Financials

• Rakuten Bank shares have experienced something of a re-rating, but we believe it has further to go, with attractive fundamentals and relatively undemanding valuations compared to its digital peers
• Rakuten Bank is well positioned to benefit from the tailwind of the steepening yield curve in Japan, with its low LDR, growing loan book and healthy capital ratio
• It is leveraging off the Rakuten Group eco-system; not only is it growing its client base, but also nearly a third of clients use Rakuten Bank as their primary bank

• Steadfast (SDF AU) is looking to raise around A$280m (US$180m) to fund the acquisition of Sure Insurance, and provide headroom for potentially additional acquisitions over the year.
• SDF has undertaken a number of capital raises in the past to similarly fund its active acquisition strategy. Overall, the firm’s past deal record has been strong.
• In this note, we will talk about the acquisition and run the deal through our ECM framework.

• Wuxi XDC priced its IPO at HK$20.60 per share (upper-end of range), and raised HK$3.5bn (US$417m) at a market capitalisation of HK$24.3bn and post-money EV of HK$20.4bn.
• Both HK offering and the international offering of the company were significantly oversubscribed by 49.96x and 19.6x respectively.
• Our DCF value per share is still at a significant premium to the final IPO price, and we expect Wuxi XDC’s IPO to have a strong debut.

• ROE is now 24.4% in 1H24 compared with 18.0% last year. ROE consistently rising well, from 15.9% in FY21.
• Quarterly net profit up 47% YoY in 2Q24. On an annualized basis, net profit in FY24 can show considerable delta from FY23, a year when returns and profit were good.
• Costs are well-contained. SG&A to assets was 23.7% at its recent peak and now it’s 20.8%. SG&A to revenue is now 55.5% compared with 65.3% at its recent peak.

• Jana Small Finance Bank (3667144Z IN) is looking to raise at least US$100m in its upcoming India IPO.
• Jana Small Finance Bank (JSFB) is the fourth largest small finance bank in India in terms of AUM and deposit size as of FY23 (Year ended 31st Mar 2023).
• JSFB has grown its number of banking outlets and amount of deposits fast, which allowed the firm to grow its gross advances by 1.5x over the track record period. 

With indexed rental growth continuing and rent collection recovering, Triple Point Social Housing REIT’s (SOHO’s) Q323 dividend was fully covered, and we expect this to continue. Meanwhile, while the board continues its focus on closing the share price discount to NAV, it has concluded that any further capital return is dependent on significant additional liquidity being generated through property sales.

• The FRTIB has decided to switch its benchmark for the International Stock Index Investment Fund from the EAFE Index to the ACWI IMI ex-USA ex-China ex-Hong Kong Index.
• With around US$68bn invested in the I Fund, this will set off churn among the constituent stocks in 2024. One-way trade is around US$28bn with DM outflows and EM inflows.
• The benchmark shift could be done over a 4 month period with higher trading during periods where liquidity opportunities arise.

• The pre-condition relating to Haitong International Securities Group (665 HK)’s privatisation offer from Haitong Securities Co Ltd (A) (600837 CH) is satisfied. The offer is at HK$1.52 per share. 
• The key conditions are approval by at least 75% of independent shareholders (<10% of independent shareholders rejection) and the headcount test. The high takeover premium facilitates approval. 
• This is a done deal. At the last close and for an estimated early February 2024 payment, the gross and annualised spread is 5.6% and 26.4%, respectively.

• The Federal Retirement Thrift Investment Board which manages the four major funds in the Thrift Savings Plan for US federal government employees will change benchmark for its International Fund
• This was announced on 14 November. The transition will take place “in 2024.” It entails moving from MSCI EAFE to MSCI All Country World ex-USA ex-China ex-HongKong Investable Market Index.
• The explanation: double the countries, lots more stocks, BUT CHINA! This means selling ~US$1.6bn of HK stocks but US$20bn of one-way flow in total (lots of Japan/UK/Europe to sell)

• The NIFTY Index closed the last 2 weeks up (CC=+2), reversing from an oversold condition. This week the index started going up again, but it’s not going anywhere…
• The index barely crossed the Q1 resistance at 19334, but if closes this week up, the WEEKLY CC=+3 condition will be an “OVERBOUGHT” signal, a pullback could start.
• Going SHORT is probably not worth it, we don’t see a large pullback coming, it’s probably better to simply hedge your positions.

• In our latest South Korean banks screener; we switch from Hana Financial to KB Financial as our preferred Korean banks pick
• NPLs and precautionary quality credits continue on a rising trend, whilst KB has controlled its NPL ratio and precautionary ratio better than most to 3Q23
• KB has a low PBV ratio relative to its ROE, rising post-provision returns, a healthy CET1 ratio and a healthy LDR; Kakaobank is one for the watchlist

CoinShares International (CS) maintains its stable development in 2023, posting an adjusted EBITDA of £9.9m in Q323 (£6.4m in Q322). This is despite the £3.0m loss on principal investments, arising primarily from provisions recognised by FlowBank (in which CS holds a 28.3% stake). Both the asset management business and capital markets activities were solid contributors to the Q323 results, with the former posting £10.7m in fees and the latter £9.3m in gains and income. In September 2023, CS officially launched its Hedge Fund Solutions (active asset management business), with its initial strategies active since the end of Q323 and discussions with potential investors across the globe ongoing.

• Bakkt reported a 3Q23 loss of $0.19/share on net revenue of $14.6 million, slightly below our estimates of a loss of $0.18/share loss on net revenue of $15.5 million (consensus was for a loss of $0.17/share on $16.1 million).
• The crypto environment continues to be challenging. President and CEO Gavin Michael said the quarter “clearly demonstrated our ability to execute” in a tough market.
• Michael also highlighted the company’s push and significant progress in expanding outside the US, which is in need of clarifying legislation.

• Today, Sumitomo Mitsui Financial Group (8316 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) reported H1 earnings. Mizuho Financial Group (8411 JP) reported yesterday.
• Mizuho raised full-year NP guidance by ~5%, passing the Street. SMFG raised its FY NP guidance 12.2%, also beating the Street. MUFG didn’t raise guidance but H1 saw 71% progress.
• Today, SMFG raised its div, and both SMFG (¥150bn) and MUFG (¥400bn) announced buybacks. Cross-holding unwind progress is waaay lower than we’d like, but capital stronger as a result.

• We can check this on KIND, KRX’s disclosure site. As an example, SK Inc. disclosed this information on July 26, two weeks before the dividend record date, August 10.
• We can capture this information in English without the need for Korean. The disclosure title we must hunt is “Decision on Closure of Shareholder’s Registry (including Record Date) for Dividends.”
• The critical aspect here is that we need to identify disclosures from companies that still use the year’s last trading day as the dividend base date.

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the DAX, MDAX, and SDAX Indices in the December 2023 Rebalance.
• I do not see any changes for the DAX index in December 2023 but Deutsche Lufthansa (LHA GR) is not very far away from triggering a change.
• Separately, I see two changes for the MDAX index and two changes for the SDAX index.

Regional REIT’s (RGL’s) Q323 trading update includes details of further leasing events, at rents ahead of market levels, and continuing asset sales, at or above book value. However, with the balance of occupiers remaining cautious, as economic prospects are assessed, rent roll and occupancy weakened. Supported by the strong ‘return to the office’, RGL continues to expect an acceleration in leasing, to provide the underpinning for its efforts to reduce gearing while maintaining income and dividends.

JDC Group (JDC) issued its Q323 report in which its FY23 guidance was adjusted to the lower end of the indicated revenue and EBITDA ranges. This was partly due to the weak economic environment in Germany and partly because JDC may not be able to consolidate Top Ten Group in FY23. Nevertheless, to reach the lower end of the €175–190m revenue guidance, a strong Q4 is needed given the 9M23 realised revenue of €122.9m. However, we believe guidance is realistic given seasonal trends as Q4 is the quarter when clients usually evaluate their insurance portfolios.

• NAB holds significantly more maturing debt in the coming year than its largest 3 peer banks in Australia and also more than the 3 banks in Singapore, by comparison
• The bank has grown its business loans aggressively, which can see lumpy bad loans in a poor economy, with high unseasoned loans, yet its HoH credit costs were flat
• CRE loans are meaningful at NAB, adding another risk to maturing debt at the top of the rate cycle with what appears to optimistic credit costs in recent results

• WuXi XDC Cayman (1877628D HK) is looking to raise up to HK$4.07bn (US$521m) in its IPO by selling 197.6m shares at HK$20.6/share, valuing the company at HK$24.67bn (US$3.16bn).
• WuXi XDC Cayman (1877628D HK) will not get Fast Entry to any indices but should be added to the HSCI and to Southbound Stock Connect in March.
• Inclusion in other indices will take longer with the highest probability of index inclusion starting in September 2024.

• We retain Bank of Baroda as the deep value Indian bank from our peer group, for its modest valuations, healthy ROE and further improvements in pre- and post-provision returns
• The market seems unconvinced by HDFC Bank but we retain it as our quality bank pick, with its potential for savings from the HDFC merger and its strong balance sheet
• Axis bank stays on our watchlist, but its premium valuations are the challenge; we remain negative on State Bank of India for its delinquency risks and limited progress on returns

• Life Insurance of India (LICI IN) reported its 1H24 earnings which are a continuation of the poor performance of the largest life insurer in India.
• Total sales were down -10% (individual sales – flat y-o-y); VNB margins falling; outlook not positive. Not positive shifts in product mix or distribution trends.
• We value LIC at 0.5x FY25e P/EV, implying a -15% downside from the current price, reflecting poor sales growth, loss of market-share and its failure to turn-around the business model.

BlackRock Latin American Investment Trust (BRLA) has two managers, Sam Vecht (lead) and Christoph Brinkmann (deputy). They highlight that Latin America has been overlooked by investors and the trust is now the only fund in the AIC Latin America sector. The managers are finding interesting opportunities in the region in their search for companies offering a niche product or service, which have long-term growth potential and are reasonably priced. BRLA offers a broad exposure to Latin America, with around 60% of the fund invested in Brazil, the largest country in the region. The Brazilian central bank was proactive in raising interest rates to combat higher inflation, real interest rates remain relatively high and the economy should benefit now that interest rates are coming down.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• China Jinmao Holdings

Molten Ventures released its H124 trading update (to end-September 2023), with management expecting its NAV per share at c 735p, a c 5.7% decline from the end-March 2023 level as a result of a 3.6% negative fair value movement (excluding fx) across its portfolio. That said, management highlighted that the valuation environment is stabilising and that Molten’s portfolio performance remains resilient, with a good balance between growth (even if at a slower pace) and capital efficiency (with very limited exceptions). Molten’s shares currently trade at a 66% discount to NAV.

• Japan Post Insurance might seem undervalued based on a regression analysis, but its relatively strong RoE was due to extraordinary gains.
• The company has a much larger portion of its investment securities being carried at cost on the balance sheet vs. its peer, Dai-ichi Life.  
• Against the backdrop of Japan’s “higher for longer” theme, its embedded value growth could be under more pressure due to ANW’s m-t-m adjustments and very weak new business value.

• During the period under consideration, i.e. September 27th – October 27th, 2023, the EUR/USD exchange rate fluctuated between 1.049 and 1.061 until October 22nd, 2023, but thereafter it followed an instantaneous daily uptrend on October 23 to finally secure the price of 1.0668.
• However, at the finish of October, the Euro notched a slight drop, but it was still trading higher than the levels at the end of September.
• According to Graph 1, during the first 18 trading days of the period under consideration, the pair showed a consolidation pattern mainly along the range of 1.05-1.0593 (except 2 sessions). 

• KE Holdings’ (Beike) C3Q23 revenue was 7.7%/11.6% higher than our est./cons., non-GAAP net income beat our est./cons. by 35%/119%. Existing home sales and non-transaction biz drove the bottom line beat.
• We expect Beike C4Q23 to grow 20% YoY, 33% in existing home and 5% in new home, supported by gradual recovery of home transaction and Beike’s market share gain;
• We reiterate BUY rating and raised TP by US$0.5 to US$24.5/ADS, also taking into account of progress in home renovation and rental management.

• Reuters reported on 8-November that China’s State Council has asked the Guangdong local government to arrange the rescue of Country Garden Holding.
• Ping An’s spokesperson said the company had not been approached by the government.
• There is also no guarantee on when bondholders will get paid back and how much the recovery value will be.

• On November 9, Bakkt announced the expansion of its international footprint and custody client base.
• Key to its international efforts is expectations to be live with crypto capabilities across new Latin American, European, and Asian markets by year-end.
• CEO Gavin Michael said the company was “working efficiently to expand into international regions with more regulatory clarity and sizeable addressable markets.”

In Q323, all three of Foxtons’ divisions outperformed their respective markets, taking market share – the direct result of management action to avoid the same mistakes made during previous downcycles where costs were cut, a position from which it would subsequently struggle to recover. Foxtons’ new strategy focuses growth on non-cyclical revenue streams and decouples performance from sales market cycles. The latest value-enhancing acquisition leads to a net upgrade in estimates in FY24. We therefore raise our ‘base’ case valuation from 59p/share to 62p, which implies more than 60% upside, and our preferred ‘bull’ case valuation from 124p/share to 127p.

Despite prevailing macroeconomic headwinds and a subdued Canadian property market, Information Services Corporation (ISC) demonstrated year-on-year top-line and adjusted EBITDA growth in Q323. This was largely attributable to the MSA extension, augmented by sustained organic growth of the Services division. Net income was affected by heightened net finance costs, as a result of a rise in net debt from the C$150m upfront payment for the MSA extension. Nevertheless, ISC remains on a trajectory of securing new contracts and management reaffirms its FY23 revenue and adjusted EBITDA guidance. We maintain our forecasts and valuation of C$37, implying 79% upside.

• Unrealized HTM losses continued to balloon as interest rates crept higher.
• What has caused SVB’s demise seems to have now been forgotten and ignored by investors.
• We took a deep dive into 3 U.S. Banks, First Foundation, Wells Fargo and Bank of America on their HTM losses.

• SES has made significant advancements in engineering and materials, particularly in the cathode, resulting in high stability and improved safety for high Ni cathodes.
• The company has also developed new technologies for pouch cell engineering, electrolyte, lithium metal anode protection, and charging protocols, reducing the risks associated with thermal runaway in both Li-Metal and Li-ion batteries.
• Despite the challenges and the trade-off between energy density and safety in the battery industry, SES aims to improve safety without compromising other parameters, opting for a high-energy density approach and overcoming difficulties to achieve its goal.

For our next Corporate Webinar, we are glad to welcome OUE Commercial REIT’s CEO and Executive Director, Han Khim Siew, and CFO, Lionel Chua.

In the upcoming webinar, Khim Siew and Lionel will share a short company presentation after which, they will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. Angus will also provide an industry overview, featuring landscape commentary and returns analysis. The Corporate Webinar will include a live Q&A session.

The Corporate Webinar will be hosted on Tuesday, 28 November 2023, 19:00 SGT.

About OUE Commercial REIT

OUE Commercial Real Estate Investment Trust (“OUE C-REIT”) is one of the largest diversified Singapore REITs with total assets of S$6.0 billion as at 30 June 2023. With six assets in Singapore and one in Shanghai, the property portfolio comprises 1,643 upper upscale hotel rooms, as well as approximately 2.2 million square feet of prime office and retail space.

In Singapore, OUE C-REIT’s office assets – OUE Bayfront, One Raffles Place and OUE Downtown Office, are situated within the CBD where medium-term supply is limited. OUE C-REIT also owns two hotels, Hilton Singapore Orchard and Crowne Plaza Changi Airport, which are well-positioned to capture the continued rebound in tourism and MICE demand. Complementing Hilton Singapore Orchard is Mandarin Gallery, a choice location for international brands in the heart of Orchard Road.

On 30 October 2023, OUE C-REIT obtained a “BBB-” credit rating with a stable outlook from S&P Global Ratings.

• I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
• Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%. 
• Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.

• WuXi XDC Cayman (1877628D HK) is a leading contract research, development and manufacturing organisation (CRDMO) focused on the global antibody-drug conjugate (“ADC”) and broader bioconjugate market.
• The company has announced the terms for its HKEx IPO and plans to raise proceeds of around US$470m through the IPO.
• Wuxi XDC’s revenues have seen robust growth during the last 3-years driven by growth in ADC market while margins have continued to decline.

• In past 2 quarters OCBC (OCBC SP) saw its credit costs rise 150% YoY and then 250% YoY. For almost all of the preceding 8 quarters YoY growth was negative.
• It holds 3.8% of total loans in Greater China CRE, a sector that has seen visible deterioration in some banks, like Standard Chartered (STAN LN) and HSBC Holdings (HSBA LN).
• Great Eastern Holdings (GE SP) is seeing weakness in main revenue lines, with worsening policy claims. Its profit delta this year is distorted from the base effect.

• While the earnings season continues, this will be the final dedicated earnings edition.
• For reference, the previous earnings editions are [Week 8] Namaste India 🙏 | Earnings Edition – Part I & [Week 9] Namaste India 🙏 | Earnings Edition – Part II 
• At the bottom, we provide a consolidated view of all earnings (~ 50) tracked so far and we would be happy to engage in discussions on any of them.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Delta Dunia Makmur
• ENN Natural Gas
• Greentown China

• The Hang Seng Index closed last week at 17664.12 (CC=+2), currently rallying this week, but there is a chance for a short-lived pullback (i.e. closing this week down).
• The current global equities bounce should continue for the entire month of November: the HSI may continue rallying for +2 weeks (if it does not close down this week).
• Price targets to watch for the end of the rally (i.e. shortable) are between 18300 and 18700.

• Muthoot Microfin (1363943D IN) is looking to raise up to US$163m in its upcoming India IPO. 
• Muthoot Microfin (MMF) is a microfinance institution providing micro-loans to women customers with a focus on the rural regions of India.
• MMF has undergone fast network expansion, which allowed the firm to nearly double its AUM over the track record period. 

Target Healthcare REIT’s mid-year rebasing of DPS sought to establish a base for growth on a fully covered basis. With FY23 results in line with previous indications, and progress continuing, the company has increased the quarterly rate of DPS by 2% from Q124. With rent collection restored, we expect rental growth, development completions and fixed debt costs to support continued, progressive, fully covered dividend growth.