ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

<ul>
<li>The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.</li>
<li>The past week has seen Insights on <a href="https://www.smartkarma.com/entities/grab-holdings-inc" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (GRAB US)</a>, <a href="https://www.smartkarma.com/entities/sumber-alfaria-trijaya-tbk-pt" target="_blank" data-smartkarma-citation="entities:15659:1" rel="noopener">Sumber Alfaria Trijaya (AMRT IJ)</a>, <a href="https://www.smartkarma.com/entities/semen-indonesia-persero-tbk" target="_blank" data-smartkarma-citation="entities:11161:1" rel="noopener">Semen Indonesia (Gresik) (SMGR IJ)</a>, and the <a href="https://www.smartkarma.com/entities/mapletree-commercial-trust" target="_blank" data-smartkarma-citation="entities:106:1" rel="noopener">Mapletree Commercial Trust (MCT SP)</a> deal.</li>
<li>We also explored online groceries in South-East Asia as we see increasing interest in the space plus <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> also lays out his top picks for 2022 performance.</li>
</ul>


The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity bottom-up, from across South East Asia.
The past week has seen Insights on Grab (GRAB US), Sumber Alfaria Trijaya (AMRT IJ), Semen Indonesia (Gresik) (SMGR IJ), and the Mapletree Commercial Trust (MCT SP) deal.
We also explored online groceries in South-East Asia as we see increasing interest in the space plus Nicolas Van Broekhoven also lays out his top picks for 2022 performance.


The Week That Was in ASEAN@Smartkarma - Grab Expands, Alfamart, and Mapletree Mega-Merger

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 Numerics: Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and*Credit Risk Remains Elevated: We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.

*Weak Numerics: Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and*Credit Risk Remains Elevated: We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

<div>In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.</div><div>These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.</div><div>
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.
</div>

In this Insight, we look at Asian financial pairs that normally trade in a tight band versus each other and are now trading at levels that are close to an extreme, making it likely that there could be a short term reversal. We also recap our earlier ideas and recommend exiting a position where there are gains and the price ratio is near a turning point.These are all large cap financials that trade in excess of US$20m a day, so implementing the strategy should be possible using stock borrow or single stock futures.
These ideas are based purely off the stock price history and we recommend investors use a fundamental overlay to determine if the price action is reflective of changes in the sector that benefit one company at the expense of the other, or benefit one company more than the other.
Over the last couple of months, our pair trades have returned 2.54% on average.


Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary:  Rapidly rising interest rates present a challenge for credit to generate positive total returns. Unfortunately, the upward sloping sawtooth pattern of rising US interest rates ended the month on an upswing. Credit spreads needed to compress by as much to generate positive total returns. Only a small handful of Asia’s US$-denominated bank bonds (x-Japan) managed to generate positive total returns during the month of March. This was concentrated in a select sweet spot.Long duration, low investment grade rated, and high BB rated bonds led tightening over the month. Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in March, as in February. One differentiating factor between March and February is the concentration amongst Thai- and South Korean-headquartered banks during March; however, these institutions are also the largest issuers of longer duration bank paper in Asia. As such, we see this as more of a duration, than a country story.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had an outstanding month with each of the +100 bonds that we track tightening during the month. Global monetary accommodation is in large part responsible for this spread compression. Credit fundamentals have yet to catch-up. Continued tightening, however, cannot be ruled out as credit tourists crowd-in and markets melt-up. Unfortunately for most, the recent tightening did not exceed the speed with which interest rates rose.Q1 2021 was a tough quarter for real money asset managers. We anticipate that US interest rates will continue to climb higher and may even accelerate their upward trajectory. If the trend is your friend and longer duration bonds continue to outperform, the risk is that of buying a bond which either has a higher level of volatility or is fully priced. With South Korean long-dated Senior Unsecured notes trading just north of 100 basis points (bps), it is hard to imagine these notes continuing to compress faster than interest rates. Asset managers may need to consider more subordinated, higher yielding notes to generate positive total returns over the near term. Investors will likely be pushed towards lower rated Additional Tier 1 (AT1) bonds in April / May to achieve positive total returns. Security selection may become more important.

Executive Summary:  Rapidly rising interest rates present a challenge for credit to generate positive total returns. Unfortunately, the upward sloping sawtooth pattern of rising US interest rates ended the month on an upswing. Credit spreads needed to compress by as much to generate positive total returns. Only a small handful of Asia’s US$-denominated bank bonds (x-Japan) managed to generate positive total returns during the month of March. This was concentrated in a select sweet spot.Long duration, low investment grade rated, and high BB rated bonds led tightening over the month. Lower risk tolerance, as evidenced by the rating preferences, combined with duration desires to drive performance in March, as in February. One differentiating factor between March and February is the concentration amongst Thai- and South Korean-headquartered banks during March; however, these institutions are also the largest issuers of longer duration bank paper in Asia. As such, we see this as more of a duration, than a country story.From a pure credit spread perspective, ignoring movements in the risk-free rate, Asia’s bank bonds had an outstanding month with each of the +100 bonds that we track tightening during the month. Global monetary accommodation is in large part responsible for this spread compression. Credit fundamentals have yet to catch-up. Continued tightening, however, cannot be ruled out as credit tourists crowd-in and markets melt-up. Unfortunately for most, the recent tightening did not exceed the speed with which interest rates rose.Q1 2021 was a tough quarter for real money asset managers. We anticipate that US interest rates will continue to climb higher and may even accelerate their upward trajectory. If the trend is your friend and longer duration bonds continue to outperform, the risk is that of buying a bond which either has a higher level of volatility or is fully priced. With South Korean long-dated Senior Unsecured notes trading just north of 100 basis points (bps), it is hard to imagine these notes continuing to compress faster than interest rates. Asset managers may need to consider more subordinated, higher yielding notes to generate positive total returns over the near term. Investors will likely be pushed towards lower rated Additional Tier 1 (AT1) bonds in April / May to achieve positive total returns. Security selection may become more important.

Bank Credit Compass: Positive Total Return Sweet Spot

Executive Summary:  We recommend that investors Overweight <a href="https://www.smartkarma.com/entities/krung-thai-bank-pub-co-ltd" target="_blank" data-smartkarma-citation="entities:298:1" rel="noopener">Krung Thai Bank's (KTBTB)</a> recently issued Additional Tier 1 (AT1) bond. Krung Thai’s published credit metrics are on-par with, if not superior to, its Thailand-based peers as well as <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a>. Furthermore, after adjusting for Covid-19 relief exposure, KTBTB has a higher capital buffer and a superior pre-provision earnings ability relative to <a href="https://www.smartkarma.com/entities/kasikornbank-pcl" target="_blank" data-smartkarma-citation="entities:293:1" rel="noopener">Kasikornbank (KBank)</a> and <a href="https://www.smartkarma.com/entities/tmb-bank-pcl" target="_blank" data-smartkarma-citation="entities:8090:1" rel="noopener">TMB Bank (TMB TB)</a>. As such, we believe that Krung Thai’s recently issued AT1 note should compress to, if not through, KBank’s bond.Thailand-headquartered banks face both a net profit and a capital buffer test towards determining their ability to make optional distributions, such as dividends, bonuses, and Additional Tier 1 coupons. Unfortunately, Thai-bank AT1 spreads bear no relationship relative to their respective capital buffers. This suggests that other concerns may be driving their respective valuations.We note that loans under COVID-19 relief measures remain subject to an IFRS9 staging standstill under Bank of Thailand regulations until the end of 2021, according to Krung Thai Bank. Given the large amount of relief provided by Thai banks over the last year, and more that may develop in the future, current earnings power and capital buffers may overstate each banks’ ability to make optional distribution payments over time.Therefore, a complete analysis on the fair value of a Thai-bank security should incorporate the capital buffer and pre-provision earnings that may be at risk from Covid-19 relief loans that could go sour.  We undertake this analysis within.Taken together, we conclude that after adjusting for Covid-19 relief exposure, KTBTB has a higher capital buffer and a superior pre-provision earnings ability relative to Kasikornbank and TMB Bank. As such, we believe that Krung Thai’s recently issued AT1 note should compress to, if not through, KBank’s, bond. Issued last week at a spread of T+353, and currently trading at T+ 330, we see at least 30bps of upside remaining for investors in KTBTB’s bond. As such, we recommend that investors Overweight Krung Thai Bank’s 4.4% coupon 2026 callable AT1 note.

Executive Summary:  We recommend that investors Overweight Krung Thai Bank's (KTBTB) recently issued Additional Tier 1 (AT1) bond. Krung Thai’s published credit metrics are on-par with, if not superior to, its Thailand-based peers as well as Standard Chartered (STAN LN). Furthermore, after adjusting for Covid-19 relief exposure, KTBTB has a higher capital buffer and a superior pre-provision earnings ability relative to Kasikornbank (KBank) and TMB Bank (TMB TB). As such, we believe that Krung Thai’s recently issued AT1 note should compress to, if not through, KBank’s bond.Thailand-headquartered banks face both a net profit and a capital buffer test towards determining their ability to make optional distributions, such as dividends, bonuses, and Additional Tier 1 coupons. Unfortunately, Thai-bank AT1 spreads bear no relationship relative to their respective capital buffers. This suggests that other concerns may be driving their respective valuations.We note that loans under COVID-19 relief measures remain subject to an IFRS9 staging standstill under Bank of Thailand regulations until the end of 2021, according to Krung Thai Bank. Given the large amount of relief provided by Thai banks over the last year, and more that may develop in the future, current earnings power and capital buffers may overstate each banks’ ability to make optional distribution payments over time.Therefore, a complete analysis on the fair value of a Thai-bank security should incorporate the capital buffer and pre-provision earnings that may be at risk from Covid-19 relief loans that could go sour.  We undertake this analysis within.Taken together, we conclude that after adjusting for Covid-19 relief exposure, KTBTB has a higher capital buffer and a superior pre-provision earnings ability relative to Kasikornbank and TMB Bank. As such, we believe that Krung Thai’s recently issued AT1 note should compress to, if not through, KBank’s, bond. Issued last week at a spread of T+353, and currently trading at T+ 330, we see at least 30bps of upside remaining for investors in KTBTB’s bond. As such, we recommend that investors Overweight Krung Thai Bank’s 4.4% coupon 2026 callable AT1 note.   

Thailand

TMB Bank Public Company Limited provides a full range of banking and financial services. The Bank offers corporate and personal lending, retail and wholesale banking, international trade financing, and investment banking services to its customers throughout Thailand.  It also has branches in Hong Kong, Laos, and Cayman Island.

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TMB Bank PCL (TMB-R TB)

The Week That Was in ASEAN@Smartkarma - Grab Expands, Alfamart, and Mapletree Mega-Merger

The Week That Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights, macro and equity...

Angus Mackintosh

Bangkok Bank – Rotten To The Core

BANGKOK BANK: BBL reported a 2Q21 QOQ core operating results decline of 86.2%. The increase in net new NPLs, unknown moratorium credits, and COVID...

Thomas J. Monaco

Pair Trading Ideas - Asian Financials

We highlight potential trades among liquid large cap Asian financial stocks that are correlated and exhibit mean reversion. We recommend closing...

Brian Freitas

Bank Credit Compass: Positive Total Return Sweet Spot

The sweet spot for positive total returns seems to be in long duration, low investment grade, and high BB rated bonds. This was concentrated in...

Hank Calenti, CFA

Krung Thai Bank: Overweight This AT1 Gem

Krung Thai offers superior Covid-19 adjusted metrics. Issued at a discount to fair value, its recently issued AT1 bond is a gem for investors.

Hank Calenti, CFA

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