Financials

• The Japan Post Holdings (6178 JP)/ Japan Post Bank (7182 JP) ratio looks more attractive as JPB climbs with other banks as the possibility of Offering-induced retail overhang increases. 
• The ACCC has until 28 September 2023 to make its decision on Origin Energy (ORG AU). Expect ACCC to be supportive – they haven’t built a strong “against” case.
• There should be more for the Kenedix REIT complex on a fundamental basis, a future equity capital raise accretion basis, and because of significant net buying for index purposes.

• Our base case valuation of Seoul Guarantee Insurance is target price of 48,052 won which is within the IPO price range of 39,500 won to 51,800 won. 
• Given the lack of upside relative to the IPO price range, we have a negative view of this deal. 
• We are not impressed with the company’s lack of top-line sales growth and worsening operating profit in 2023. The valuation range as proposed by the bankers is also not attractive. 

• Weekly summary of vol changes and moves across Global Markets
• Analysing ATM volatility and skew changes over the last 5 days
• We suggest a few trades to take advantage of the implied vol surfaces

• This is the brand spanking new Quiddity HK Connect SOUTHBOUND Monitor. We work off the same presentation as the A/H Premium Monitor and Mainland Connect NORTHBOUND Monitor.
• The data on liquid names is presented for 5 days and four weeks and anything seen can be ranked in tables or selected and charted (names, sectors, outperformance, etc).
• We like the nifty interactive tables and charts and welcome feedback. This week saw RMB 15bn+ of net selling. That’s six weeks in a row of respectably large outflows.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Softbank Group
2. China SCE
3. Sino-Ocean Group
4. China Jinmao Holdings
5. Geely Auto

and more…

• Mitsubishi UFJ Financial Group Inc. delivered a solid result and managed an all-around beat last quarter.
• Despite increased G&A expenses, the company managed to rebound in terms of NOP, reaching a level before the introduction of negative interest rates.
• We give Mitsubishi UFJ Financial Group Inc. a ‘Hold’ rating with a revised target price.

• We retain Bank Negara as our top pick for its deep value attributes of low PE multiples and its attractive PEG ratio relative to sound returns and strong liquidity metrics
• We also stick with our positive call on Bank Mandiri, for its premium returns and undemanding PE multiples; Bank Central Asia, albeit fully valued, has impressive liquidity and return metrics
• Bank Rakyat again registered worsening pre-provision returns in 2Q23, even if there was QoQ cost of risk relief; its loan mix implies a high structural cost of risk going forward

• UBS Group AG managed to exceed the revenue and earnings expectations of Wall Street.
• The total pretax profit after these adjustments was $1.1 billion, of which $2 billion came from the UBS subgroup and a loss of $0.8 billion from the Credit Suisse subgroup.
• Furthermore, UBS Group’s financing division kept up its great performance, reporting its best second quarter and best first half ever.

• In mid-June, three months ago yesterday, Kenedix Office Investment Co (8972 JP), Kenedix Retail REIT (3453 JP), and Kenedix Residential Investment (3278 JP) announced a three-way merger for Nov1.
• All three popped in price, and peaked three weeks later, both outright and vs Peers. Then it fell sharply back. 
• It is worth looking at the new Combined “KDX” entity on a pro-forma basis. There should be more to go.

Utilico Emerging Markets Trust (UEM) is managed by Charles Jillings, together with deputy portfolio managers Jacqueline Broers and Jonathan Groocock, at specialist investor ICM. Jillings is frustrated by the trust’s wide discount, which he believes does not accurately reflect UEM’s strong past performance and future growth prospects. The fund has a consistently low beta and has outperformed the MSCI Emerging Markets Index over the past one, three, five and 10 years due to successful stock selection. Jillings and his team are investing in the growth potential from four megatrends: energy transition, digital infra, global trade and social infra. They seek undervalued real assets with robust growth profiles, strong cash flow generation and attractive dividend yields. Since inception in 2005, UEM’s NAV has compounded at 9.3% per year.

EML Payments reported FY23 revenue and underlying EBITDA ahead of the top-end of its guidance range, benefiting from higher interest income and improvements to customer contracts in H223. The company is making good progress with its short-term priorities, and while the Barrenjoey strategic review is ongoing, management has started taking action to return loss-making activities to profitability and to reinvigorate growth in its core businesses. We have upgraded our forecasts to reflect better-than-expected performance in FY23 and identified cost savings.

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 SCE
• Hopson Development
• Sino-Ocean Service
• Softbank Group

• After Sun Hung Kai Properties (16 HK) released its interim results, shares declined 12.7% intra-day this past Monday, touching a 14-year low, before closing down 9.5%. 
• The same day, the Kwok family increased their stake in the company, purchasing ~2.2mn shares for ~HK$175mn.  
• SHKP is currently trading a trailing P/B of 0.36x versus its five-year average of 0.54x, and the five-year average preceding Covid of 0.68x.

• SMFG can benefit like peer banks from BOJ policy change, but less so than MUFG, while at the same time, there does not appear to be a strong alpha story
• ROE and ROA for SMFG show now expansion over the years, and this is stark contrast to MUFG, part of this appears to be due many weak subsidiaries
• Credit costs are now averaging 23bps over the past four quarters vs 13bps during 1Q18 to 4Q19, not improving credit metrics like many others, with high write-offs.

Primary Health Properties (PHP) has agreed to acquire Ireland’s first Enhanced Community Care (ECC) facility for a total consideration of €30m. With its interim results, PHP highlighted its continued plans for strategic expansion in Ireland, where higher yields support accretive investment in an expanding market. Alongside low-risk, value-creating asset management schemes and accelerating organic rental growth, this represents a key opportunity for continuing growth in income. Our forecasts are for now unchanged.

• The biggest Japan banks by assets, in spotlight as near ending of negative interest rates, with lowest LDR, so highest bonds, cash, can see major benefit from YCC relief
• Years of low ROE at 5-7% seem behind MUFG now with 12-17% in past two quarters, where leverage is not out of control, with cost improvements key
• Loss loans down 29% over past two years, can support low credit costs, which dropped sharply from 81bps to 15bps from 3Q23 to 1Q24, possibly moving to reversals

• Seoul Guarantee Insurance Corp is getting ready to complete its IPO in Korea in the next several weeks. The IPO price range is from 39,500 won to 51,800 won. 
• Market cap is from 2.8 trillion won to 3.6 trillion won. At the high end of the IPO price range, this could be the biggest IPO in Korea in 2023.
• Many investors will be skeptical on the bankers including two overseas comps (Travelers and Coface) which have much higher valuations.

• The S&P/ASX 200 (AS51 INDEX) closed down last week (CC=-1), this week is rising again, we analyze the new, reset resistance levels to see how far it can go.
• Our previous, recent insight discussed the fact that the index has been locked in a range for 2 years, an uptrend may be unfolding but it must breach 7600.
• The current trend pattern is bearish, the index won’t rise more than 2-3 weeks, and it would probably go not very far: 7300-7400 should be the limit

• We think the mild recovery is driven by the delayed orders in Jul. and Aug, thus expect transaction volume to be flattish MoM in Sep.
• We think the recovery is on-track and expect Oct. volume to begin recovery and expect more meaningful rebound in Mar.-Apr. 2024, supported by 1) strong leading indicators from property agents, 
• 2) refer to the recover trajectory in 2014-2015.  We maintain the stock as BUY rating and maintain TP at US$24/ADS.

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
• Vedanta Resources

JPMorgan European Discovery Trust (JEDT) invests in European small-cap companies (excluding UK), with the aim of providing shareholders with long term capital growth. The investment case for this sector is clear and simple. European small caps have outperformed most other markets over the long term. JEDT’s disappointing performance during H122 prompted its managers to rotate out of high-growth IT software and medtech stocks, in favour of a more balanced approach focused on quality and value names. Many of these acquisitions are now contributing to returns.

• After announcing full year results, one investment bank revised down share price target excessively (we will look at reasons).  On Monday, HSBC also announced adjustment of mortgage rate cap
• These 2 events caused a sell-off in the property sector, SHKP, in particular, was down 10% and trading at HKD80 per share. We think it is overdone
• At this valuation, market is pricing in super bearish scenario.  At 0.38x P/B, I think it is a bargain to buy now.  It is a value trade.

• The Mirae Asset Tiger Top 10 ETF (292150 KS) tracks the FnGuide Top 10 Index and has an AUM of over US$1bn.
• We currently forecast one potential change at the next rebalance in December. There is another set of changes that could also take place.
• There has been a big increase in short interest on a couple of stocks while the rise has been more gradual on the other stocks.

• Our previous insight correctly predicted the current pullback for the Hang Seng Index (HSI), now let’s analyze MRM WEEKLY support prices, to identify when/where a bounce could begin.
• The 17835-17105 support price area is where the index should stop and bounce, however depending on the duration of the pullback the % correction could vary wildly.
• If the index is about to bounce, it should bounce this week or the next, if it falls >3 weeks down, it could enter a downward spiral towards 15707.

• SAMHI Hotels (SAMHI IN) plans to raise around US$165m in its Indian IPO.
• Samhi is India’s third-largest hotel asset owner, by number of keys, with a portfolio of 25 operating hotel assets comprising 3,839 keys, as of Feb 2023.
• In this note, we talk about the updates from the recent filings and our final thoughts on valuations.

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.

• Pakuwon Jati
• Pertamina Geothermal Energy PT
• Sunny Optical Technology Group

• The Nikkei 225 INDEX fell -5.77% during July and August (CC=-2). Currently the index is down for September: this month’s negative Close would be = CC=-3, a strong LONG signal.
• The index reached a low = 31275.25 in August, right in the middle of the 32391-30600 support price band indicated in our previous MONTHLY Trajectories Analysis,  50%-75% reversal probability.
• LONG Support levels are confirmed, in this insight we will analyze the new, re-calculated Resistance levels, to evaluate how far/how long the index could rise, if it rallies.

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.

• As expected, Abacus Group (ABG AU) will be deleted from the MVIS Australia A-REIT Index at the close on 15 September.
• Abacus Group (ABG AU) will also be deleted from the S&P/ASX 200 (AS51 INDEX) on the same day, so this increases the sell flow on the stock.
• Estimated one-way turnover at the rebalance is 3.8% resulting in a one-way trade of A$23.8m. There are a few stocks with over 1x ADV to trade from passive trackers.

• There are no constituent changes for the index but there are float and capping changes that will be implemented at the close on 15 September.
• Estimated one-way turnover is 3.3% and the one-way trade is US$21.5m. There are eight stocks where passive trackers need to trade over 1 day of ADV.
• After large creations for Market Vectors Vietnam ETF (VNM US) at the start of the year, there has not been a lot of follow-on activity as the market moves higher.

• Royal Bank of Canada managed to exceed analyst expectations in terms of revenue and earnings.
• Revenue increased by 19% to $14.5 billion because of the strength of their diversified business strategy, which delivered revenue growth across all of their businesses.
• In Corporate Banking and Investment Banking, the Royal Bank of Canada kept moving its operations toward globalization and expanded the range of industries and products it served.

• The Toronto-Dominion Bank delivered a mixed result in the recent quarter, with revenues above market expectations but failed to surpass the analyst consensus regarding earnings.
• Revenue increased yearly, mostly due to margin improvement in the company’s retail sectors.
• Earnings in the Canadian Personal and Commercial Banking division were $1.7 billion, with revenue increasing by 7% and operating leverage significantly improving.

• The Brand-Spanking New (three weeks old) A-H Monitor has tables, charts, measures galore.
• New stimulus measures appear to be triggering FOMO on real estate stocks, but a foreshortened week, yet again, makes one wonder. There IS money being applied though.
• I expect more measures and more buying. I am not sure I would want to be short any Hs with a deep discount to the A the next few months.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Country Garden Holdings Co
2. Hopson Development
3. Greentown China
4. ReNew Energy Global
5. China Jinmao Holdings

and more…

• Singapore credit growth turned negative at -3% YoY in July where STAN has major exposure, while many regions, are not high growth, where credit metrics are worsening, like HK, China
• 88% of loans in well-developed countries, so that the old moniker of STAN being ‘an Emerging Market Bank’ may no longer apply, with NPLs as an overlying risk
• Credit costs rose 6x from 1Q23 to 2Q23, but the 19bps level in 2Q23 remains low relative to its longer-term 62bps average – which excludes the Asian Financial Crisis

• HHH held its annual investor day updating investors on the continued increase in population at its MPC, but that was not enough to offset the decline in NAV
• HHH’s management reiterated the trends that have fueled the business have continued with price per square foot and acre having increased over the past year.
• HHH is now estimating its NAV at $129 compared to $170 last year. We are lowering our price target to $110 from $150 to reflect the erosion in the NAV

• SPACs – remember them? US offerings in 2021 topped ~US$150bn, falling to US$13bn in 2022. Singapore joined the bandwagon in January 2022  and Hong Kong two months later.
• That Hong Kong stock is Aquila Acquisition Corporation (7836 HK), and it recently announced a merger with ZG Group, a Chinese steel trading website.
• That’s positive. Less positive is how de-SPACed shares tend to trade in the US. 

• Mason Group Holdings (273 HK)‘s scheme document is out, with the vote scheduled for 3 October. The IFA considers Red Emerald Capital’s HK$0.0338 per share offer fair and reasonable. 
• The key conditions are SFC approval and the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). Peer de-rating has helped the attractiveness of the offer.
• Shareholders with blocking stakes have provided irrevocables or will accept due to the attractive ROI. At the last close and for the 21 November payment, the gross/annualised spread is 9.0%/52.1%.

• Aquila Acquisition Corporation (7836 HK) agreed to a De-SPAC transaction with ZG Group (formerly Zhaogang.com), the world’s largest digital platform for third-party steel transactions.
• ZG has a questionable business model, struggling to generate profits or underlying FCF. This dynamic suggests that ZG has not established a sustainable competitive advantage. 
• The negotiated value of ZG in the De-SPAC transaction is HK$10,004 million (US$1,277 million). Our valuation analysis suggests that this negotiated value is unrealistic.

• Godrej Properties (GPL IN) is one of the large real estate developers in India. The company has diversified presence across four of the largest markets in India. 
• Even though Godrej has strong booking pipeline, the company however faces trouble in generating cash historically.
• Its low ROCE, fragile earnings quality remains a concern. Other concerns include JV exposure, CWIP ageing along with few disclosure woes.

• Credit metrics appear worse than headlines, with what may be inflated substandard loans now at 66% of total NPLs in 1H23 compared with 21% in 1H21, requiring low provisions
• High net charge-offs can partly explain this, but high growth from RMB1.6bn during 2H18/1H19 compared with RMB7.5bn during 2H22/1H23, shows major deterioration
• 2Q23 saw CZB take credit costs of RMB10.3bn or 2.48% of loans, far higher than most other periods, but there remains high volatility, where very high figures rarely repeat QoQ

• On the 11 June, broker Mason Group (273 HK) announced a Scheme at HK$0.0338/share, a 20.7% premium to last close. Terms had not been declared final.
• The Offeror is Red Emerald. which holds no shares in Mason. Shareholders with 47.55% of shares out have given irrevocables in support of the Scheme. 
• The Scheme Doc is now out. The EGM/Court Meeting will be held on the 3 Oct with expected payment around the 21 November. Trading wide to terms.

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.

• Country Garden Holdings Co
• Greentown China
• Hopson Development
• Innergex Renewable Energy
• Yanlord Land

• Manulife Financial Corporation produced a fair result with decent momentum in its top-line KPIs, with APE sales, new business value, and new business CSM all up by double digits.
• Besides, they achieved APE sales of $1.6 billion, a new business value of $585 million, and a new business CSM of $592 million, an increase of 15% from the preceding year and in line with their medium-term plan.
• They have now added Manulife Vitality to new Manulife Par individual insurance policies in Canada, considerably broadening their behavioral insurance program.

• The CN-3 well encountered 67 feet of oil pay in two Ubaque zones plus 23 feet of oil pay in the C7 and 59 feet in the Lower Gacheta formations.
• The oil pay encountered in the Ubaque at CN-3 is thicker than at CN-2 (~60 feet). The characteristics of the reservoir are very good and similar to those encountered in the CN-1 and CN-2 wells.
• The Lower Ubaque zone was initially tested at 593 bbl/d of oil with a 30% water cut. The water cut subsequently increased and the test was terminated. 

Georgia Capital (GCAP) delivered positive newsflow during August, including the successful pricing of its new sustainability-linked bond (with proceeds used to redeem the 2024 Eurobond), as well as its Q223 results release, with a robust 8.2% NAV total return (TR) in GEL terms posted during the quarter. We believe that the successful bond refinancing, coupled with continued deleveraging at holding level (net capital commitment ratio of 17.4% at end-June 2023) further reduces GCAP’s risk profile. Despite the above, GCAP’s shares are still trading at a relatively wide c 58% discount to its ‘live’ NAV estimate.