2318.HK) [Ping An] reported 3Q21 results of CNY 23.6 bn, declining CNY 7.1 bn (23.2%) linked quarter.  Much of the struggle this quarter remained Ping An’s investment portfolio – likely a long-term thematic, where the net investment yield plummet 30 bp to 4.4%. Excluding Ping An Bank (000001.CH) [PAB] whose results were completely managed, all other business units disappointed linked quarter; and*Concerns Increase At Bank And With Expansion Plans:  PAB reported 3Q21 results of CNY 11.7 bn. Don’t shoot off the streamers just yet, credit quality was abysmal and Ping An clearly pulled on its bank lever. By our analysis, we find that credit remains incredibly challenged as net new NPLs are now accelerating at Indian bank pace of CNY 12.4 bn or 159.8% annualized.  Assuming that the accelerated credit break in the PAB portfolio continues to remain at its current level, we find that PAB’s reserves remain CNY 19 bn light.  

Ping An Insurance – Another Abysmal Result

*Bank Call Reveals Nothing: A competitor held a conference call with Ping An Bank (000001.CH) [PAB]. According to management, the market has over-reacted to risks associated with China Evergrande Group (3333.HK) [Evergrande] and certain other developers. Further, PAB believes that policymakers in Beijing are likely to maintain stable growth within the property sector and coordinate the completion of housing projects – and this “should contain” any spillover effect;  *What Wasn’t Addressed: The Group has real estate-related exposure which represents 24.3% of Ping An Insurance’ (2318.HK) [Ping An] stated equity – more so depending which insurance subsidiary (likely Ping An Life [PAL] given the shortfall in 1H21 earnings) this risk is attributed to. There was no mention of Ping An remaining a source of strength to PAB given the PAL stress, nor if PAB participates in real estate financings led by Ping An - normal practice for conglomerates in mainland China; and  *Negative Credit Delta Could Accelerate Capital Raise: By our analysis, we find that PAB credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized at 2Q21 - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at the current level, we find that PAB’s reserves still remain quite light by CNY 16 bn - representing about two quarters of pre-tax earnings.

*Bank Call Reveals Nothing: A competitor held a conference call with Ping An Bank (000001.CH) [PAB]. According to management, the market has over-reacted to risks associated with China Evergrande Group (3333.HK) [Evergrande] and certain other developers. Further, PAB believes that policymakers in Beijing are likely to maintain stable growth within the property sector and coordinate the completion of housing projects – and this “should contain” any spillover effect;  *What Wasn’t Addressed: The Group has real estate-related exposure which represents 24.3% of Ping An Insurance’ (2318.HK) [Ping An] stated equity – more so depending which insurance subsidiary (likely Ping An Life [PAL] given the shortfall in 1H21 earnings) this risk is attributed to. There was no mention of Ping An remaining a source of strength to PAB given the PAL stress, nor if PAB participates in real estate financings led by Ping An - normal practice for conglomerates in mainland China; and  *Negative Credit Delta Could Accelerate Capital Raise: By our analysis, we find that PAB credit remains incredibly challenged as net new NPLs have accelerated 102.2% annualized at 2Q21 - up from 53.6% in 1Q21. Assuming the accelerated credit break in the PAB portfolio continues to remain at the current level, we find that PAB’s reserves still remain quite light by CNY 16 bn - representing about two quarters of pre-tax earnings.   

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

After Ant Financials' IPO was pulled in November 2020, market participants eventually came to terms with the potential repercussions on the fintech industry.  The initial concerns of anti-monopoly, systemic risks, and data protection have since become familiar topics. 
Amongst listed fintech companies, <a href="https://www.smartkarma.com/entities/lufax-holdings" target="_blank" data-smartkarma-citation="entities:29690:1" rel="noopener">Lufax Holdings (LU US)</a> bore the brunt of the regulatory crackdown on the fintech sector, losing more than half its market capitalisation since the mid February 2021 peak. Lufax currently trades at a forward EV/EBITDA of 4.2x and P/B of 1.3x.
While Lufax initially distanced itself from Ant (drawing attention to its loan facilitation model instead of Ant's co-lending model) and the harsh rules that Ant was subject to, it soon became apparent that Lufax's loan facilitation model would not be spared.
Lufax started a series of self-policing efforts, citing ongoing dialogue with regulators, while searching for alternative models to maintain loan book growth and net margins. 
The narrative has gradually since switched to negatives being discounted to Lufax's share price, renewed optimism of business reform efforts, and that Lufax has turned the tide. 
This article discussed potential risks that remain and how recent new regulations imposed on Ant would (once again) have a ripple effect on fintech players, like Lufax.

After Ant Financials' IPO was pulled in November 2020, market participants eventually came to terms with the potential repercussions on the fintech industry.  The initial concerns of anti-monopoly, systemic risks, and data protection have since become familiar topics. 
Amongst listed fintech companies, Lufax Holdings (LU US) bore the brunt of the regulatory crackdown on the fintech sector, losing more than half its market capitalisation since the mid February 2021 peak. Lufax currently trades at a forward EV/EBITDA of 4.2x and P/B of 1.3x.
While Lufax initially distanced itself from Ant (drawing attention to its loan facilitation model instead of Ant's co-lending model) and the harsh rules that Ant was subject to, it soon became apparent that Lufax's loan facilitation model would not be spared.
Lufax started a series of self-policing efforts, citing ongoing dialogue with regulators, while searching for alternative models to maintain loan book growth and net margins. 
The narrative has gradually since switched to negatives being discounted to Lufax's share price, renewed optimism of business reform efforts, and that Lufax has turned the tide. 
This article discussed potential risks that remain and how recent new regulations imposed on Ant would (once again) have a ripple effect on fintech players, like Lufax. 

Lufax (LU) - Not Yet a Turnaround Story Despite Sharp De-Rating

Alpha-Centric ESG Research

Kyle Rudden

Well, that sure escalated quickly.Early last week, in the Insight <a href="https://www.smartkarma.com/insights/pre-ipo-esg-analysis-didi-s-exemplary-esg-achievements-eclipsed-by-regulatory-risks-and-uncertainty" target="_blank" data-smartkarma-citation="insights:53687" rel="noopener">Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty</a>, I juxtaposed <a href="https://www.smartkarma.com/entities/didi-chuxing-inc" target="_blank" data-smartkarma-citation="entities:27467:1" rel="noopener">DiDi's (DIDI US)</a> relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

Well, that sure escalated quickly.Early last week, in the Insight Pre-IPO ESG Analysis: DiDi's Exemplary ESG Achievements Eclipsed By Regulatory Risks and Uncertainty, I juxtaposed DiDi's (DIDI US) relatively strong ESG results in areas under its control with serious concerns about regulatory risk outside of its direct control.Late last week, days after DiDi's successful US$4.4 billion initial public offering, Chinese regulators ordered the removal of DiDi's business-critical ride-hailing apps from online app markets, until the company rectifies "serious violations" pertaining to collection and use of customer data.DiDi is down 5.3% so far (delayed open today).Regulatory risk was central to my thesis in the first Insight. I hardly anticipated this, but I referred to regulatory risk as real, near-term, tangible investment risk; not just some fuzzy ESG risk. Given that, I felt obliged to follow up. At the same time, however, this news is covered ad nauseam.No sense in beating a dead horse with a broken record.So, I decided to do something different. That statement about regulatory risk being a real tangible investment risk is primarily based on anecdotal evidence – i.e., when regulators flex their muscle, stocks go down, not up. But "anecdotal" isn't good enough.Which is why I took this opportunity to quantify the impacts of adverse regulatory events in China. Specifically, with event studies measuring abnormal returns around major regulatory events across four broad categories. That's what most of this Insight is about. But back to DiDi for a moment.Regulatory risk and uncertainty for DiDi is much worse today than it was last week. Typically, the opposite would be true; a negative event out in the open is better than a possible event lurking in the shadows. But not this time. Barring an immediate change of heart by the PRC, this is bad.Therefore, downgrading to bearish.

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

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

Full Truck Alliance   / Equity Capital Markets

<div><a href="https://www.smartkarma.com/entities/full-truck-alliance" target="_blank" data-smartkarma-citation="entities:33429:1" rel="noopener">Full Truck Alliance (YMM US)</a> (FTA),  China’s largest digital freight platform by gross transaction value, raised around US$1.6bn via a US listing. It is backed by Softbank and Sequoia.</div><div>
In our earlier notes, we spoke about various aspects of the deal in our earlier notes:<a href="https://www.smartkarma.com/insights/full-truck-alliance-pre-ipo-the-positives-category-leader" target="_blank" rel="noopener"></a>
<ul>
<li><a href="https://www.smartkarma.com/insights/full-truck-alliance-pre-ipo-the-positives-category-leader" target="_blank" rel="noopener">Full Truck Alliance Pre-IPO - The Positives - Category Leader, </a></li>
<li><a href="https://www.smartkarma.com/insights/full-truck-alliance-pre-ipo-the-negatives-still-a-mixed-bag" target="_blank" rel="noopener">Full Truck Alliance Pre-IPO - The Negatives - Still a Mixed Bag,</a></li>
<li><a href="https://www.smartkarma.com/insights/full-truck-alliance-pre-ipo-valuation-even-the-previous-round-might-have-been-a-stretch" target="_blank" rel="noopener">Full Truck Alliance Pre-IPO - Valuation, Even the Previous Round Might Have Been a Stretch, and</a></li>
<li><a href="https://www.smartkarma.com/insights/full-truck-alliance-ipo-decent-investor-line-up-at-best-a-punt-at-these-valuations" target="_blank" rel="noopener">Full Truck Alliance IPO - Decent Investor Line-Up, at Best a Punt at These Valuations</a></li>
</ul>
In this note, we will talk about the trading dynamics.
</div>

Full Truck Alliance (YMM US) (FTA),  China’s largest digital freight platform by gross transaction value, raised around US$1.6bn via a US listing. It is backed by Softbank and Sequoia.
In our earlier notes, we spoke about various aspects of the deal in our earlier notes:

Full Truck Alliance Pre-IPO - The Positives - Category Leader, 
Full Truck Alliance Pre-IPO - The Negatives - Still a Mixed Bag,
Full Truck Alliance Pre-IPO - Valuation, Even the Previous Round Might Have Been a Stretch, and
Full Truck Alliance IPO - Decent Investor Line-Up, at Best a Punt at These Valuations

In this note, we will talk about the trading dynamics.


Full Truck Alliance IPO Trading - Have to Do a Bull Case to Find Some Upside

China

Xi'An Hongsheng Technology Co ltd distributes, designs and develops memory, home entertainment and personal computer products. The Company's products include RAM (Random Access Memory) products, DVD (Digital Versatile Disc) players, televisions, as well as personal computers and peripheral products.

Yixin Group Limited offers an online automobile finance transaction platform. The Company provides loan facilitation, car rental, and other services. Yixin Group operates in China.

Shanghai Dongzheng Automotive Finance Co., Ltd. offers auto finance products and services for the purchase of luxury brand cars. The Company provides automotive retail loan, automotive dealer loan, and other services. Shanghai Dongzheng Automotive Finance serves customers in China.

LexinFintech Holdings Ltd. operates as a holding company. The Company, through its subsidiaries, provides online consumer finance services. LexinFintech Holdings offers installments, money loans, wealth management, and other financial services. LexinFintech Holdings serves customers in China.

China Huirong Financial Holdings Limited is a short-term secured financing service provider. The Company specializes in providing short-term loans secured by collateral, or "pawn loans", to customers.

China Huirong Financial Holdings (1290 HK)

Guangdong Join-Share Financing Guarantee Investment is a financing guarantee services provider in Guangdong province. The Company focuses on providing credit-base financing solutions to SMEs.

X Financial provides financial services. The Company offers personal finance, loans, and other related services. X Financial serves customers in China.

Zuoli Kechuang Micro-Finance Company Limited focuses on providing credit-based financing solutions to Deqing's fast-growing SME and microenterprise sector.

Quanzhou Huixin Micro-Credit Co., Ltd. offers micro lending and other related financial services to individuals and small business throughout China.

Yangzhou Guangling District Taihe Rural Micro-finance Company Limited offers financial services. The Company provides loans issuing, financing guarantee, financial institutions business agency, and other businesses. Yangzhou Guangling District Taihe Rural Micro-finance serves small and medium enterprises, individual businesses, and other groups in Yangzhou.

Yangzhou Guangling District Taihe Rural Micro-Finance (1915 HK)

Yangzhou Guangling District Taihe Rural Micro-Finance

AEON Financial Service Co Ltd is a credit card company.  The Company's financial services include loans, credit cards, and customer installment credits.

Manappuram Finance Ltd. is a non-banking finance company. The Company offers loans against gold collateral, business loans, vehicle loans, foreign exchange and money transfer services; and sells gold coins.

Enova International, Inc. offers online financial services to people who have bank accounts but have limited access to traditional consumer credit from banks, thrifts, credit card companies and other lenders. The Company offers short-term consumer and installment consumer loans in the United States, the United Kingdom, Australia, and Canada.

Navient Corporation's focus is in education loan portfolio management, servicing and asset recovery. The Company acts as a servicer for Department of Education and FFELP loans as well as private student loans.

Kruk SA as founded in 1998 and offers debt collection services in Poland, Romania, Czech Republic and Slovakia. The Company's two main business lines are: acquisition of non-performing debt portfolios and debt collection outsourcing with a main focus on consumer and corporate loans.

Muangthai Capital Public Company Limited operates as a commercial lending company. The Company provides car title, personal, agricultural vehicle, land title, and other loan products. Muangthai Capital serves customers in Thailand.

Srisawad Corporation Public Company Limited operates as a consumer finance company. The Company provides personal secured loans, home loans, loans for international labors, and other related financial products. Srisawad offers its products and services to retail clients in Thailand.

Taiwan Acceptance Corp. provides car financing and leasing services.

Bread Financial Holdings Inc. operates as a tech-forward financial services company. The Company offers personalized payment, lending, and saving solutions. Bread Financial Holdings serves customers worldwide.

Cembra Money Bank AG provides financial services. The Company's services include personal loans, vehicle financing, credit cards, and savings and insurance services. Cembra Money Bank AG provides its services throughout Switzerland.

Lufax Holding Ltd operates technology-empowered personal financial services platform. The Company connects financial institutions to facilitate lending and wealth management products tailored to individual customer's needs and risk appetites.

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Lufax Holding (LU US)

Ping An Insurance – Another Abysmal Result

PING AN: Ping An reported a QOQ 3Q21 results decline of 23.2%, attributed to its investment portfolio. Excluding PAB, whose results were managed,...

Thomas J. Monaco

Ping An Insurance – Don’t Bank On It

PING AN: Competitor conference call with PAB reveals nonchalant management. The Group has enormous real estate-related exposure, and questions of...

Thomas J. Monaco

Lufax (LU) - Not Yet a Turnaround Story Despite Sharp De-Rating

Among listed fintech firms, Lufax bore the brunt of the regulatory crackdown on the sector, losing more than half its market capitalisation. This...

Jason Yap, CFA

PRC Shows DiDi Who's Boss: An Analysis of Adverse Regulatory Events on Stock Prices

Last week, I wrote about DiDi's regulatory risk. This week, it's worse. Hence the downgrade. But this is mostly an analysis of how regulatory...

Kyle Rudden

Full Truck Alliance IPO Trading - Have to Do a Bull Case to Find Some Upside

Full Truck Alliance (YMM US) (FTA), China’s largest digital freight platform by gross transaction value, raised around US$1.6bn via a US listing....

Sumeet Singh

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