Financials

• In this insight, we discuss the increasing probability of Kakao Corp (035720 KS) losing its controlling shareholding of KakaoBank (323410 KS).
• The FSS Chairman Lee Bok-Hyun emphasized that the FSS may punish Kakao Corp for a potential stock manipulation of S.M.Entertainment amid the M&A tender offer process earlier this year.
• At this point, the higher probability event appears to be a combination of fine and Kakao Corp selling at least 10% of its stake in Kakao Bank to another company.

• The SET50 index tracks the performance of the top 50 largest and most liquid names listed in the Stock Exchange of Thailand (SET).
• In this insight, we take a look at the potential ADDs/DELs for Thailand’s SET50 index rebalance in December 2023.
• I currently see two ADDs and two DELs for the SET50 index but if prices fluctuate significantly in the next month or so there could be more changes.

• Bank Rakyat Indonesia’s numbers made for positive reading with loan growth coming through in productive areas, especially for Kupedes commercial micro-loans but also from its PNM and Pegadaian subsidiaries.
• The bank maintained its funding costs at highly competitive levels despite rising rates and time deposit growth with NIMs improving due to a better loan mix in micro.
• Bank Rakyat Indonesia (BBRI IJ) remains the most direct way to get exposure to greater financial inclusion and the underbanked in Indonesia. Valuations remain attractive with rising ROA and ROE. 

Information Services Corporation (ISC) has a strong track record of proficiently acquiring and innovating registries and related information services to benefit citizens and businesses in Canada and on a global scale. We expect ISC to continue to generate predictable and growing cash flows due to the non-discretionary nature of its core registry services, bolstered by its recent extension of the Master Service Agreement (MSA) with the Saskatchewan government by 20 years to 2053. Our DCF valuation of C$37/share implies 88% upside to the current share price, reflecting the sustainable, cash-generative nature of the company, encompassing a large, steady-growth Registry business and a fast-growing Services division.

In its Q224 update, Record reported core inflows of US$1.5bn that were more than offset by US$3.4bn of negative market and FX movements. Consequently, Record experienced a 2% net decline in assets under management equivalent (AUME) of US$1.9bn versus Q124. Record also earned performance fees of £1m in Q224 as the group continued to benefit from interest rate differentials. Management stated that the higher-margin asset management product rollout continues to progress, albeit at a slower pace than initially planned. Due to the shift in timing, we have scaled back our FY24 and FY25 PBT forecasts by 9% and 22%, respectively. Record will give further details on its growth initiatives at its H124 results on 17 November.

• Crypto prices are still tracking our expected cycle trend, and the next big test is whether we see another period of consolidation — or if the breakout is finally near.
• We outline a few notable risks in the near term that may stand in the way of the next crypto uptrend: stagnant liquidity, buyer exhaustion, further tightening in financial conditions
• We don’t see these risks as long-term trends and view any downside volatility as an opportunity to increase exposure to the best assets at even better entry prices.

• The Hang Seng Index closed last week down at 17172.13 (CC=-1), on Wednesday was trading below the Q3 WEEKLY support, very OVERSOLD from a price perspective.
• When this pattern is encountered, usually the index bounces no later than CC=-3, i.e. after this week or the week after the end of next week.
• The next support area to go LONG is 16534 and the index got quite close to it intraday, at the start of this week: the low was 16879.

• UOB (UOB SP) just released their 3Q23 results, with their IR documents attached below. Our interpretation of their numbers is less positive than their own presentation.
• Credit growth is faltering, with worsening NIM in QoQ, and with what appears to be topping out net interest income. Citi integration costs remain an issue.
• Underlying credit metrics with worse recoveries and worse new NPAs are not positive, nor is the 126% rise YoY in credit costs in 3Q23.  Will this improve in 4Q23?

• 400+ days ago, the TCC Group bid for Frasers Hospitality Trust (FHT SP) at just over 1.05x NAV failed on a combination of vocal minority opposition and minority apathy.
• FHT has dramatically outperformed plummeting peers over the last few months on hope TCC might re-up that bid, but weaker peers and CRE markets suggest financing could be tougher.
• Nothing is impossible, but it might make more sense for TCC to up its stake by stealth here rather than brute force. Earnings are 7 November.

• In this insight, we take look at Quiddity’s expectations for index changes and capping flows for the TDIV Index for the December 2023 review.
• I currently see 6 ADDs and 5 DELs but there are several names close to the border and expectations could change before the base date as prices move around.
• The estimate for one-way flow in December 2023 is US$1.37bn.

• Due to the ongoing earnings season, for the next two weeks, we will temporarily deviate from our regular format and instead focus on reported earnings.
• We focus on reported earnings, performance against expectations, and the top three highlights that we believe are important from earnings calls for each company that is usually under coverage.
• Besides the Bullish/Bearish names, we draw attention to the ones that are highlighted as interesting and would be pleased to engage in discussions about any of them.

• The NIFTY Index last week closed down (CC=-1) and it’s moving towards the Q2/median support at 19154.
• The Index is not as oversold WEEKLY and MONTHLY as some of its other peers in the APAC group and is expected to rebound this week or the next.
• Suggested support prices to go LONG are found in the 19154 to 18682 price area, the rebound should unfold in November and could last the entire month.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess First Pacific’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

• Seoul Guarantee Insurance (031210 KS) stated today that it will cancel its IPO mainly due to low demand.
• Despite the company’s emphasis on high dividends and high ROA of 5.8% in 2022 (5x average ROA of the domestic non-life insurance companies), many institutional investors emphasized on the negatives.
• The major negatives include high interest rates, lack of growth potential, concerns about additional shares sale overhang, and unattractive valuations. 

• Financial regulators will likely mandate Kakao Corp to divest all but 10% of its stake in Kakao Bank. The deadline is six months from the date of the order.
• If this issue is resolved through the forced sale of the stake, it is anticipated that this stake volume will eventually be released into the market through block deals.
• Kakao may proactively divest its Kakao Bank stake to transfer the majority shareholder position to KIS, regardless of the judicial outcome.

• The Nikkei 225 (NKY) INDEX closed last week down at 31259.36. It’s currently trading between the Q2 and Q3 WEEKLY support levels and down for 4 months, so it’s OVERSOLD.
• The index could reverse this week, or fall more into the end of October, but if this week closes down, the odds are very good for a rally in November.
• Consider going LONG between here and supports in the 30600-30400 price area, a MONTHLY reversal could last at least 2-4 weeks (a month).

• In its recent result, Bandhan Bank Ltd (BANDHAN IN) did not report the kind of improvement in asset quality in its core Microfinance segment that we were hoping to see.
• Fresh slippages into overdue accounts did not slow down as anticipated; NPA levels remained elevated; Loan growth is below the target run-rate.
• We anticipate the recovery to be drawn out, and hence suggest keeping patience. But  we maintain our long-term valuation of Bandhan Bank unchanged at 2.1x FY25e P/BV, implying +56% upside.

• Loan mix is improving, away from non-INR loans, asset mix is improving with less RIDF bonds, and bank is seeing an expanding LDR. 
• Loss loans and doubtful loans are in major decline, they are less important to total NPLs, and still credit costs were high in 1Q24, likely overly conservative.
• Credit growth is now at 22.6% YoY from 14.9% YoY one year ago, with consistent acceleration. With just 6% loan share, growth can remain high.

• In this insight, we explore the potential trade idea to Long GMG and Short DXS, among Australia REITs
• We propose this trade on the back of long-term attractive thematic and strong fundamentals of logistics sector and continued weakness of office sector, as well as company specific drivers
• GMG focuses on logistics and is a fund manager, and will continue to be strong. DXS is primarily driven by Sydney office market, which is facing multiple headwinds

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.

• Lippo Malls Indonesia Retail Trust
• Vedanta Resources

• The KOSPI 200 INDEX closed down last week (CC=-1) and is going towards the Q2/median support at 314. The index is also OVERSOLD MONTHLY (CC=-3)
• One possible scenario is to see the index downtrending into early/mid-November, find a bottom, and then begin a counter-rally from there.
• The index could go down more this week, but a LONG trade could begin at 314 support, and if that does not hold, the next support area is at 306.

• Krung Thai ranks second from top in terms of post-provision profitability and it has double digit ROE with a healthy balance sheet, along with attractive PBV and PE ratios
• We also like Ayudhya, with its sound pre and post-provision profitability metrics with healthy ROE and ROA, its sound credit quality metrics and undemanding valuations
• Kasikorn’s TTM cost of risk remain high versus the peers, and in 3Q23 it continued to worsen; its pre-provision profitability is healthy but there is, as yet, no CoR improvement

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.

• Hopson Development

• The S&P/ASX 200 INDEX last week closed down (CC=-1, breached the Q2 support at 6918, entering OVERSOLD territory). 
• The index has been directionless since early August 2021, it is going down but it’s OVERSOLD MONTHLY (3 months down), so it could bounce in November.
• The current MRM pattern is quite bullish from a CC perspective: here we analyze WEEKLY supports to see how far down the index can go, it could bounce soon.

• The Delisting Agreement should end the Atlantic bidding for Aareal Bank AG (ARL GR) saga. Atlantic has been hoovering shares in the market since last 7 June.
• Atlantic probably owns c.90.8%. Based on daily trading volumes, it would take many days to acquire shares and reach the 95% barrier required to implement a squeeze-out.
• Spread is 0.3%/2.3% (gross/annualised, assuming settlement on 8 December), not too bad for a quick buck, but liquidity is razor thin.

• Bank Central Asia (BBCA IJ) released another set of positive numbers in 3Q2023, outperforming the overall sector on loan and CASA growth, allowing the banks to maintain NIMs and profitability.
• The bank’s digital banking franchise continues to grow, with 31 million users of its mobile banking, boosting transactions and customer numbers, with a broadening of features and service offerings available. 
• Consumer banking, SME, and Corporate lending will continue to drive loan growth and credit costs continue to come down boosting profits. Bank Central Asia remains a core holding. 

• In this insight, we summarized NWD’s FY2023 results.  We think the gearing and balance sheet, the biggest concern that market has, has been clearly addressed
• NWD has announced disposal of its stake in NWS, and will have more corporate actions to come.  The dividend expectation is reset
• We view most of the negatives are priced in at current valuation.  NWD is much better than a Chinese developer, and should not be trading at 0.19x PB

• ASX Ltd (ASX AU) is seeing weakness across key revenue items with best delta in what is non- core, net interest income. Suddenly, its operating cash flow is negative.
• New listings are down from 217 companies to 57 companies YoY to FY23 and their market capitalization is down from AUD59bn to AUD3bn YoY to FY23.
• SG&A costs seem to be rising structurally now at 28% of gross profit in FY23 compared with 23% in FY22 and compared with 17-19% in preceding years.

Since launch in 2011, the Diverse Income Trust (DIVI) has grown its dividend every year (compounding at an average annual rate of 6.5%), including during the global pandemic, when many UK dividends were cut. The strength of the trust’s revenue growth is also reflected in its capital appreciation that has enabled DIVI to deliver robust total returns. As globalisation has fractured over the last three years, equity income strategies have become increasingly popular with global investors, and the UK top 100 index (in US dollar terms) has outperformed other developed market indices. DIVI’s two co-managers, Gervais Williams and Martin Turner, are very optimistic because they believe that UK large-cap stocks will continue to outperform and historically UK small-caps have outpaced the performance of their larger peers. In this scenario, the prospects for the trust’s multi-cap approach look very favourable.

• There is little in the long-term and current figures of Bank Of China Ltd (H) (3988 HK) that leaves one assured of strength, stability, earnings power, and rather the opposite.
• Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern.
• The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago – with much more geopolitical risk.

• China Overseas Property (2669 HK) announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company. 
• The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.
• In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock.  Further derating is likely. 

abrdn UK Smaller Companies Growth Trust (AUSC) is managed by Abby Glennie and Amanda Yeaman. The strategy of using the proprietary Matrix screening tool to search for stocks that fulfil strict quality, growth and momentum criteria has proved very successful over the long term but has been challenged since the start of 2022, as macroeconomic factors rather than company fundamentals have driven stock markets. Despite their frustrations, the managers are sticking with their tried-and-tested strategy and are highly confident that the trust will resume its record of outperformance when there is a change in the investment backdrop. This may already be underway as UK inflation is moderating, interest rates may be close to peaking and, in recent months, AUSC’s NAV performance versus the reference index looks to have stabilised.

• US Masters Residential Property Fund (URF AU), an ASX-listed real estate trust investing in single-family homes in gentrifying New York metropolitan neighbourhoods  – what could go wrong? 
• Quite a lot, apparently. Shares are down bigly from the 2011 listing; the responsible entity faced ASIC-backed court proceedings for misleading clients; plus dissent emerged over appointing a new RE. 
• URF is gradually offloading its entire portfolio, and buying back shares, which are trading at 0.49x price-to-book.  So, where’s the rub?

• A month ago I wrote there was still time, and room, to move on the Kenedix Merger. 
• Now there’s less time, but the situation and relationships are better understood.
• Tracking Excess Volume during the period since the announcement is interesting. And it may tell you less than you think.

• While Ecopro Co’s stock has undergone significant corrections since August, KB Financial has sustained an upward trajectory, leading to a significant reversal in float-adjusted market cap.
• The current disparity between the two exceeds ₩2T, making it challenging to anticipate another reversal until the screening period.
• Ecopro Co and LG Energy Solution also warrant attention due to the narrow gap in their float-adjusted market capitalization. We should monitor any changes in their market capitalization moving forward.

• Foreign investors sold ~5.7m shares of Indusind Bank (IIB IN) from July to September. That selling has pushed foreign room above the key 15% threshold.
• With foreign room crossing 15%, passive trackers will need to buy a chunk of Indusind Bank (IIB IN) stock at the end of November.
• There will be positioning on Indusind Bank (IIB IN) though it appears some of that was taken off in the last couple of days.

• On 16 October, the Asset Management Co of Sankei Real Estate (2972 JP) announced earnings, the execution of a Revival Plan, and said the sponsor, Sankei Building would buy more.
• They’ll buy for up to 220 days starting sometime before Feb-end. Presumably after the Revival Plan transactions have been executed. 
• The REIT is cheap to peers. It is small to peers. It needs some reviving. But when a sponsor promises to buy, it pays to take a look. 

• Country Garden’s offshore debt default is happening. Its time to investor to revisit their position as restructuring is looming.
• Investors may not have any access to Country Garden’s onshore assets under its current offshore issuance structure.
• Evergrande’s offshore debt issuing structure could be more favourable compared to that of Country Garden in bankruptcy, depending on how the court interprets its Keepwell agreement.

• The Government of India (GoI) is looking to raise up to US$130m from trimming its stake in Housing and Urban Development Corporation Limited (HUDCO IN). 
• The base deal includes a 3.5% stake sale, with an option to double it up to 7%. The selldown is targeted at meeting SEBI’s minimum public float requirements of 25%. 
• At 7.5 days of three month ADV, the deal isn’t a very large one for the firm to digest.

• In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices in the December 2023 Rebalance.
• Currently, I see two index changes for the MDAX index and two index changes for the SDAX index.
• I do not see any changes for the DAX index in December 2023.

• Philippine Stock Exchange (PSE PM) is a monopoly making >60%>/45% EBITDA/NPAT margins across its history with ex-cash ROCE’s >30% (cash at five bn pesos is 33% of market cap).
• With a relatively low penetration of brokerage accounts (1.5%), an underowned market with 100mn USD volume, and low fee structures, there is ample low-hanging fruit on earnings growth.
• The stock trades at 18x PE (9x ex-cash and real estate). With an 80-100% payout, the dividend yield is 5-6%, so you are paid to wait for future catalysts. Our meeting with management in Manila last week gives us added confidence. 

• The KOSPI 200 Index is currently rising for the 3rd week in a row and approaching the Q2 WEEKLY resistance level, but it’s a very weak rally.
• Between 329 and 331 there id a good area to go SHORT, the index could fall for 2-3 weeks from here, into early November.
• A negative close in October would be =3 months down in a row (CC=-3), November in that case would have good odds for a rebound and close up.

• Newcrest Mining (NCM AU) shares stop trading after the close on 26 October and Newmont Mining (NEM US) CDIs will start trading from the open on 27 October.
• Newmont Mining (NEM US) CDIs should replace Newcrest Mining (NCM AU) in the S&P/ASX indices from 27 October. But there could be index changes at the subsequent rebalances.
• Based on the case of Block (SQ2 AU), we could see Newmont Mining (NEM US) CDIs deleted from the ASX20 Index in December and from the ASX50 Index in March/June.

• HDFC Bank (HDFCB IN) released its first results since its amalgamation. This can make comparatives difficult where historicals are not adjusted, except for some QoQ items.
• We use Dupont Analysis to better understand how the newly amalgamated bank looks now compared with the past, which generally shows a more profitable bank at the core. 
• Credit costs, tax expenses are also positives, with the former improving 27bps YoY and the latter improving 23bps YoY. Investment income is a major positive driver in Sep 23 quarter.

• Asirvad Micro Finance Limited (1053198D IN) is looking to raise around US$183m in its upcoming India IPO. The deal will be run by JM Financial, Kotak, Nomura, SBI Caps.
• Asirvad Micro Finance Limited (Asirvad) is a non-banking finance company (NBFC), and a microfinance institution (MFI) offering small loans to low-income women in India.
• As per the CRISIL report, Asirvad was the largest MFI in India in terms of geographical coverage and third largest MFI in India in terms of AUM, in FY23.

• Expectations since late-September remain unchanged; if $SPX is above 4165-4200/200-day MA, we’re bullish, as most signs point to this being a normal pullback within the ongoing bullish trend in SPX.
• As discussed last week (10/11/23), we have growing confidence that lows are likely in on the SPX, which made a low at 4216 (with 4200 hit exactly overnight 10/4/23).
• We also discussed Russell 2000 breadth bottoming last week, and this has continued with bullish breadth divergences on Russell 2000 % of stocks above their 50- and 200-day MAs

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 Vanke
• NagaCorp Ltd
• Road King Infrastructure