Financials & FinTech research, Galliano’s Financials Research

Victor Galliano

Financials & FinTech research

Financials & FinTech, EM & Developed Markets

Galliano’s Financials Research

Galliano's Financials Research provides fundamental research in Emerging Markets financials, including FinTech, as well as financials in select Developed Markets.

The investment style applied is generally value oriented, although Growth At Reasonable Price (GARP) strategies can also be used where appropriate. 

Our investment research approach aim is often contrarian, looking to capitalise on overly sceptical or optimistic consensus views. In terms of valuation techniques, the focus is on PBV ratio to ROE, PE multiples and dividend yield, as well as the application of PEG ratios and, where appropriate, Sum of the Parts (SOTP) valuations.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> is restructuring its business holdings, with at its core the setting up of a financial holding company</li>
<li>In addition, Ant will return to its roots in the payments division, it will set up a personal credit reporting company as well as establishing a consumer finance company</li>
<li>The official press release does not mention the investmentech arm that includes Ant’s in-house asset manager, but there is financial press speculation that it may be required to shrink its asset base</li>
<li>In essence, the new structure and more intrusive regulation will limit Ant’s ability to extract synergies from its – previously – tight knit financial eco-system, which can only hurt its potential develop further economies of scale and deliver premium revenue and earnings growth</li>
<li>It is also likely that in its consumer credit business it will need to retain a higher proportion of loans originated, thereby necessitating higher capital levels; the personal credit reporting company will also provide PBoC with access to Ant’s “big data” on payments, credit and other financial products</li>
<li>Despite the need for further clarity on the regulatory structure going forward, as well as the lack of any updated Ant financials to December 2020, we have arrived at a revised valuation range for Ant, based on our pre-money SOTP, of USD122-144bn</li>
<li>The regulator’s focus on big FinTech in China and especially Ant is constructive for the prospects of other less dominant non-bank financial companies (NBFCs) in China, such as <a href="https://www.smartkarma.com/entities/lexinfintech-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26036:1" rel="noopener">Lexinfintech Holdings (LX US)</a> and <a href="https://www.smartkarma.com/entities/lufax-holdings" target="_blank" data-smartkarma-citation="entities:29690:1" rel="noopener">Lufax Holdings (LU US)</a>, as well as retail focused banks like <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a> </li>
<li>Risks to our cautious view on Ant include an ability for management to navigate the climate of tighter regulatory constraints and to deliver better than expected premium growth and returns from its digital financial platform</li>
</ul>



Ant Financial Services Group (6688 HK) is restructuring its business holdings, with at its core the setting up of a financial holding company
In addition, Ant will return to its roots in the payments division, it will set up a personal credit reporting company as well as establishing a consumer finance company
The official press release does not mention the investmentech arm that includes Ant’s in-house asset manager, but there is financial press speculation that it may be required to shrink its asset base
In essence, the new structure and more intrusive regulation will limit Ant’s ability to extract synergies from its – previously – tight knit financial eco-system, which can only hurt its potential develop further economies of scale and deliver premium revenue and earnings growth
It is also likely that in its consumer credit business it will need to retain a higher proportion of loans originated, thereby necessitating higher capital levels; the personal credit reporting company will also provide PBoC with access to Ant’s “big data” on payments, credit and other financial products
Despite the need for further clarity on the regulatory structure going forward, as well as the lack of any updated Ant financials to December 2020, we have arrived at a revised valuation range for Ant, based on our pre-money SOTP, of USD122-144bn
The regulator’s focus on big FinTech in China and especially Ant is constructive for the prospects of other less dominant non-bank financial companies (NBFCs) in China, such as Lexinfintech Holdings (LX US) and Lufax Holdings (LU US), as well as retail focused banks like Postal Savings Bank of China (1658 HK) 
Risks to our cautious view on Ant include an ability for management to navigate the climate of tighter regulatory constraints and to deliver better than expected premium growth and returns from its digital financial platform


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

Bank Of Ningbo Co Ltd A / Equity Bottom-Up

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.  

Postal Savings Bank of China C / Equity Bottom-Up

<ul>
<li>We screen the 4Q20 results for credit quality and value of thirty five GEM banks</li>
<li>We add a new screen showing tangible book value per share growth from 2016 to 2020, and compare this to 2020 PTBV ratio</li>
<li>Specifically we identify six banks that screen well on these combined factors; <a href="https://www.smartkarma.com/entities/grupo-financiero-banorte-o" target="_blank" data-smartkarma-citation="entities:24780:1" rel="noopener">Grupo Financiero Banorte-O (GFNORTEO MF)</a>, <a href="https://www.smartkarma.com/entities/credicorp-ltd" target="_blank" data-smartkarma-citation="entities:25963:1" rel="noopener">Credicorp Ltd (BAP US)</a>, <a href="https://www.smartkarma.com/entities/banco-do-brasil-sa" target="_blank" data-smartkarma-citation="entities:24564:1" rel="noopener">Banco Do Brasil Sa (BBAS3 BZ)</a>, <a href="https://www.smartkarma.com/entities/hana-financial-group" target="_blank" data-smartkarma-citation="entities:12843:1" rel="noopener">Hana Financial (086790 KS)</a>, <a href="https://www.smartkarma.com/entities/postal-savings-bank-of-china" target="_blank" data-smartkarma-citation="entities:22848:1" rel="noopener">Postal Savings Bank of China (1658 HK)</a> and – in the higher risk category – <a href="https://www.smartkarma.com/entities/commercial-international-bank" target="_blank" data-smartkarma-citation="entities:27625:1" rel="noopener">Commercial International Bank (COMI EY)</a> of Egypt</li>
<li>A name to watch, albeit a higher risk GEM bank on attractive valuations, is <a href="https://www.smartkarma.com/entities/turkiye-garanti-bankasi-as" target="_blank" data-smartkarma-citation="entities:25026:1" rel="noopener">Turkiye Garanti Bankasi As (GARAN TI)</a> in Turkey; nevertheless, the unpredictable Erdogan factor still calls for near term caution</li>
<li>Private sector Indian banks trade on demanding valuations, in our view; public sector bank SBI is the deep value, but relatively high risk, name in India with its relatively low NPL coverage levels</li>
<li>Risks to our positive view on these six GEM banks generally include increased political and geo-political tensions, as well as a weaker than expected GDP growth recovery leading to worsen than expected credit quality  and weak loan growth</li>
</ul>


We screen the 4Q20 results for credit quality and value of thirty five GEM banks
We add a new screen showing tangible book value per share growth from 2016 to 2020, and compare this to 2020 PTBV ratio
Specifically we identify six banks that screen well on these combined factors; Grupo Financiero Banorte-O (GFNORTEO MF), Credicorp Ltd (BAP US), Banco Do Brasil Sa (BBAS3 BZ), Hana Financial (086790 KS), Postal Savings Bank of China (1658 HK) and – in the higher risk category – Commercial International Bank (COMI EY) of Egypt
A name to watch, albeit a higher risk GEM bank on attractive valuations, is Turkiye Garanti Bankasi As (GARAN TI) in Turkey; nevertheless, the unpredictable Erdogan factor still calls for near term caution
Private sector Indian banks trade on demanding valuations, in our view; public sector bank SBI is the deep value, but relatively high risk, name in India with its relatively low NPL coverage levels
Risks to our positive view on these six GEM banks generally include increased political and geo-political tensions, as well as a weaker than expected GDP growth recovery leading to worsen than expected credit quality  and weak loan growth


Thematic (Sector/Industry)

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

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.

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves.

If one presumes the backdrop is improving, than de-risking would not be the best path during FY20. This large China bank not only shows some of the most robust credit growth, but also robust growth in loan loss reserves. 

Postal Savings Bank of China – Growing Into Recovery

China

Postal Savings Bank of China Co., Ltd. provides banking services. The Company offers deposits, loans, fund settlement, and other services. Postal Savings Bank of China provides its services to individuals, enterprises, and other clients.

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Postal Savings Bank of China C (1658 HK)

Ant Group: Nearing Regulatory Closure

Ant Group is restructuring its operations, under PBoC pressure which will limit Ant’s ability to extract synergies from its entire financial...

Victor Galliano

Bank of Ningbo – A Good Result

BANK OF NINGBO: 4Q20 bottom-line increased 8.8% linked quarter driven by revenue improvement, a drop in loss provisioning, and a lower tax rate....

Thomas J. Monaco

GEM Bank Screens; 4Q20, The Final Cut

We pick 6 GEM banks - Banorte, Credicorp, Banco do Brasil, Hana Financial, Postal Savings Bank of China & Commercial International Bank of Egypt -...

Victor Galliano

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

Postal Savings Bank of China – Growing Into Recovery

If the backdrop is improving, than de-risking is not the way to go. This large China bank not only shows some of the most robust credit growth, but...

Daniel Tabbush

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