Financials

• PICC P&C’s thesis has materialized and played out well this year, with the stock being HK’s best-performing Chinese insurer.
• Samsung Life’s share price recovered slightly since our last update as LT Korean government bond yields further increased.
• Prudential’s thesis is slowly being played out, with its P/BV discount to AIA having narrowed; but still a long way to go. 

• Indusind Bank (IIB IN) reported 51% attrition in FY2023 from 37% in FY2022
• In the annual report the directors completely ignored acknowledging or discussing the attrition apart from the mandatory disclosure
• The sharply rising attrition indicates poor human resource policies in recruitment and training which adversely impact cost management

In its H123 results, Secure Trust Bank (STB) delivered an 11% y o y increase in operating income, overcoming margin pressure on rising interest rates. However, PBT was £16.5m, 4% lower than in H122 as the bank incurred a one-off impairment charge of £7.0m stemming from a long-standing debt case in Commercial Finance. Excluding this charge, PBT was £23.5m, which implies a 6% beat on our estimates on an annualised basis. Across the group, underlying impairments are resilient, especially in Vehicle Finance where impairments fell to 2.4% (H122: 8.0%) as lending shifted to prime borrowers. We have increased our FY23 and FY24 continuing PBT forecasts to £45m and £55m respectively, leaving the stock trading at P/E ratios of only 4.0x in FY23 and 3.1x in FY24.

• Fintech adoption in ASEAN shows significant potential driven by increased smartphone adoption, internet penetration and a growing middle-class population.
• More than 70% of population in the region is either unbanked/underbanked, creating a favourable landscape for FinTech enterprises to create solutions and establish market presence.
• In this Original, we have deep dived into three key fintech players in the region including Coda Payments, Akulaku and GCash operating across some of largest markets in the region.

• After a -5 weeks correction in August, the NIFTY Index has restarted its Bull run, ongoing from mid-March 2020. Let’s have a look to where MRM WEEKLY resistance levels are.
• The current pattern is BULLISH, the index could rise easily another 2-3 weeks from here.
• Target prices for a reversal (or pullback within the uptrend) are between 19846 -20294

• Integral Corporation (5842 JP) has set its IPO price at JPY2,300-2,400 per share, 18%-29% lower than the IPO reference price range of JPY2,800-3,400 per share.
• We previously discussed the IPO in Integral Corporation IPO: The Bull Case, Integral Corporation IPO: The Bear Case and Integral Corporation IPO: Valuation Insights. 
• Our analysis suggests that the revised IPO price range is attractive compared to peer multiples. The re-rating of peers since the release of the prospectus also makes the offer tempting. 

• Integral Corporation (5842 JP) is looking to raise around US$123m in its Japan IPO.
• Integral is a private equity management company advising funds that invest in both listed and unlisted companies in Japan, with a focus on mid-sized companies.
• In our previous notes, we looked at the company’s past performance. In this note, we talk about valuation.

• This is not a typo: SBI Sumishin Net Bank saw loans up 21% YoY in 1Q24, operating in Japan
• The bank has achieved cost scale, with acquisition cost per account a fraction of 2 yrs ago
• Credit quality remains exceptional, amongst best in Japan, with 0.06% NPL ratio in 1Q24

China Vanke’s H1/23 results were in line with our expectations, with single-digit growth in overall revenue but ongoing margin pressure. The company realised CNY 201 bn of revenue in the period, up 2.9% y-o-y, while attributable profit fell 19.4% to CNY 9.87 bn. Booked revenue from property development was CNY 171 bn (-4.5%), owing to weakness in settlement area (-5.2%) and settlement gross margin (-1.6 ppts).

LTM adjusted debt climbed 2.3% y-o-y to CNY 347 bn at end-June, leading to weakened credit metrics. That said, the developer managed to optimise its debt structure in H1/23, with less exposure to short-term and offshore debt. The LTM cash balance declined 11% to CNY 120 bn, but covered short-term debt by 2.4x (FYE 2022: 2.0x). The company has no offshore debt due in H2/23 but will have two USD bonds coming due in 2024, with total outstanding principle of USD 1.2 bn.

We believe Vanke faces ongoing destocking and margin pressure. That said, the company appears to have smooth access to external funding, with prudent cash-flow management. We see limited near-term repayment risk. Our fundamental Credit Bias on Vanke is “Stable”. We maintain our “Buy” recommendation on the 2024 bonds, as the yields for these notes appear to be more attractive, but revise our recommendation on the rest of the curve to “Hold” from “Buy”.

• The KOSPI 200 INDEX last week started to rally, so we want to look at WEEKLY resistance levels to evaluate where the current rally could end.
• MRM Resistance Levels where the rally could stop are: 339, 348, 356.
• Based on the current MRM pattern reading we expect the index to either roll down this week, or to rally for +2 more weeks (CC=+4) and then go down.

• KE Holdings (Beike) reported 2Q23 GTV 5.6% lower than our estimate, revenue (2.6%)/0.4% vs. our estimate/consensus, and non-GAAP NI 21.8%/42.9% higher than our estimate/consensus. 
• We think 3Q23 is the trough and expect a rebound in 4Q23 as more substantial supportive policies laying out in China. 
• We maintain the stock as BUY rating and raised TP by US$2 to US$24/ADS

• The discounts to NAV of covered holdcos have not shown a clear pattern during August, some widened while others tightened. Discounts to NAV: C.F.Alba, 46.6% (vs. 47.5%); GBL, 36.2% (vs. 39.1%); 
• Heineken Holding, 17.9% (vs.16.4%);  Industrivärden C, 7.8% (vs. 6.6%); Investor B, 16.6% (vs. 15%); Porsche Automobile Holding, 41.5% (vs. 43.8%). The spread of Rio Tinto DLC tightened to 17.8% (vs. 19%).
• What seems interesting: holding trades, Investor B vs. listed assets, Porsche SE/vs. listed assets and the Rio DLC, long RIO LN/short RIO AU.

• Today, the EGM to approve the share consolidation (resulting in minority squeezeout and delisting) took place. 
• It was a done deal. So now it is done.
• All that remains is for the technically adept to do what they expect they need to do. 

• Despite worsening doubtful, loss loans, the bank opted to lower impairment costs in 2Q23 YoY
• There is almost no profit growth without the bank’s provision cost decline, in 1H23 and 2Q23
• Loans more than doubled since FY19, but against this LLR/loans continues to decline

Seazen’s H1/23 results were in line with expectations, with sustained weakness in contracted sales and revenue, along with weaker margins. The group generated CNY 4.7 bn of investment property income in H1/23 (+10% y-o-y), with a gross margin of 70% (H1/22: 72%). We note positively the growing recurring revenue. The annual gross profit of c. CNY 7 bn now covers interest expense of c. CNY 6.3 bn.

Seazen’s liquidity will be tested by homebuyers’ growing concerns over private developers’ ability to complete properties. This has been exacerbated by lenders’ reluctance to roll over debt. In this regard, we note that the regulatory authorities committed to improve funding access for private firms in late August 2023.

We revise our trade recommendation to “Hold” on the FUTLAN 6 24 and “Not Recommended” on the remaining FUTLAN/FTLNHD notes, from “Hold”.

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. Yankuang Energy Group
3. Health And Happiness (H&H)
4. Xiaomi Corp
5. Anton Oilfield

and more…

• Guangzhou R&F Properties Co. Ltd. has 48.1 billion yuan ($6.6 billion) of debt due within a year with less than 10 billion yuan on hand as of the end of June, the southern China property developer disclosed.
• Even though R&F extended some debt last year, its first-half financial report showed that it is still mired in a liquidity crisis. R&F Properties delayed payment of 46.7 billion yuan of domestic and offshore bonds in 2022 for three to four years.
• The developer reported a net first-half loss of 5.1 billion yuan, 26% narrower than a year ago.

Country Garden’s H1/23 results were weak, as expected, and we believe there is a high chance that the company will default. Country Garden also warned in the interim results report about uncertainties associated with its ability to continue as a going concern.

Consistent weakness in contracted sales and deteriorating profitability (both rooted in Country Garden’s significant exposure to lower-tier cities) will likely lead to further liquidity pressure for the developer going forward. We do not foresee a near-term turnaround in profitability, given weak home-buyer sentiment in China and the fact that a majority (>80%) of Country Garden’s land bank is in lower-tier cities. In H1/23, the company recorded a gross loss of CNY 24.3 bn (H1/22: CNY 17.2 bn gross profit) and CNY 45.4 bn in core net loss attributable to owners (FYE 2022: CNY 4.91 bn core net profit).

We believe default risk remains high, even if Country Garden manages to extend the payment deadline for the CNY 3.9 bn (USD 535 mn onshore bonds). The company reported CNY 258 bn of interest-bearing debt as at end-June 2023, of which 42% (CNY 109 bn) will become payable within 12 months. This compared to CNY 101 bn in cash and equivalents, as well as CNY 29.5 bn in restricted cash reported at end-June. External funding access appears very limited, especially considering the deteriorating value of assets that could be used as collateral.

In the event of a default, we believe offshore bondholders will have very limited access to property assets on account of structural and effective subordination. All of the company’s offshore USD notes are trading at distressed levels, pricing at only c. 7-12. We maintain our “Not Recommended” view on the COGARD notes.

• Four months ago, Rakuten Bank (5838 JP) was IPOed too low, then the price went up. It would appear foreign active ownership is relatively high.
• Rakuten Bank stands out with high ROE and earnings growth. Banks stand out because, well, they’re going up. 
• Given expected 5yr earnings growth, Rakuten Bank at current price is probably “wrong.” But it has much less “bankness” than most banks, so you have to think about it differently.

• Daiwa House Industry (1925 JP) is looking to raise US$175m from trimming a portion of its stake in Daiwa House Reit Investment (8984 JP).
• Given that a selldown in the REIT hadn’t been explicitly guided, we would thus argue that the deal here isn’t particularly well flagged.
• Overall, the base deal would represent 4.09% of the REIT’s total outstanding shares, representing 20 days of three month ADV.

• The review period for the September rebalance ended yesterday. There could be one deletion from the index and a bunch of capping changes.
• The index changes will lead to a one-way turnover of 3.4% resulting in a one-way trade of A$21m. There are two stocks with over A$5m to trade.
• Short interest has increased on a few REITs recently while decreasing on most of the other names.

China Jinmao’s H1/23 results were in line with projections, with the company reporting robust contracted sales and cash collections despite the industry downturn. The gross margin narrowed to 14% (H1/22: 22%), albeit this was in line with industry trends. We expect the gross margin to remain weak, as Jinmao has to clear existing inventory (with higher land costs) in the subdued market.

We expect Jinmao’s debt to remain largely stable going forward, as the company will likely control land spending to shore up its balance sheet. Positively, the land bank has remained sufficiently large and should provide for 4-5 years of development. We expect Jinmao to continue reducing its offshore borrowings, and to redeem the perpetual securities.

Overall, Jinmao’s credit profile is underpinned by its SOE status, which supports the company’s access to financing. Moreover, the CHJMAO bonds are supported by the presence of cross-acceleration clauses with parent Sinochem Holdings’ offshore notes in the event of default. We move our recommendation to “Buy” from “Hold” on the CHJMAO notes, with a preference for the 2024 and 2025 notes (both yielding close to 15%).

• Bank Rakyat Indonesia (BBRI IJ) continues to be the key and unique proxy for micro and ultra-micro lending in Indonesia, with 1H2023 reflecting its increasingly strategic positioning in the space.
• Microloans now account for 48% of loans and of this higher-yielding Kupedes microloans make up an increasingly larger portion, as it diversifies its KUR exposure. 
• The bank is set to see improving returns in 2H2023, with loan growth expected to pick-up and NIMs should also improve. 2.6x PBV with an ROE of 20.0% is attractive.

• Three PE investors are looking to raise up to US$158m via selling 5.9% of Five Star Business Finance (FIVESTAR IN) (FSB).
• Five-Star Business is a non-banking financial company that provides secured business loans to micro-entrepreneurs and self-employed individuals. FSB had raised around US$190m in its India IPO in Nov 2022.
• In this note, we will talk about the deal dynamics and updates since our last note.

• BlackRock delivered a mixed set of results in its most recent result, with revenues falling short of Wall Street expectations but above-par earnings.
• BlackRock achieved $190 billion in total net inflows, indicating favorable flows from wealth and institutional customers across regions.
• BlackRock generated $48 billion in net inflows during the quarter, taking the leading market share of ETF industry flows.

• Aflac managed to exceed analyst expectations in terms of revenue and earnings.
• The company’s diligent efforts and strategic initiatives in the United States and Japan have yielded strong results, positioning Aflac for future growth.
• In Japan, the rollout of new products like WINGS cancer insurance and refreshed policies have contributed to significant sales growth, particularly in the cancer insurance segment.

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

• AIG delivered a solid result and managed an all-around beat in the quarter, marked by robust financial performance and significant progress on strategic initiatives.
• Strategic actions, including divestitures and establishing a Private Client, Select as an MGA, further position AIG for future success.
• In this report, we have carried out a fundamental analysis of the historical financial statements of the company.

• Today after the close, Ichigo Inc (2337 JP) announced a stock buyback to go through the next 6 months. It is ¥3bn, which is not huge, but not nothing.
• It seems like a constant refrain, but shareholder structure matters. 
• Ichigo has a history of doing buybacks (10% of shares out are in treasury), and the historical patterns are interesting when comparing announced intention and actual result. 

• After underperforming since listing, Digital Core REIT (DCREIT SP) has outperformed Keppel DC REIT (KDCREIT SP) over the last few months.
• However, Digital Core REIT (DCREIT SP) still trades at cheaper valuations as compared to Keppel DC REIT (KDCREIT SP). 
• There could be relative outperformance over the next few weeks and any underperformance can be used to enter positions in the pair. There is an important catalyst.

Hopson’s H1/23 results were strong as expected, and will likely outperform those of many other POE developers. The top line grew 14% y-o-y to HKD 15.1 bn. Gross profit surged 75% to HKD 5.4 bn, with the gross margin rising by 12 ppts to 36%.

The company also managed to cut net debt by HKD 5 bn. We expect Hopson’s contracted sales and cash collection to be supported in the next 1-2 years by its high-quality land bank and CNY 47 bn of saleable resources. In addition, we believe the company faces low near-term repayment risk, given the limited ST bond maturities.

Our Credit Bias on Hopson is “Stable”. That said, we believe the bond price could be volatile amid the weak market sentiment and poor technicals. We maintain our “Hold” recommendation on the HPDLF curve.

• Weak results at Ping An Insurance across many divisions, with banking most important
• Life and Health negative insurance revenue delta, not offset by insurance cost delta
• Net asset growth is now at 5% YoY, from 9% YoY last year, from ~29% avg for years

• Greentown China (3900 HK) is a high quality China property developer that is unfairly suppressed given the extreme pessimism of the sector. 
• Even though the overall sales of China property industry will likely continue to decline, the market is large enough that some developers could stand to gain massive market share. 
• The company trades at 2.5x 2024E PE, and 71% discount to NAV, with expected growth in net profit in 2023 and 2024. 

• RE Royalties reported 2Q23 revenue of C$3.4 million, up 291.0% Y/Y from C$0.9 million in 2Q22.

• The company bought back the royalty from Teichos Energy and the loan repaid in the current quarter, driving a gain of $1.5 million in revenue.

• The company’s finance income has seen a decrease as a result of the repayment of the Teichos loan in May 2023 and no additional loan was advanced during the quarter.

• We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 13 stocks from MidCap to SmallCap.
• The expected migrations from SmallCap to MidCap have outperformed the other potential migrations with all stocks moving higher over the last six month.
• Active managers could continue to realign their portfolios. Some of the upward migrations will have passive flows in the next few days and over the next few months.

• HSI reversal was overdue, but the bounce looks weak: so far it did not even reach Q1 resistance on week 1 and on week 2 (current).
• Resistance level to watch where the current bounce could end is 18874, or any price around that area at Close, at the end of this week. High probability SHORT.
• If some unexpected catalyst pushes the index to rally, look for resistance at 19459 on week 3, we think this won’t happen but a tail is always possible.

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.

• First Pacific Co
• Xiaomi Corp
• Yankuang Energy Group

• VinFast (VFS US), the EV arm of Vietnamese conglomerate Vingroup Jsc (VIC VN), commenced trading on the 14 August. And promptly took off. 
• VinFast’s current market cap is ~4x General Motors (GM US)‘s, twice that of Mercedes-Benz (MBG GR)‘s, and the second-largest pure-play EV-maker after Tesla  (TSLA US).
• Vingroup’s holding in VinFast is worth 13x its market cap. This is not sustainable. 

• Rebound on Nikkei 225 INDEX may not last for long, 2-3 weeks tops, it will encounter resistance no later than mid of September (most unfavorable month for stocks gains).
• Resistance levels to watch vary, depending on number of weeks up. For this week and the next, a new pullback could start from 32476 and 32817.
• If the index goes =>33000, it means it is rallying and will not correct into September, the rally then could last into October.

• New results detail from CMB shows divergence with credit quality and actual credit costs
• The bank saw its credit costs decline 25% YoY despite higher Loss and Doubtful Loans YoY
• Property development NPLs surged from 4.1% to 5.5% at 1H23 HoH, to RMB19.6bn in total

• GradRight, an India-based startup that helps students with selecting their university majors and financing their studies, has raised 500 million rupees (US$6.1 million) in series A funding from IvyCap Ventures. 
• The investment will be used to accelerate GradRight’s growth and expand its reach to lower- and middle-income students around the world.
• Founded in 2020 by Aman Singh and Sasidhar Sista, the edtech startup runs an AI-powered platform that brings together prospective students, universities, and lenders.

Greentown China has released H1/23 results that were in line with expectations. Contracted sales rose 16% y-o-y, driven by higher ASP (+19%), but offset to a degree by less GFA sold (-1%). The company added CNY 57 bn saleable resources with total GFA of 2.57 mn sqm. Revenue fell 12% to CNY 57 bn, primarily due to a CNY 7.9 bn slide in revenue from property development. Gross profit also decreased 12% to CNY 9.92 bn, with a largely stable margin (16% vs. 16.5% in H1/22).

We believe Greentown will continue its strategy of clearing inventories and delivering homes through H2/23. The company’s ability to deleverage will be impacted by the scale of its land acquisitions. In this regard, Greentown could expend up to 40% of its sales proceeds on acquisitions. That said, the level may be tempered by any further deterioration in the residential housing market.

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.

• Yanlord Land

Yuexiu Property’s (YXP) H1/23 results were largely in line with expectations. Overall revenue climbed 2.6% y-o-y to CNY 32.1 bn, driven by strong growth in property management, rental income and real estate agency & decoration services. However, sales from property development remained stagnant at CNY 29.8 bn (H1/22: CNY 29.8 bn). The company encountered ongoing margin pressure, largely due to falling profits and margins for the property development business, which we believe is in line with the overall industry trend.

We note positively YXP’s CNY 221 bn in unrecognised sales, which could have positive implications for steady revenue growth in the near to medium term. The company appears to have resilient access to capital markets. Liquidity was boosted as at end-June 2023, by a c. 39% y-o-y increase in cash to CNY 30.3 bn. The debt structure improved, with exposure to ST debt narrowing to 12% of total debt.

The 2023 notes are trading near par (yielding 7-8%). The YUEXIU 2.8 26 are quoted at c. 90.6 (yielding 6.9-7.2%), while the 2031 notes are trading at c. 80 (yielding c. 7.5%). We view the pricing as fair, and maintain our “Hold” recommendation on the YUEXIU curve given the current weak market technicals.