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

Postal Savings Bank of China C / Equity Bottom-Up

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

*Blowout 3Q21 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB], mainland China’s youngest large commercial bank, reported 3Q21 bottom-line results of CNY 23.5 bn – increasing CNY 3.7 bn (18.6%) linked quarter. Much of the improvement at PSB is due to credit leverage, as loss provisions declined CNY 9.3 bn (54.3%); and*Credit Quality Continues Its Positive Turn, But Reserves More Than Adequate: Net new NPLs did increase CNY 7.8 bn or 61.0% annualized versus CNY 14.9 bn or 116.6% at 2Q21. Despite the increase in net new NPLs, it would appear that PSB’s reserves would remain excessive to the tune of CNY 100 bn or about a year of pre-tax profits – begging the question of why not reverse loss reserves?

Postal Savings Bank of China – Reserve Reversals Expected

*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

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

*Loan Defaults and USD Bond Payments Set To Continue:  China Evergrande Group (3333.HK) [Evergrande] magically made an 11th hour interest payment of USD 83.5 mn to bondholders on Friday, October 22, 2021 – escaping default by the skin of its teeth, just as its 30-day grace period with bondholders was about to end. While the market is worried about a China Huarong Asset Management (2799.HK) default crippling the country’s USD credit market, they too should understand that any bond default by Evergande likely roils this market as well; and* Worrisome Comments By  PBOC Governor Yi: The mainland Chinese government rarely comments on a single entity, which is why Governor Yi’s thoughts are alarming. “First, we’re going to try to prevent contagion to other real estate companies. Second, we’ll prevent contagion to other parts of the financial sector.” This self-inflicted wound will require a tourniquet to stop the bleeding; expect non-D-SIFI bank and insurer failures in mainland China.

China Evergrande Group – China’s Wrecking Ball

*Quarter Highlighted By Weak Credit: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q21 results of CNY 11.7 bn – increasing CNY 4.1 bn (55.0%). Don’t shoot off the streamers just yet, credit quality was abysmal and Ping An is seemingly pulling on its bank lever to offset what looks to be another quarter self-inflicted harm  within its investment portfolio;  and *Credit Challenges: 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 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.

*Quarter Highlighted By Weak Credit: Ping An Bank (000001.CH) [PAB], the Ping An Insurance (2318.HK) [Ping An] banking subsidiary, reported 3Q21 results of CNY 11.7 bn – increasing CNY 4.1 bn (55.0%). Don’t shoot off the streamers just yet, credit quality was abysmal and Ping An is seemingly pulling on its bank lever to offset what looks to be another quarter self-inflicted harm  within its investment portfolio;  and *Credit Challenges: 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 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.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/fwd-group-holdings" target="_blank" data-smartkarma-citation="entities:34332:1" rel="noopener">FWD Group Holdings (FWD US)</a> is a Pan-Asia insurer founded in 2013 by Richard Li. FWD is seeking to raise $2 billion through an NYSE IPO and a valuation between $13 billion and $15 billion, according to press reports. In <a href="https://www.smartkarma.com/insights/fwd-group-ipo-forward-march" target="_blank" data-smartkarma-citation="insights:58263" rel="noopener">FWD Group IPO: Forward March</a>, we stated that in the long-term, FWD’s compelling customer propositions and multi-channel distribution across different geographies within Asia will likely support further market share gains. FWD notes that there remains significant potential for cross-selling and up-selling to its millennial customers (59% of organic new individual policyholders in 1H21) as they advance through different life stages and gain spending power. On balance, we concluded that FWD has sufficient headroom to continue to gain market share while improving profitability. <div class="content-highlight">A successful listing of FWD will provide investors with a new proxy for Asian insurance growth vs well-established names such as <a href="https://www.smartkarma.com/entities/aia-group-ltd" target="_blank" data-smartkarma-citation="entities:14895:1" rel="noopener">AIA Group Ltd (1299 HK)</a> and <a href="https://www.smartkarma.com/entities/prudential-plc-4b9124ab-0799-4543-abca-bac6f31da5b6" target="_blank" data-smartkarma-citation="entities:34048:1" rel="noopener">Prudential PLC (2378 HK)</a>. Prudential’s recent oversubscribed share offer which raised US$2.4 billion in Hong Kong will help grow its investor base in Hong Kong and increase the liquidity of its shares on the HKEx. In this context, there is increasing interest in drawing comparisons between FWD, AIA and Prudential. In this note, we compare the insurers’ actuarial assumptions and key metrics across FWD’s key regions.  </div>

FWD Group Holdings (FWD US) is a Pan-Asia insurer founded in 2013 by Richard Li. FWD is seeking to raise $2 billion through an NYSE IPO and a valuation between $13 billion and $15 billion, according to press reports. In FWD Group IPO: Forward March, we stated that in the long-term, FWD’s compelling customer propositions and multi-channel distribution across different geographies within Asia will likely support further market share gains. FWD notes that there remains significant potential for cross-selling and up-selling to its millennial customers (59% of organic new individual policyholders in 1H21) as they advance through different life stages and gain spending power. On balance, we concluded that FWD has sufficient headroom to continue to gain market share while improving profitability. A successful listing of FWD will provide investors with a new proxy for Asian insurance growth vs well-established names such as AIA Group Ltd (1299 HK) and Prudential PLC (2378 HK). Prudential’s recent oversubscribed share offer which raised US$2.4 billion in Hong Kong will help grow its investor base in Hong Kong and increase the liquidity of its shares on the HKEx. In this context, there is increasing interest in drawing comparisons between FWD, AIA and Prudential. In this note, we compare the insurers’ actuarial assumptions and key metrics across FWD’s key regions.  

China

Ping An Insurance (Group) Company of China Limited provides products and services through its five ecosystems in financial services, healthcare, auto services, real estate services and Smart City solutions. The Group's insurance business writes property, casualty, and life insurance products.

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Ping An Insurance Group of (601318 CH)

Postal Savings Bank of China – Reserve Reversals Expected

POSTAL SAVINGS BANK: PSB's QOQ 3Q21 increased 18.6%, due largely to credit leverage and net interest income improvement. PSB’s reserves appear...

Thomas J. Monaco

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

China Evergrande Group – China’s Wrecking Ball

EVERGRANDE: Evergrande magically made an interest payment to bondholders, escaping default by the skin of its teeth. This self-inflicted wound...

Thomas J. Monaco

Ping An Insurance – Breaking The Bank

PING AN: PAB reported 3Q21 QOQ growth of 55.0%. Credit quality was abysmal and Ping An is pulling on its bank lever to offset another quarter self...

Thomas J. Monaco

FWD Group Vs AIA Vs Prudential

FWD is seeking to raise $2 billion through an NYSE IPO. In this note, we compare FWD, AIA and Pru’s actuarial assumptions and key metrics across...

Arun George

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