Financials

• Argyle Street Management (ASM), a 9.01% shareholder in China Merchants China Direct Investments (133 HK), has been (very) publicly angling for change in this closed-end fund. Here is their website.
• The core issue is CMCDI’s P/NAV ratio of 0.41x compared to closed-end fund peers of 0.8x-0.9x. 
• CMCDI has finally responded to ASM’s overtures with the prospect of a share buyback and a special dividend. But details are thin on the ground. 

• BBVA has updated its hostile takeover offer to Banco Sabadell shareholders, proposing a cash payment of €0.29 and modifying the exchange ratio to 1 BBVA SM x 5.0196 SAB SM.
• The adjustment aims to account for the dividends paid by both banks, as outlined in the initial announcement from May 2024. Current gross spread (ex-dividend) is -2.99%.
• I believe this adjustment (merely optical) will be insufficient to convince Sabadell’s retail shareholders, many of whom are also clients and have an emotional attachment to the bank.

• The report from Delphi Digital discusses significant macroeconomic changes, including the Federal Reserve’s move to lower interest rates and China’s liquidity injections, creating a positive environment for risk assets such as cryptocurrencies.
• In the crypto markets, there is growing optimism as BTC shows signs of a trend reversal and altcoins stage rallies.
• ETF inflows, particularly in BTC, are increasing after a slow summer.

• City of London has announced its full-year results for 2024.
• As stated in the trading statement, FUM was $10.24bn, a 9% increase over the year.
• While market performance offset net outflows, there was a significant improvement in the latter in the second half, which bodes well going forward.

• PICC Property & Casualty H (2328 HK) inclusion and Longfor Properties (960 HK) deletion are high probability changes for the Hang Seng China Enterprises Index (HSCEI INDEX) in December.
• There is a lower probability of China Resources Power (836 HK) being added and of Sino Biopharmaceutical (1177 HK) being deleted at the rebalance.
• There has been big short covering in PICC Property & Casualty (2328 HK) over the last couple of months while shorts would have covered Longfor Properties (960 HK) recently.

• We have emphasized multiple times that we have been eagerly anticipating the fourth quarter of this year, driven by numerous factors that make us extremely bullish.
• With September’s liquidity squeeze now behind us, we expect U.S. Dollar liquidity to rise significantly through the remainder of the year.
• Additionally, there are several other strong tailwinds: robust seasonal trends, Chinese stimulus measures, the post-fourth Bitcoin halving phase—which historically delivers substantial returns—the possibility of positive focus on crypto during the U.S. presidential election, and a market that tends to thrive in a low-interest-rate environment, many of the reasons for which were discussed in Crypto Moves #42.

• K Bank (279570 KS) plans to raise up to US$740m in its upcoming South Korean IPO. 
• K Bank is one of three Internet-only banks in Korea. It provides a full range of commercial banking products and services.
• In our previous note, we have looked at the company’s past performance and undertaken a peer comparison. In this note, we will talk about valuations.

• Global liquidity trifecta: US, China, and Japan’s policy shifts hint at a bullish environment for risk assets, including crypto.
• BTC’s trend reversal? Early signs of a market shift suggest a potential breakout as investor sentiment changes.
• Solana ecosystem is gaining momentum—real-world applications and a booming DeFi landscape are setting the stage for a strong 2024.

• Casagrand Premier Builder Ltd (0949880D IN) is looking to raise about US$131m in its upcoming India IPO. The deal will be run by JM Fin and Motilal Oswal.
• Casagrand Premier Builder is a residential developer in India. It constructs apartments and independent villas spanning luxury, mid-end and affordable categories in the states of Karnataka, Telangana and Tamil Nadu.
• According to CBRE, it was the largest residential developer in Chennai with ~24% share in terms of launches and ~20% in terms of demand during 1st Jan’17 to 31st Mar’24.

• Everything changed this past week. China has launched major public stimulus programs which seem open-ended. They are less about money and more about greasing the wheels of risk.
• It still requires that OTHER PEOPLE take risk. Shorts covered. New speculative longs made. Better financing but still the same recourse. 
• But everything is going up. And believe it or not, Hs are outperforming As. Broker and Bank Hs seem like the right place to be.

• Following on from my decision to pass on Euroz another company I looked further into was COG Financial Services.
• Unitholders may be well familiar with this already as the second bidder for Diverger, and substantial shareholder of Centrepoint Alliance (Given I invested in both this says something about their capital allocation).
• COG is another financial services business operating predominately in the space of asset finance brokering and lending. 

• Intercontinental Exchange’s second quarter 2024 financial results demonstrate a dynamic performance with several growth facets tempered by areas needing attention.
• The company reported record net revenues totaling $2.3 billion, reflecting a 7% increase on a pro forma basis compared to the previous year.
• This growth is supported by acquisition synergies, notably from the acquisition of Black Knight, which has been integrated within its operations to bolster revenue streams.Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

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.

• Bharti Airtel
• Lippo Karawaci
• Softbank Group

• The International Stock Exchange (TISE) had an excellent half year to June 2024: revenue was up 22% to £6.4m and fully diluted EPS +27% to 105p.
• The second interim dividend was raised 67% to 75p, reflecting the new, higher payout, dividend policy.
• The performance, once again, demonstrates the strength of the business, this time against a background of more active markets.

• Taishin Financial Holding (2887 TT) has raised its bid for Shin Kong Financial Holding (2888 TT) and CTBC Financial Holding (2891 TT) has dropped its bid after FSC rejection.
• Shin Kong’s Board approved the revised (25% higher) Taishin bid. Shares in Shin Kong fell sharply on the FSC rejection of the CTBC bid. 
• Taishin’s bid clearly has governance/related party issues and a significant portion of the “non-Taishin” reps on the Shin Kong Board had issues. October 9th passage is not a done deal. 

• Nifty50 IVs have finally cracked below 11.0% levels – in spite of upcoming event-risks. Moves lower have been exacerbated by the holiday shortened week.   
• Vol-Regime Model has switched to “Low & Down” vol-state in Nifty50. Tactical implications:  Short Vega exposure less favourable going forward.
• Risk premia selloff has driven Vol Term-Structure deeper into Contango. Smile & Skew characteristics have compressed in congruence with lower IVs.

• SOUTHBOUND was a net buyer this week. But who cares. They actually net sold US$2bn of everything which was not Alibaba Group Holding (9988 HK). 
• Bigger news, of course, was China’s “Bazooka” which LOOKS exciting. Stocks are up 15-20% in four days. Lots of BIG numbers are being thrown around. Not everything is “real money.”
• It takes a little sleuthing to figure out where the real money is. For that, I suggest reading China’s [Maybe] Biggish [Quasi?] Bazooka and more below.

• NWD reported HKD20bn loss attributable to shareholders.  There is no dividend declared.  However, we view this as kitchen sink.  The stock rallied 22% on Friday
• CEO Adrian Cheng stepped down and COO Eric Ma, former Secretary for Development for HK, is the new CEO.  This represents a shift from family business to professional management
• As Fed initiated new rate cut cycle, NWD will benefit most given high gearing.  With macro backdrop in U.S. and China, NWD is the Best stock to buy now

• Arthur J.
• Gallagher & Co. reported strong financial performance for Q2 2024, underpinned by significant growth in revenue and earnings.
• The firm’s combined Brokerage and Risk Management segments saw a 14% increase in revenue and a 7.7% rise in organic growth, with an adjusted EBITDAC margin expansion of 102 basis points to 31.4%.

• Evidently the influence of a younger hip third-generation tycoon-scion was not the panacea for New World Development (17 HK) and its ongoing issues in the HK/China property space.
• As widely expected, Adrian Cheng is stepping down as NWD’s CEO, to be replaced by Eric Ma,  Hong Kong’s former secretary for development.
• NWD will also sell the rights to provide property management services under the K11 brand to Adrian; and potentially sell its stake in Kai Tak Sports Park to its parent.

• Commerzbank’s incoming CEO Bettina Orlopp announced talks with UniCredit on September 27 regarding a potential merger. Despite opposition from management and Chancellor Scholz, some investors support the discussions.
• Since UniCredit’s entry into Commerzbank on September 10, Commerzbank’s stock has surged 30%, outperforming UniCredit’s 9.2% rise and the European banking sector’s 6.3% gain.
• Buying Commerzbank is strategically and financially logical. In conclusion, I maintain my recommendation to buy Commerzbank speculatively.

• One of the areas of fintech innovations, seeing significant growth is insurtech. Big data, AI, and IoT have enabled innovations in customer experience, risk assessment, and personalized products.
• Skyward Specialty Insurance Gr (SKWD US)‘s focus on underserved and complex markets, with unique risks, should give the company better growth and margins runway. 
• Integration of proprietary  and collaborative technologies to enhance operational efficiency and customer experience in specific niches makes Skyward very competitive in admitted and  specialty insurance segments. 

• I am quite sick so I will keep it short.
• I am closing Lufax (LU) here and would at least take something off the table for JD holdings (JD) 
• Honestly Lufax business is too much of a black box, and the forward PE multiple isn’t low enough anymore for my taste.

• Hana Financial, along with KB Financial did not make the cut for the Korea Value-up index announced on the 24th September; Hana apparently fell short of the PBV ratio threshold
• Despite being excluded from the Value-up Index, Hana remains our core South Korean bank pick for its attractive valuations, low PEG, solid core capital ratio and strong credit quality credentials
• We believe Hana stands out positively on fundamentals and return trends versus its peers, and there is also potential for its inclusion in a planned rebalancing scheduled in December

New World Development’s (NWD) FY 2023-24 results were weak, but in line with expectations as flagged by the company’s profit warning earlier in September. We expect the company’s revenue and EBITDA to improve in FY 2024-25, supported by new project launches in Hong Kong as well as contributions from new K11 commercial assets in Hong Kong and Mainland China.

While NWD has continued to reduce net debt, leverage weakened on account of the weaker earnings and smaller asset base (due to disposals). Cash/ST Debt is inadequate, though we believe the company’s liquidity is manageable due to its continued access to financing. In particular, we note positively NWD’s receipt of a HKD 1 bn unsecured loan, as well as its ability to tap the USD bond market in August 2024.

The resignation of Adrian Cheng as NWD’s CEO (as well as from the Boards of NWD’s sister companies) is surprising in our view, though we believe the impact is credit neutral.

We move to “Buy” from “Hold” on the NWDEVL notes, as we view the yields as attractive.

New World Development’s (NWD) FY 2023-24 results were weak, but in line with expectations as flagged by the company’s profit warning earlier in September. We expect the company’s revenue and EBITDA to improve in FY 2024-25, supported by new project launches in Hong Kong as well as contributions from new K11 commercial assets in Hong Kong and Mainland China.

While NWD has continued to reduce net debt, leverage weakened on account of the weaker earnings and smaller asset base (due to disposals). Cash/ST Debt is inadequate, though we believe the company’s liquidity is manageable due to its continued access to financing. In particular, we note positively NWD’s receipt of a HKD 1 bn unsecured loan, as well as its ability to tap the USD bond market in August 2024.

The resignation of Adrian Cheng as NWD’s CEO (as well as from the Boards of NWD’s sister companies) is surprising in our view, though we believe the impact is credit neutral.

We move to “Buy” from “Hold” on the NWDEVL notes, as we view the yields as attractive.

• The 2024 U.S. Presidential election is fast approaching, set for November 5.
• On this day, voters will choose whether to elect current Vice President Kamala Harris, a Democrat, for her first full term, or return Republican Donald Trump to the White House.
• In Crypto Moves #28, we highlighted how this year’s presidential election is more centered on the crypto industry than ever before.

• The last 2 weeks’ upswing in the Nikkei 225 INDEX does not change our view: it is WEEKLY overbought and October is a coin flip according to our seasonal models.
• The index could rise further at this point, herd behavior may force investors to pile up into the rally, but our models say rising well past 40k will be hard.
• A pullback is not necessarily a great occasion to buy, as already explained in our previous insight, the N225’s trend does not look good, at the moment.

• KRX faces challenges balancing the Value-Up Index as a benchmark while ensuring real disclosures, but passive inflows remain steady with local pension funds still interested.
• KRX’s potential December mini rebalancing increases uncertainty but may just lead to minor tweaks, adding KB and Hana while removing a few stocks from Communication Services.
• The Value-Up Index resembles the KOSPI 200, using 30-40% GICS stocks and KOSDAQ 150, which may spark trading strategies focused on performance gaps within sectors.

• On 26 September, the Korea Exchange announced that it is considering a “special rebalancing” of the Korea Value-Up Index in December 2024.
• In our view, the probability of this special rebalancing occurring by the end of this year is high at about 85%+.
• If there is a special rebalancing, KB Financial, Hana Financial, Samsung Life Insurance, SK Telecom, and KT could be considered the top candidates for inclusion. 

• The S&P 500 index tracks the 500 largest names listed in the US and it is one of the most highly-tracked indices in the world.
• In this insight, we take a look at the upcoming constituent changes in the run up to the December 2024 index rebal event.
• We expect two regular changes in December 2024. There are also several live spin-off and M&A events which could trigger intra-review index changes in the late-2024/early-2025.

• K Bank (279570 KS) is looking to raise up to KRW 984bn (US$738m), valuing the company at KRW 5tn (US$3.75bn) at the top end of the IPO price range.
• Close peer KakaoBank (323410 KS) and regional peer SBI Sumishin Net Bank (7163 JP) have been trading lower recently and the IPO could price lower than the top end.
• The change in KOSPI2 INDEX Fast Entry rules will leave the stock out of the index till June 2025. Inclusion in global indices will have to wait a while too.

• China’s securities industry is under a wave of consolidation. China International Capital Corporation (3908 HK) is interesting given its leadership in the investment banking business.
• A combination with China Galaxy Securities (H) (6881 HK) may bring synergy, given their different focuses. This will create the 3rd largest securities house in China. 
• Even without a merger, CICC also looks attractive with the US interest rate trending down. It is best set to gain upon the revival of the Hong Kong IPO market. 

• Lippo Karawaci’s results made for interesting reading with underlying profitability improving in its real estate and lifestyle segments as it reduced its Siloam stake and reduced its debt.
• Real estate marketing sales in 1H2024 made up 58% of FY2024 guidance, with affordable landed housing driving growth across multiple projects targeting first-time buyers utilising readily available mortgages.
• LPKR further reduced its holding in Siloam International Hospitals in September through the tender offer and will further reduce its debt with proceeds. LPKR is back on the investor radar.

• JGB 10Y bond yields have slipped from their July high, but are well above historic lows; the outlook, in our view, is still for BoJ monetary tightening before year-end 2024
• We see a constructive outlook with recovering domestic loan growth, available funding as well as sector evidence of higher lending rates; also, largely well controlled unrealized losses on bond portfolios
• We keep Resona and Mizuho as our top picks for their strong gearing to higher interest rates and attractive valuations in this Japanese bank group, along with Chiba and Concordia

Henderson International Income Trust (HINT) seeks out companies with potential for growth from exposure to structural themes that is not priced into their valuations. The trust’s manager, Ben Lofthouse, believes the market’s current narrow focus on a few AI-related stocks means now is an especially good time to find such undervalued businesses. He has taken this opportunity to acquire companies with exposure to the rapid spread of technology and related themes, including several Asian businesses. Recent performance has improved thanks to these acquisitions, ensuring the trust continues to meet its long-term capital appreciation objective. HINT is also meeting its other aim, to provide shareholders with a rising income: its dividend has risen every year since inception and its dividend yield is the highest among its peers. Lofthouse believes the portfolio’s holdings are well-positioned to continue benefiting from their exposure to technology and other long-term structural trends. And with earnings set to rise steadily over coming years in his view, and the board wiling to use reserves to support dividends, if necessary, he is confident of HINT’s ability to continue fulfilling its objectives to grow both capital and income.

• Chesnara has announced its 1H’24 results.
• The main features were positive equity market returns, offset to some extent by further adverse lapse experience.
• Economic Value profit of £20.2m was behind the 1H’23 result of £32.6m (excl. acquisitions).

• Japan Metropolitan Fund Investment Corporation (8953 JP) aims to raise around US$140m to partly fund the acquisition of four assets.
• The deal will be relatively small, in terms of ADV and dilution.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• UniCredit SpA (UCG IM) has raised its Commerzbank AG (CBK GR) stake to 21%; Chancellor Scholz called it “hostile takeover”. UniCredit also filed to increase its stake up to 29.9%.
• Commerzbank’s valuation multiples remain attractive, as despite a 21.3% rise in its stock, it still trades at a price-to-book ratio (P/B) of just 0.57x, compared to UniCredit’s 0.98x.
• The conditions remain favorable for a potential premium acquisition by UniCredit, as acquiring Commerzbank makes both strategic and financial sense. Thus I recommend to buy Commerzbank speculatively.

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.

• New World Development

• The index focuses on qualitative factors like capital efficiency and shareholder returns, but efforts to impose sector balance may have overextended its market benchmark role.
• Some companies not fitting the ‘value-up’ narrative got included, while market favorites were sidelined by sector rankings, which is puzzling given the index’s original goal.
• Still, with rebalancing cut down to once a year, we should expect the flow impact on the index names to hit harder than initially thought compared to their sector peers.

• Besides ranking in the top 50 by market cap, it must also meet a minimum float-adjusted cap for K200 fast entry: at least 50% of the 50th-ranked stock’s market cap.
• Even if new stocks meet KRX’s float cap, their actual float share volume may still be low, risking inflation from local pension funds’ preemptive passive inflows post-listing.
• This could reduce predictability for KOSPI 200 fast entry, increasing price swings post-listing and forcing traders to develop new volatility strategies after IPOs.

• K Bank (279570 KS) is a Korean internet bank. It has launched an IPO to raise up to US$734 million.
• We previously discussed the IPO in K Bank IPO: The Bear Case and K Bank IPO: The Bull Case.
• We examine the syndicate’s valuation methodology. Our analysis suggests that K Bank is unattractively valued in the IPO price range. We would pass on the IPO.

• The last 2 weeks have been painful for investors that were LONG the KOSPI 200 INDEX, and this week is not very promising either.
• The index has advanced less than 3% since its last WEEKLY negative Close on September 6th.
• The index is in its 3rd consecutive week up (to be confirmed this Friday at the Close) but the current pattern usually ends on the third week up and reverses.

• Following the U.S. Federal Reserve’s decision last Wednesday to lower the dollar interest rate by 50 basis points, the crypto market has responded positively.
• Bitcoin has climbed 5.56%, while Ethereum has surged 15.25%.
• The market conditions are increasingly aligning for a major upward move.

• In 2Q24, KE’s revenue grew by 20% YoY despite the weak property market.
• We believe property developers and personal landlords need KE more than the prosperous time.
• We believe the stock has an upside of 148% for the end of 2025. Buy.

Interim results, for the six months to 31 July (H125), will be published on 8 October. Ahead of that, S&U has alerted the market that based on the H1 performance, full year PBT is unlikely to meet the previous market consensus expectations. We believe this to be primarily a timing issue, reflecting the continuing impact of the temporary FCA restrictions on collections activity in the motor finance business. Once regulatory clarity has been established, we expect a significant recovery. Meanwhile, as previously reported, the property lending division continues to perform strongly. We have reduced our FY25 PBT estimate by 7% to £27m and will review our FY26 forecasts with the interim results.

• K Bank (279570 KS) plans to raise up to US$740m in its upcoming South Korean IPO.
• K Bank is one of three Internet-only banks in Korea. It provides a full range of commercial banking products and services.
• In our previous note, we have looked at the company’s past performance. In this note, we will undertake a peer comparison.

• Nesco reported a mixed Q1FY25. The IT Park business reported strong growth led by improved occupancy. IT Park revenue grew 20%+ YoY and 7.4% QoQ.
• The BEC business saw decline in its revenue due to seasonality. Q1 tends to be the weakest quarter for BEC. This also impacted the Nesco Foods business to an extent.
• BEC revenue declined -19% YoY. Nesco Foods revenue declined -14% YoY. Overall, Nesco’s PBT increased 7% YoY, however PAT declined -8% YoY due to deferred tax impact. 

• DLocal’s Q2 2024 earnings report indicates a complex blend of growth, challenges, and strategic adaptation amid volatile market conditions.
• The company reported a significant achievement with its Total Payment Volume (TPV) reaching $6 billion, depicting a strong year-on-year growth of 38% despite a high comparative in the previous year.
• This growth attests to DLocal’s ongoing capability to deepen relationships with existing global merchants and to attract new ones, contributing positively toward its long-term expansion prospects.

Molten Ventures has already surpassed its £100m realisation target for FY25 (ending March 2025) with exits from Perkbox, Endomag, Graphcore and M-Files, which in aggregate represent £124m in exit proceeds. Consequently, Molten launched a £10m buyback programme in July 2024. All these transactions were agreed at or slightly above the previous carrying values. Molten’s H125 results will likely benefit from Revolut’s recent secondary sale, which values the fintech at US$45bn compared with US$33bn during the previous funding round in July 2021. Finally, several of Molten’s core holdings raised capital this year, providing additional validation points for Molten’s H125 carrying values.