Financials

• Update on our top shorts as we get closer to our cover targets with some overlap.
• SPX and NDX secondary short cover levels and where to add back to longs.
• Minor new chart highs in store into mid-July with target adjustments.

• The investor spotlight is on the HDFC Bank-HDFC merger, and we continue to favour HDFC Bank with its positive passive investor momentum, premium returns and merger synergy potential
• Bank of Baroda, although not in the limelight like HDFC bank, is our value stand-out among the Indian bank peer group and it warrants increasing investor attention, in our view
• Bank of Baroda is delivering on improving asset quality and returns; the shares have positive momentum, and we see great value on its 1x PBV ratio to ROE of 15%

• The Korea Stock Exchange KOSPI 200 (KOSPI2 INDEX EQUITY) has been (mildly) falling for 4 weeks, it may be now ready to resume its multi-month uptrend.
• Friday July 7th would be a good time to enter this LONG trade at support prices between 337 and 333 (ideal range; it’s riskier below 333).
• Hedge your bets in case the market keeps falling more next week and the following (it shouldn’t… but it can).

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.

• Greentown China
• Yuexiu Property

• Three Arrows Capital famously blew up because of a series of bad trades, primarily Luna and GBTC.
• What happened to Luna is obvious: it went to 0 because of UST’s flawed peg maintenance mechanism.
• The GBTC situation was a bit more complex: “Grayscale allowed big investors like 3AC to purchase shares directly by giving Bitcoin to the trust.

• It is highly probable that SP trading will increase after July 31st, as this will provide a more conducive environment for the seamless rollover of large positions.
• Considering the actual impact on the market, we may have to pay more attention to the potential surge in trading volume for single-stock futures SP.
• We see a rise in aggressive position setups in event trading, including rights offerings. This may lead to a more substantial price impact by increasing the intensity of such trading.

• The second week in a row of good vibes. The crypto market is basking in a period of optimism, fueled by the momentum generated from the influx of numerous ETF filings.
• Bitcoin and Ethereum, the leading cryptocurrencies, have experienced sustained upward trends in their values.
• As a result, the vision of an interconnected on-chain, off-chain financial system is rekindled, and the hopes of a seamless integration of traditional and digital economies emerge again, with record inflows of capital into crypto to feed this hypothesis.

• Macrotech Developers (LODHA IN) had several issues on the balance sheet and governance front earlier. While, the debt levels have significantly come down since the time, governance however needs improvement. 
• Flat sales and margin contraction, driven by some bizzarre expenses needs attention including some elongated debtors.
• We suggest investors should remain cautious about future uncertainty, as impairment of loans and adverse outcome of contingent liabilities may have a dent on the balance sheet. 

• kopi-C with CEO of PropNex: ‘We’ve built a culture that can’t be replicated’ So firmly ingrained is this belief in informed decision-making that PropNex’s CEO Mohamed Ismail Gafoor has been advocating consumer education in the last ten years.
• As an integrated real estate services group, PropNex’s key business segments include real estate brokerage, training, property management and real estate consultancy.

• HDFC Limited (HDFC IN) will stop trading at the close on 12 July and will be deleted from all indices at the close on that day.
• As expected, LTIMindtree (LTIM IN) will be added to the NIFTY Index while Jindal Steel & Power (JSP IN) will be added to the NSE Nifty Next 50 Index.
• Importantly, HDFC Limited (HDFC IN)‘s foreign shareholding has dropped over the quarter ended 30 June and that has index implications for future passive flows to HDFC Bank (HDFCB IN). 

• Q1FY24 AUM growth came in stellar at 9%+ QoQ, led by highest-ever quarterly AUM addition of INR 22700cr vs INR 16537cr QoQ. 
• BAF recorded its highest-ever quarterly increase in customer franchise at 3.84mm, taking the total to 72.98mm vs 69.14mm QoQ. New loans booked were also strong at 9.94mm vs 7.56mm QoQ.
• Deposits book grew strong to INR 49,900cr vs INR 44,666cr, a growth of 11.7%+ QoQ. Liquidity surplus is at INR 12,700cr vs INR 11,852cr QoQ.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 Indices in the December 2023 Rebalance.
• The HDFC/HDFC Bank Merger is expected to trigger index changes in the next few days and we take a look at our expectations for these intra-review changes.
• Apart from that, I see no other changes for SENSEX in December 2023. However, there could be up to six changes for both BSE 100 and BSE 200.

• Metro Pacific Investments Co (MPI PM) disclosed a revised voluntary delisting tender offer from a consortium at PHP5.20 per share (PHP5.24 per share including a potential 1H23 dividend).
• The revised offer remains conditional on meeting the threshold for voluntary delisting (95% of outstanding shares) or obtaining an exemptive relief from the PSE.  The IFA valued MPI at PHP3.37-5.10.  
• The offer was revised to increase the chance of meeting the high delisting threshold, which requires an 86% acceptance rate. At the last close, the gross spread is 8.6%. 

• Good probability of reversal (>60%) for the Nikkei 225 (NKY INDEX)if closing this week up and/or if market price reaches => 34033 intra-week (better: => 34255).
• Index can go a bit higher but first will probably consolidate/digest the latest rally from April. Expect non-directionality. If WEEKLY rally lasts =>3 weeks, place high-probability SHORT trade.
• A pullbackbelow 33189.04 (last WEEKLY Close) seems unlikely this week. In case, buy-the-dips until the price reaches 32586 (Q2 barrier). Past that point the market could sink <= 31750.

• One of main criteria for ACCC to allow ANZ’s takeover of Suncorp centers around competition, will it worsen as a result
• There are 8 banks in Australia with over 100 branches, if the takeover is allowed, this puts the 127 Suncorp branches into the 668 branch stable of ANZ
• There is plenty of expert and public testimony that such a merger would see less competition especially in SME and agribusiness loans, and possibly limit physical access to banking

For FY23 Picton Property Income (PCTN) published resilient underlying (EPRA) earnings, which together with strong rent collection supported a 4% increase in DPS paid. The impact of market-wide property yield widening on NAV was mitigated by portfolio outperformance and low gearing. Continuing occupier demand, rent growth and mostly long-term, fixed-rate borrowings are positive indicators for further progress.

• Discounts to NAV of covered holdcos have generally widened during June. Discounts to NAV: C.F.Alba, 47%; GBL, 40.1%; Heineken Holding, 16.1%; Industrivärden C, 7%; Investor B, 11.7%; Porsche Automobile Holding, 47.3%. 
• The spread of Rio Tinto DLC widened to 19%. Rio Tinto is a candidate for an Australian top hat structure.
• Of interest: Heineken Holding/Heineken, Porsche SE/vs. listed assets and Rio DLC.

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
• First Pacific Co

China South City’s (CSC) FY 2022-23 results were as weak as expected. Revenue decreased 58% y-o-y to HKD 4.1 bn, with property sales declining 65% to HKD 2.4 bn and recurring income down 26% to HKD 1.7 bn. Earnings-based credit metrics deteriorated substantially, as adjusted EBITDA turned negative. Liquidity stood at a very weak 16% at end-March 2023, while Net Debt/Net Property Assets was sound at 39%, thanks to CSC’s sizeable investment property portfolio.

Given the sustained weakness in CSC’s property sales, we do not expect the company to be able to generate adequate FCF organically. We believe asset disposals will remain key to debt repayment. CSC has been leveraging its new state ties by selling key assets to its SOE parent and accessing more onshore bank funding. Therefore, we maintain our “Hold” recommendation on the CSCHCN curve.

• A market-timing device that classifies historical trend patterns/reversals in “buckets”, to generate a “matrix” showing the market’s average trend reversal “behavior” at the end of each trend “type”. 
• A purely statistical approach: using Bayesian Models to determine the probability of DAILY or WEEKLY trend reversal at precise LONG/SHORT support prices at fixed points in time.
• The analogy with the game of Blackjack: knowing the probability of a trend reversal can be 30% or 90% (not always =50%) can be a significant edge for the investor.

• News out this morning that HDFC Bank and HDFC merger became effective 1 July 
• This occurred after the Boards approved the merger scheme on 30 June
• Funding cost benefits, operating cost synergies, product cross-sale: major benefits

• Combination of high NIM contraction with high loan growth is not a good combination
• BOC has seen its NIM down 14% in the past year but against 12% loan growth
• PBOC pressure to cut rates and for banks to support ailing debtors, is a risk

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.

• MGM China Holdings
• Sino-Ocean Service
• Vedanta Resources

• Rise into late June/early July cycle peak on track with scope to overshoot after the 4th of July break (then expect a more volatile mid-July period). Reducing on strength.
• SPX kissed our 4,500 target with an overshoot projection at 4,547. Recent long from 4,470.
• Top Asia longs: NKY, Taiwan and India. Top shorts have been HSI and Kospi 200 (heavy bias to add on upticks). July will usher in a more volatile phase.

• PNLF has seen its asset growth ratchet downward, running at near 12-year lows at +2% YoY 
• Phases of ROE decline are apparent, from 12-13%, then to 9%, and now to 5-6%
• At least, there is a rebound in profit growth in FY22, after dismal 3 years

• The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
• Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
• The key stock mentioned in this regular insight is Red Star Macalline Group Corp (1528 HK).

• Since 2015, Indonesia’s digital economy has grown 10x, reaching US$77 billion in gross merchandise value. However, credit penetration remains low for individuals and businesses alike, with only 3% of Indonesians having a credit card.
• Access to credit would allow businesses to boost customer adoption, among other things, and Indonesia-based fintech firm Finfra is looking to fill this niche.
• The startup has raised US$1 million to help make this happen.

• The review period for a bunch of indices ended last week though the announcement of the changes will take 4-6 weeks.
• There are no rebalance implementations in the coming week though focus will move to the implementation of the HDFC Limited/ HDFC Bank merger and index changes the following week.
• There were big inflows to China focused ETF with a lot of money going into Semiconductor and Chip focused ETFs.

• Towards the end of last year, I published the first liquidity ranking system for crypto assets, comparing each asset’s liquidity ranking to its market cap and investigating which token’s market cap is the most misleading from a liquidity standpoint.
• In Q1 of this year I provided an update to the ranking system as overall market liquidity hit 10 month lows. 
• The good news is that global liquidity has been more or less flat over Q2, with no further drops apart from  the tokens featured in the SEC lawsuits and a handful of exchange-specific drops in liquidity, such as Binance.US.

• Bank analysts sometimes like a story with high NPLs; recoveries can be powerful to profit
• For the past 7 quarters, NPLs are in decline at PNB, but most recent quarter is strongest
• There remains a large pool of NPLs at 8.7% of loans, for possible ongoing recoveries

Henderson International Income Trust (HINT) offers a diversified investment solution for those seeking capital growth and income opportunities outside the UK, where dividend income is relatively concentrated. Recent relative performance has improved, as underweights to the US and to IT and other growth stocks, which have previously hurt performance, are now boosting relative returns and should leave HINT well placed to cope with the persistently uncertain global environment. Overweights to European financials, energy and luxury goods producers have also been working well. HINT has a long-term objective to grow its dividend. Consistent with this, dividends have grown steadily since inception, and HINT’s dividend yield of 4.3% is competitive, ranking equal highest among its AIC peers.

• Last night, Swire Pacific announced it planned to sell its US Coca Cola Distribution business to its parent company. That means a Circular, an IFA Opinion, and an EGM.
• I expect a September EGM and the Special Div to follow in Q4. While I find the price low, I expect the deal to be approved by Swire shareholders.
• This deal has an effect on the Swire B/A ratio. Some may get it. Some may not. Makes sense to be ready. Swire A is cheap. Swire B is cheaper.

• Home First Finance (HOMEFIRS IN) is a technology-driven affordable housing finance company (HFC) focused on first-time homebuyers in low and middle-income groups. 
• We believe access to finance is more relevant rather than quick TAT and hence question the relevance of wanting to be the fastest provider.
• Considering the fading competitive advantage, borrower profile and segment dynamics, HOMEFIRS may be the fastest but not necessarily the safest.

• Cycle: Near term pullback a buy for a push into late June/early July (cycle has shifted right). Equities remain well supported. Increased volatility expected in July.
• Met the SPX 4,370 buy level with firmer support at 4,350. Rally bias for a minor new high in the coming week+.
• Measuring rally momentum for signs of a bigger stall cycle in July.

• We remain positive on Rakuten Bank, with its group ecosphere as a source of customer growth, its low cost base, and extremely low NPL ratio
• Rakuten Bank trades on the lowest PE multiple of the neobank peer group , with the low ROE to PBV ratio close to the best of its neobank peers
• Nubank shares have done well since we upgraded to a buy in January; we recommend investors to take profits given Nubank’s  limited potential for positive surprises and its stretched valuations

For our next Corporate Webinar we are glad to welcome IREIT Global’s CEO, Louis d’Estienne d’Orves.

In the upcoming webinar, Louis will share a short company presentation after which, he will engage in a fireside chat with Smartkarma Insight Provider, Jesus Rodriguez Aguilar. The Corporate Webinar will include a live Q&A session.

The Corporate Webinar will be hosted on Thursday, 6 July 2023, 17:00 SGT.

About IREIT Global

IREIT Global, which was listed on 13 August 2014, is the first Singapore-listed real estate investment trust with the investment strategy of principally investing, directly or indirectly, in a portfolio of income-producing real estate in Europe which is used primarily for office, retail and industrial (including logistics) purposes, as well as real estate-related assets. IREIT Global’s current portfolio comprises five freehold office properties in Germany, five freehold office properties in Spain and 27 freehold retail properties in France.

IREIT Global is managed by IREIT Global Group Pte. Ltd., which is jointly owned by Tikehau Capital and City Developments Limited. Tikehau Capital is global alternative asset management group listed in France, while City Developments Limited is a leading global real estate company listed in Singapore.

• Swire Pacific (19 HK) has announced it is selling its US Coca-Cola ops to its parent for HK$30.4bn (US$3.9bn). That’s 40% of its market cap.
• Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Bangkok Bank Public (BBL TB) is trading very close to its historic highs versus Kasikornbank PCL (KBANK TB) and keeps hitting a wall at that level.
• The number of NVDRs issued on Bangkok Bank Public (BBL TB) has been rangebound while there has been a steady decrease for Kasikornbank PCL (KBANK TB). 
• At current level, the risk/reward looks favourable to a short Bangkok Bank Public (BBL TB) / long Kasikornbank PCL (KBANK TB) position for the near to medium term.

We view Hopson Development as “High Risk” on the LARA scale. Our assessment primarily reflects the company’s constantly evolving business strategy and financial risk profile. Positives include Hopson’s high-quality land bank in premium locations (acquired at low cost) and the cash-generating investment property portfolio. Margins are robust given the company’s positioning as a high-end property developer, although this also exposes Hopson to high regulatory and market risk.

Our “Stable” Credit Bias is underpinned by the company’s resilient contracted sales, which are supported by the large and high-quality land bank, improving sales and abundant saleable resources. That said, we remain cautious on Hopson’s aggressive expansion and increasing involvement in equity investments, which may be debt-funded and could introduce significant performance volatility. Controversies are “Material”, while the ESG Impact on Credit is “Moderately Negative”.

While the company’s credit fundamentals appear to be healthy, we believe its bond price could be volatile due to negative impact from weak market sentiment and poor technicals. We therefore maintain our “Hold” recommendation on the HPDLF curve.

• What sets HDFC Bank apart from peers is stability, strength in profit, ROA, NPLs, NIM
• Peers see volatile, high NPL ratios, where HDFC Bank may see NPLs at less than 1% soon
• Amalgamation HDFC into HDFC Bank can see more interest, supported by fundamentals 

• M&A Research Institute (9552 JP)’s founder and CEO, Shunsaku Sagami, together with two other board members, aims to raise a total of US$127m through an accelerated international secondary offering.
• The deal is a small one to digest at only 3 days of three month ADV and about 8.5% of current mcap. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Five Star Business Finance (FIVESTAR IN) is a NBFC based in India, specializing in providing financial services to small and medium-sized enterprises (SMEs) in the informal and semi-formal sectors. 
• The focus on in-house sourcing, collection, and risk management aids in maintaining strong asset quality.
• In terms of valuations, FIVESTAR trades at a premium. However, considering its competitive moat and growth potential, any available opportunities should be capitalized upon.

• In this note, we looked at the privatization offer from Chow Tai Fook, and its impact on NWD 17 HK
• The proposed transaction will help NWD unlock its value and reduce gearing, which has been investor’s major concern
• It is only the beginning of part of strategic review of NWD group.  We view more positive catalysts are coming

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.

• Central China Securities
• China Vanke
• Sino-Ocean Service