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

*Fines: As previously discussed, State Administration for Market Regulations (SAMR) fined China Literature (772.HK), Tencent Holdings’ (700.HK) [Tencent] subsidiary CNY 500,000 for failing to gain certain acquisition or buyout approvals – thereby violating the country’s anti-monopoly laws. The fine was relatively small given the size of the acquisition despite regulators determining that those Tencent’s deals weren’t anti-competitive. Nevertheless, the fine should have served as a wake-up call to halt M&amp;A activity without the requisite regulatory sign off; and  *Financial Holding Company Structure: According to Bloomberg, Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in.

 *Fines: As previously discussed, State Administration for Market Regulations (SAMR) fined China Literature (772.HK), Tencent Holdings’ (700.HK) [Tencent] subsidiary CNY 500,000 for failing to gain certain acquisition or buyout approvals – thereby violating the country’s anti-monopoly laws. The fine was relatively small given the size of the acquisition despite regulators determining that those Tencent’s deals weren’t anti-competitive. Nevertheless, the fine should have served as a wake-up call to halt M&amp;A activity without the requisite regulatory sign off; and  *Financial Holding Company Structure: According to Bloomberg, Tencent likely will be required to create a financial holding company for all of its banking, insurance, and payment services businesses – and be regulated along the lines of the banking sector. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. 

*A Poor Set Of Results: AIA Group (1299.HK) (AIA) reported 4Q20 Value of New Business (VONB) of USD 2.8 bn -  down 33% YOY, and net profit of USD 5.8 bn – down 3% over the period. 4Q20 VONB amounted to USD 639 mn, down 31% YOY.  The VONB decline can be attributed largely to weaker volumes and margins caused by mainland China’s new withholding tax, expense overruns in Hong Kong, along with product/mix shifts resultant of pandemic restrictions; and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 66% YOY decline in VONB occurred as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.

*A Poor Set Of Results: AIA Group (1299.HK) (AIA) reported 4Q20 Value of New Business (VONB) of USD 2.8 bn -  down 33% YOY, and net profit of USD 5.8 bn – down 3% over the period. 4Q20 VONB amounted to USD 639 mn, down 31% YOY.  The VONB decline can be attributed largely to weaker volumes and margins caused by mainland China’s new withholding tax, expense overruns in Hong Kong, along with product/mix shifts resultant of pandemic restrictions; and *No Hong Kong Rebound In Sight: The focus should remain Hong Kong, where a 66% YOY decline in VONB occurred as its border with mainland China continued to remain closed due to COVID-19 restrictions. This should continue to weigh on results over the next few quarters as well.   

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

<div>Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.</div><div>Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.</div><div>
Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.
We have covered the positive aspects of the deal in our earlier insight, <a href="https://www.smartkarma.com/insights/linklogis-pre-ipo-the-positives-fast-growing-blockchain-driven-supply-chain-financier" target="_blank" rel="noopener">Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier</a>. In this insight, I'll cover the not so pleasant aspects of the deal.
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Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors include Tencent, GIC and Standard Chartered Bank.Linklogis’ cloud-native solutions optimize the payment cycle of supply chain transactions and digitalize the entire workflow of supply chain finance. As per CIC, Linklogis was the leader among technology solution providers in China in terms of supply chain finance transactions processed over 9M20, accounting for 20.5% market share.
Linklogis overall revenue grew by 83% YoY in FY19 and was up another 52% over 9M20. While its core function of Supply Chain finance has been registering strong growth of 64.4% YoY in FY19 and 53.8% in 9M20, revenue from its Emerging solutions was up nearly 6x in FY19 and grew by another 38% over 9M20.
We have covered the positive aspects of the deal in our earlier insight, Linklogis Pre-IPO - The Positives - Fast Growing Blockchain Driven Supply Chain Financier. In this insight, I'll cover the not so pleasant aspects of the deal.


Linklogis Pre-IPO - The Negatives - Inconsistent Growth and Margins, Well Funded Competitors

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Quantitative Analysis

A negative feedback loop of poor sentiment, managers selling down positions leading to big underperformance has caused allocations in China banks to more than halve over the past 2-years.  An exodus out of the four major state banks has occurred across GEM, Asia Ex-Japan and China managers as the narrative has focused on growth over value.  From an ownership perspective, there are signs that this is bottoming out.  Underweights are being closed, funds are moving back in and weights are moving higher.  Whilst inflows remain skewed towards the higher growth and premium valuation stocks of <a href="https://www.smartkarma.com/entities/ping-an-bank-co-ltd-a" target="_blank" data-smartkarma-citation="entities:681:1" rel="noopener">Ping An Bank Co Ltd A (000001 CH)</a> and <a href="https://www.smartkarma.com/entities/china-merchants-bank-co-ltd-3388a037-4214-4997-b45d-520518cfdb57" target="_blank" data-smartkarma-citation="entities:10987:1" rel="noopener">China Merchants Bank H (3968 HK)</a> , ownership levels have moderated in the big four state banks.Against a backdrop of huge underperformance and low ownership levels, the majority of the active managers in our analysis are still positioned underweight in the China banks.  If the growth over value narrative does change, China Banks are one of the places you want to be.Analysis taken from our China fund universe, covering 114 active strategies with combined AUM of $62bn.

A negative feedback loop of poor sentiment, managers selling down positions leading to big underperformance has caused allocations in China banks to more than halve over the past 2-years.  An exodus out of the four major state banks has occurred across GEM, Asia Ex-Japan and China managers as the narrative has focused on growth over value.  From an ownership perspective, there are signs that this is bottoming out.  Underweights are being closed, funds are moving back in and weights are moving higher.  Whilst inflows remain skewed towards the higher growth and premium valuation stocks of Ping An Bank Co Ltd A (000001 CH) and China Merchants Bank H (3968 HK) , ownership levels have moderated in the big four state banks.Against a backdrop of huge underperformance and low ownership levels, the majority of the active managers in our analysis are still positioned underweight in the China banks.  If the growth over value narrative does change, China Banks are one of the places you want to be.Analysis taken from our China fund universe, covering 114 active strategies with combined AUM of $62bn.

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

<a href="https://www.smartkarma.com/entities/ping-an-bank-co-ltd-a" target="_blank" data-smartkarma-citation="entities:681:1" rel="noopener">Ping An Bank Co Ltd A (000001 CH)</a>  is one of the more popular Chinese banks in GEM portfolios. The bank is dedicated mainly to consumer lending, including mortgages, and to a lesser extent the corporate segment, backed by time deposits (54%) and other sources of Funding. Ping An Bank is highly exposed to the property sector with 30% of credit related to mortgages and CRE.FY20/19 results show adverse fundamental momentum and trends with erosion in Profitability, in NIM, Asset Yield, and Spread, in Liquidity, in Provisioning, and in Capitalisation while Efficiency and Asset Quality trends displayed some improvement. “Core Income” showed firm expansion, especially in Fee and Commission Income streams, while robust Net Interest Income growth was underpinned by above-system credit growth. Comprehensive Income decreased by 9% YoY, weighed down more by asset writedowns from impairments on securities than by a reduced Loan Loss Provision.Asset Quality did progress across NPL “buckets” – the reason for a lower LLP- though we are mindful of the reduced Loan Loss Provision Coverage Ratio.<div class="content-highlight">
Ping AnBank shares command a premium rating. A FV of 18%, a PBV of 1.64x, an Earnings Yield of 5.0%, a Dividend Yield of 0.7%, and a Total Return Ratio of 0.3x, are not cheap.
Despite headline Asset Quality and Efficiency improvements, the bank clocks in with a low PH Score™ (3.4) in the bottom quartile globally. This may be a harsh Score for Ping An given that Capitalisation and Provisioning trends were in truth more nuanced. However, the premium rating calls for more.
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Ping An Bank Co Ltd A (000001 CH)  is one of the more popular Chinese banks in GEM portfolios. The bank is dedicated mainly to consumer lending, including mortgages, and to a lesser extent the corporate segment, backed by time deposits (54%) and other sources of Funding. Ping An Bank is highly exposed to the property sector with 30% of credit related to mortgages and CRE.FY20/19 results show adverse fundamental momentum and trends with erosion in Profitability, in NIM, Asset Yield, and Spread, in Liquidity, in Provisioning, and in Capitalisation while Efficiency and Asset Quality trends displayed some improvement. “Core Income” showed firm expansion, especially in Fee and Commission Income streams, while robust Net Interest Income growth was underpinned by above-system credit growth. Comprehensive Income decreased by 9% YoY, weighed down more by asset writedowns from impairments on securities than by a reduced Loan Loss Provision.Asset Quality did progress across NPL “buckets” – the reason for a lower LLP- though we are mindful of the reduced Loan Loss Provision Coverage Ratio.
Ping AnBank shares command a premium rating. A FV of 18%, a PBV of 1.64x, an Earnings Yield of 5.0%, a Dividend Yield of 0.7%, and a Total Return Ratio of 0.3x, are not cheap.
Despite headline Asset Quality and Efficiency improvements, the bank clocks in with a low PH Score™ (3.4) in the bottom quartile globally. This may be a harsh Score for Ping An given that Capitalisation and Provisioning trends were in truth more nuanced. However, the premium rating calls for more.


Ping An Bank: Premium Rating Not Justified by Trends

China

Ping An Bank Co Ltd provides a full range of commercial banking services including RMB and foreign currency deposit, loan, international and domestic settlement, discount, currency trading, letter of credit, bank guarantee, and other related services.

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Ping An Bank Co Ltd A (000001 CH)

Tencent Holdings – Shaking Its Tree

TENCENT HOLDINGS: Tencent and the FinTech's likely will now be required to create a financial holding company, which will likely rein-in WeChat Pay...

Thomas J. Monaco

AIA Group – Low Base Leverage

AIA GROUP: AIA posted a 4Q20 VONB decline of 33% YOY, largely due to weaker volumes and margins, expense overruns, and product/mix shifts due to...

Thomas J. Monaco

Linklogis Pre-IPO - The Negatives - Inconsistent Growth and Margins, Well Funded Competitors

Linklogis, a technology solution provider for supply chain finance in China, is aiming to raise around US$500m in its Hong Kong IPO. Its investors...

Sumeet Singh

China Banks: Bottoming Out

China and HK banks have seen a large scale exodus from active China investors over the past 2 years. Managers now find themselves underweight and...

Steven Holden

Ping An Bank: Premium Rating Not Justified by Trends

Ping An Bank is a popular GEM stock. For such a premium rating, we would like to see better fundamental momentum while the Loan Loss Provision...

Paul Hollingworth

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