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

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

*Much Better Than Expected: Oversea Chinese Banking Corp. (OCBC.SP) [OCBC] posted 3Q20 net profit of SGD 1.0 bn, an SGD 298 mn (40.8%) increase on a linked quarter basis – well ahead of consensus. Two factors pushed the outperformance: 1) a somewhat justifiable SGD 400 mn (53.3%) decline in loss provisions (unlike DBS Group Holdings [DBS.SP]), as OCBC witnessed “negative”growth in net new NPLs; and 2) a 290 bp decline in its tax rate to 13.1%, which was additive to the bottom-line by SGD 36 mn or 3.6%;*Credit Improving In Reality: By our calculation, given the SGD 99 mn in net recoveries, we find that new new NPL growth was actually negative on an annualized basis at 2.3%. While we are ecstatic to see negative growth in net new NPLs on the back of strong net recoveries of previously charged off loans, we continue to believe that credit risk will remain elevated. As such, we find that reserves should be bolstered by SGD 288 mn – 25% of pre-tax results, which is a far cry from where currently DBS is; and*Insurance Weakness: Great Eastern Holdings (GE.SP) [Great Eastern] reported 3Q20 bottom-line results of SGD 287.9 mn, declining SGD 9.6 mn (3.2%) linked quarter. On an operating basis excluding market-related gains, the decline in profits was even more pronounced at SGD 24.6 mn or 9.4% over the period due to new business strain. New Business Embedded Value (NBEV) margins continued their descent to 37.0%  - down 1.1% linked quarter due a weaker Malaysian component. Management’s confidence is low and it anticipates the weaker economic environment to pose continued headwinds, and will reassess the dividend.

*Negative Operating Jaws Were A Surprise: DBS Group Holdings (DBS.SP) [DBS] reported 3Q20 results of SGD 1.3 bn, increasing SGD 50 mn (4.0%) on a linked quarter basis. Results were solely led on a justified SGD 295 mn (34.7%) reduction in loss provisions, which point to DBS’real challenges with negative operating jaws; and*Credit Risk Rising: By our calculation, and despite the net recovery of SGD 24 mn, we find that net new NPLs continue to increase – up SGD 272 mn or 18.9% on an annualized basis. Management too was less sanguine about credit quality on a go forward basis, expecting a re-acceleration of NPL formation in 2021 as COVID-19 government programs are set to expire. We feel that reserves should be shored up in the neighborhood of SGD 1.3 bn – amounting to a full quarter of results – and intimating this quarter was more managed than DBS would have the investment community believe.

*Negative Operating Jaws Were A Surprise: DBS Group Holdings (DBS.SP) [DBS] reported 3Q20 results of SGD 1.3 bn, increasing SGD 50 mn (4.0%) on a linked quarter basis. Results were solely led on a justified SGD 295 mn (34.7%) reduction in loss provisions, which point to DBS’real challenges with negative operating jaws; and*Credit Risk Rising: By our calculation, and despite the net recovery of SGD 24 mn, we find that net new NPLs continue to increase – up SGD 272 mn or 18.9% on an annualized basis. Management too was less sanguine about credit quality on a go forward basis, expecting a re-acceleration of NPL formation in 2021 as COVID-19 government programs are set to expire. We feel that reserves should be shored up in the neighborhood of SGD 1.3 bn – amounting to a full quarter of results – and intimating this quarter was more managed than DBS would have the investment community believe.      

DBS Group Holdings – Not Trending The Right Way Yet

Asean-focused. Ex-Head of Thai Research

Athaporn Arayasantiparb, CFA

Asean (Thailand) Focused Independent Research

M Corp Review

M Corp is led by Athaporn Arayasantiparb who served as Head of Research for UOB and ANZ in Thailand and was an award-winning telecoms analyst at UBS in 2010 (AsiaMoney Thailand category) and Regional Strategist for DMG in Singapore. Prior to that, he also served as Kasikornbank credit analyst and scholar. He has a total work experience of 17 years, of which 14 were in research and 4 in research management roles. He started his career as an engineer for PTT and currently manages family investments. He holds an MBA from Stern (NYU) and CFA Charter since 2006. Apart from IPO Radar, which focuses on future listings, MCorp Review also provides six on-going thematic series ranked by frequency in descending order, namely: 1) Silicon Stories (technology) 2) Sathorn Series (financial services) 3) Thai-Coons (billionaire origin stories) 4) Reality Check (data-driven, investigative) 5) Thai Media Spotlight; and 6) Thai Macro Watch (global market drivers).

Thematic (Sector/Industry)

Many of attempts were made to consolidate the securities business in Thailand, and it is fair to say all of them have failed miserably. Nevertheless, one serial acquirer and many rivalries have shaped the modern Thai securities industry into its current form. In this review, we highlight four such drivers and a honorable mention for one of the Big Six Brokers.<ul>
<li>
The serial acquirer (UOB Kay Hian). In Thailand, UOBKH, while not one of the largest brokers played an important role in 'attempted consolidation' buying parts or whole businesses of almost ten rivals.</li>
<li>
The frenemies (Kim Eng-Yuanta) The two firms merged to become Thailand's top broker a decade ago. Then, Kim Eng was bought by Maybank, and Yuanta came back for second helpings.</li>
<li>
The board room takeover. Arguably Thailand's biggest deal in the sector, ABN Amro Securities (Thailand) bought Asset Plus and became Asia Plus. Then, the target's management team seized power. Doesn't get more 'Game of Thrones' than this.</li>
<li>
The breakup. KBANK sold its 51% stake in Merrill Lynch Phatra in an MBO (management buyout), and Kiatankin merged with Phatra. Meanwhile, KBANK went off and started its own broker.</li>
</ul>

Many of attempts were made to consolidate the securities business in Thailand, and it is fair to say all of them have failed miserably. Nevertheless, one serial acquirer and many rivalries have shaped the modern Thai securities industry into its current form. In this review, we highlight four such drivers and a honorable mention for one of the Big Six Brokers.

The serial acquirer (UOB Kay Hian). In Thailand, UOBKH, while not one of the largest brokers played an important role in 'attempted consolidation' buying parts or whole businesses of almost ten rivals.

The frenemies (Kim Eng-Yuanta) The two firms merged to become Thailand's top broker a decade ago. Then, Kim Eng was bought by Maybank, and Yuanta came back for second helpings.

The board room takeover. Arguably Thailand's biggest deal in the sector, ABN Amro Securities (Thailand) bought Asset Plus and became Asia Plus. Then, the target's management team seized power. Doesn't get more 'Game of Thrones' than this.

The breakup. KBANK sold its 51% stake in Merrill Lynch Phatra in an MBO (management buyout), and Kiatankin merged with Phatra. Meanwhile, KBANK went off and started its own broker.


Thai M&A (Part 3): Consolidating the Thai Wall Street

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:<ul>
<li>
Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.</li>
<li>
Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn't acquire a stake in struggling Nok Air.</li>
<li>
Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.</li>
<li>
From LINE to BEC. LINE (Thailand)'s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.</li>
<li>
True Move's Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.</li>
</ul>

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.

Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn't acquire a stake in struggling Nok Air.

Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.

From LINE to BEC. LINE (Thailand)'s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.

True Move's Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.


Snippets #20: Dark Clouds in Thai Equities

Event-Driven

Hitachi Chemical Storage Battery (Thailand) Public Company Limited / Event-Driven

Hitachi Chemical Storage Battery (Thailand) Public Company Limited

It’s nice being an investment banker these days in Thailand. Looks like a good string of small deals coming their way. The recent ones we heard about are not earth-shaking, but they are pretty diverse in terms of industry. In most cases, however, the premium are likely to be small. Nice to get an update yo.<ul>
<li>
Hitachi’s Thai unit to make a tender offer for BAT-3K
</li>
<li>
TOA’s tender offer of Sherwood</li>
<li>Potential management buyout of Q-CON
</li>
</ul><table class="table table-striped"><tbody>
<tr>
<td>Stock</td>
<td>Business</td>
<td style="text-align: center;">Shr pr (Bt/sh)</td>
<td style="text-align: center;">Mkt cap (US$ m)</td>
<td style="text-align: center;">PE (x)</td>
<td style="text-align: center;">Yld (%)</td>
</tr>
<tr>
<td>BAT-3K (Thai</td>
</tr>
</tbody></table>…

It’s nice being an investment banker these days in Thailand. Looks like a good string of small deals coming their way. The recent ones we heard about are not earth-shaking, but they are pretty diverse in terms of industry. In most cases, however, the premium are likely to be small. Nice to get an update yo.

Hitachi’s Thai unit to make a tender offer for BAT-3K


TOA’s tender offer of Sherwood
Potential management buyout of Q-CON



Stock
Business
Shr pr (Bt/sh)
Mkt cap (US$ m)
PE (x)
Yld (%)


BAT-3K (Thai

…

Thailand

UOB Kay Hian Securities (Thailand) Public Company Limited operates a securities business.  The Company is licensed to conduct securities brokerage, securities trading, investment advisory, and securities underwriting.  UOB Kay is also licensed to provide financial advisory and unit trusts agency.

Price Gauge
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Market Cap (USDm)	0.00
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UOB Kay Hian Securities Thai (UOBKH TB)

Oversea Chinese Banking Corp. – Solid

OVERSEA CHINESE BANKING CORP.: Credit Showing Signs Of Recovery With Negative NPL Growth - Offsetting Weakness In NIMs and Insurance.

Thomas J. Monaco

Thai M&A (Part 3): Consolidating the Thai Wall Street

Many of attempts were made to consolidate the securities business in Thailand, and it is fair to say all of them have failed miserably....

Athaporn Arayasantiparb, CFA

Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near...

Athaporn Arayasantiparb, CFA

Recent/Upcoming Deals in Thailand

It’s nice being an investment banker these days in Thailand. Looks like a good string of small deals coming their way. The recent ones we heard...

Athaporn Arayasantiparb, CFA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Oversea Chinese Banking Corp. – Solid

OVERSEA CHINESE BANKING CORP.: Credit Showing Signs Of Recovery With Negative NPL Growth - Offsetting Weakness In NIMs and Insurance.

Thomas J. Monaco

DBS Group Holdings – Not Trending The Right Way Yet

DBS GROUP HOLDINGS: Trends Are Poor. Costs Higher, Revenues Lower, and Provision Trend Likely To Be Reversed As We Head Into 2021.

Thomas J. Monaco

Thai M&A (Part 3): Consolidating the Thai Wall Street

Many of attempts were made to consolidate the securities business in Thailand, and it is fair to say all of them have failed miserably....

Athaporn Arayasantiparb, CFA

Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near...

Athaporn Arayasantiparb, CFA

Recent/Upcoming Deals in Thailand

It’s nice being an investment banker these days in Thailand. Looks like a good string of small deals coming their way. The recent ones we heard...

Athaporn Arayasantiparb, CFA