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

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results.

*Improving NIMs and Credit:CIMB Group (CIMB.MK) [CIMB] reported 1Q21 results of MYR 2.5 bn, increasing MYR 2.2 bn (10.6x) linked quarter. Excluding the one time gain of MYR 1.2 bn, CIMB’s core operatimg result came in at MYR 1.3 bn – increasing MYR 1.1 bn or 5.1x over the same period. 1Q21 results were driven by several factors: 1) net interest income improvement of MYR 169 mn (4.9%) which was driven by NIM ex-ansion of 15 bp and modest loan growth of MYR 718 mn or 0.2%; and 2) a MYR 1.5 bn (66.5%) decline in loss provisions tracking credit quality improvement in both Malaysia and Singapore; and 
*Credit Risk Decelerating: With NCOs of MYR 1.9 bn or at 1.60% annualized of total loans (decelerating from the MYR 1.9 bn posted in 4Q20), we find that net new NPLs increased only MYR 756 mn or 23.0% on an annualized basis – quite the decline from the MYR 2.6 bn or a whopping 83.5% on an annualized basis posted in 4Q20. We believe that reserves are too light by MYR 2.6 bn– which is nearly two quarters of core operating results. 

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

0.9x P/B. That's the only number that matters here.
Yue Xiu (the investment arm of the Guangzhou municipal government) has made an Offer, by way of a Scheme, for <a href="https://www.smartkarma.com/entities/chong-hing-bank-ltd" target="_blank" data-smartkarma-citation="entities:344:1" rel="noopener">Chong Hing Bank (1111 HK)</a> shares not owned, at HK$20.80/share, a 51.2% premium to last close, and a 97% premium to the day preceding the last trading day.
The Cancellation Price, which is a 10.1% discount to the NAV, will NOT be increased.
Standard Scheme conditions apply. Chong Hing is Hong Kong-incorporated, therefore there is no headcount test.
Despite the impressive premium, the P/B multiple is less than half the average P/B multiple for Hong Kong banks over the past twenty years, and less than half the most recent takeover multiple of Wing Hang Bank, which was taken out by <a href="https://www.smartkarma.com/entities/oversea-chinese-banking-corp" target="_blank" data-smartkarma-citation="entities:114:1" rel="noopener">OCBC (OCBC SP)</a> in 2014 at 1.81x P/B in a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2014/0629/ltn20140629025.pdf" target="_blank" rel="noopener">US$4.9bn deal</a>.
More below the fold.

0.9x P/B. That's the only number that matters here.
Yue Xiu (the investment arm of the Guangzhou municipal government) has made an Offer, by way of a Scheme, for Chong Hing Bank (1111 HK) shares not owned, at HK$20.80/share, a 51.2% premium to last close, and a 97% premium to the day preceding the last trading day.
The Cancellation Price, which is a 10.1% discount to the NAV, will NOT be increased.
Standard Scheme conditions apply. Chong Hing is Hong Kong-incorporated, therefore there is no headcount test.
Despite the impressive premium, the P/B multiple is less than half the average P/B multiple for Hong Kong banks over the past twenty years, and less than half the most recent takeover multiple of Wing Hang Bank, which was taken out by OCBC (OCBC SP) in 2014 at 1.81x P/B in a US$4.9bn deal.
More below the fold.

Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

We believe there is more positive loan migration risk at DBS than peers, and that it is far worse at UOB. The implications are for lower credit costs at DBS than peers, a better negative delta, something that appears to be playing out in 1Q21.

We believe there is more positive loan migration risk at DBS than peers, and that it is far worse at UOB. The implications are for lower credit costs at DBS than peers, a better negative delta, something that appears to be playing out in 1Q21.

*Good Number:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 1Q21 net profit of SGD 1.5 bn, a SGD 271 mn (24.0%) increase on a linked quarter basis. OCBC’s bottom-line improvement was primarily attributable to two factors: SGD 125 mn (43.7%) reduction in the loss provision, which may actually be justified given the deceleration in net new NPL growth; and a SGD 274 mn (139.8%) increase in attributable Great Eastern (GE.SP) earnings, much of which came from unrepeatable non-operating gains;*Credit Improving In Reality: We remain optimistic. By our calculation, we find that net new NPL growth while reversing course from being a negative SGD 78 mn or 8.0% on an annualized basis in 4Q20 only increased SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low. We continue to 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 One-Off: Great Eastern reported bottom-line results of SGD 438 mn, an increase over the SGD 341m reported at 4Q20 due to SGD 241 mn of non-recurring gains. The NBEV margin was stronger at 47.5% versus 45.3% in 4Q20.

*Good Number:  Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] reported 1Q21 net profit of SGD 1.5 bn, a SGD 271 mn (24.0%) increase on a linked quarter basis. OCBC’s bottom-line improvement was primarily attributable to two factors: SGD 125 mn (43.7%) reduction in the loss provision, which may actually be justified given the deceleration in net new NPL growth; and a SGD 274 mn (139.8%) increase in attributable Great Eastern (GE.SP) earnings, much of which came from unrepeatable non-operating gains;*Credit Improving In Reality: We remain optimistic. By our calculation, we find that net new NPL growth while reversing course from being a negative SGD 78 mn or 8.0% on an annualized basis in 4Q20 only increased SGD 40 mn or 3.6% on an annualized basis for 1Q21 – which remains incredibly low. We continue to 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 One-Off: Great Eastern reported bottom-line results of SGD 438 mn, an increase over the SGD 341m reported at 4Q20 due to SGD 241 mn of non-recurring gains. The NBEV margin was stronger at 47.5% versus 45.3% in 4Q20. 

Oversea Chinese Banking Corp. – The Credit Turn Is Official

Singapore

Oversea-Chinese Banking Corporation Limited offers a comprehensive range of financial services.  The Company's services include deposit-taking, corporate, enterprise and personal lending, international trade financing, investment banking, private banking, treasury, stockbroking, insurance, credit cards, cash management, asset management and other financial and related services.

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OCBC (OCBC SP)

CIMB Group – A Positive Turn

CIMB GROUP: CIMB core results improved 5.1x linked quarter, driven by NIM expansion, loan growth, and decline in loss provisions. Loss reserves are...

Thomas J. Monaco

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Asia’s Tier 2 notes slightly outperformed AT1 in May. Shorter-duration bonds outperformed although there was greater differentiation in longer...

Hank Calenti, CFA

Chong Hing Bank (1111 HK): Yue Xiu's Offer Is Light

I think this is being done too cheaply. Yet, no other suitor will emerge. Ultimately, this is where long-suffering shareholders cash out. Assuming...

David Blennerhassett

Singapore Banks – Loan Migration

We believe the positive loan migration risk is at DBS and the least positive is at UOB. The implications are for lower credit costs at DBS than...

Daniel Tabbush

Oversea Chinese Banking Corp. – The Credit Turn Is Official

OVERSEA CHINESE BANKING: OCBC reported 1Q21 QOQ net profit growth of 24.0% driven by a provision reduction and one-time gain at Great Eastern. We...

Thomas J. Monaco

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