Financials

• The sharp run-up in the share price since its IPO does not, in our view, mean that Rakuten Bank’s rally is done; there is further fundamental justification for a re-rating
• Rakuten Bank trades on a LTM PE multiple of 14.4x, LTM PBV ratio of 1.6x and an ROE of 13.2%, which is the best return of our neobank peers
• Relative to its peer group, Rakuten Bank has premium long-run growth prospects; conservatively estimating Rakuten Bank’s growth (8% pa), implies a PEG ratio in the range of 1.2x to 1.3x

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the STX Europe 600 and EUROSTX Indices for the March 2023 Rebalance.
• There is roughly one more month left to the base date. At present, I see around 3 ADDs/DELs in the June 2023 review.
• Separately, STX Europe 600 members Credit Suisse (CSGN SW) and Vantage Towers (VTWR GR) could possibly get deleted in the next few months triggering intra-review index changes.

• Given Pru’s demerger in 2021, it now offers investors a good alternative to AIA to tap into the development and the growth potential of the life insurance sector in Pan-Asia.
• AIA has a more balanced business across so many markets in APAC, while Pru skews toward Southeast Asia.
• Pru’s P/BV is currently at a 30% discount to AIA’s and is trading at the same level as the year-end when China just announced the re-opening of its borders.

• There are few, if any banks, in Japan that compare with Rakuten’s 65% loan growth
• The newly listed interbank stands out with exceptional ROE, not from leverage
• Credit metrics remain strong, with NPL cover especially high vs peers

• Last week, Coinbase received approval to operate an offshore derivatives exchange, based in Bermuda.
• This move makes a lot of sense, particularly when looking at Coinbase’s share of total spot volumes.
• Since the start of 2022, Coinbase’s share of volumes has almost halved, falling from 10% to 5% while Binance gained as much as 30% market share over the same time period, before losing some in the last couple of weeks with their reintroduction of fees.

• Jingdong Property (JDP HK) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• JD Property (JDP) develops and manages modern infrastructure, consisting primarily of logistics parks, as well as business parks and other assets in China and in Asia.
• In this note, we will talk about the not so positive aspects of the deal.

Picton Property Income has published an encouraging trading update ahead of results for the year-ended 31 March 2023 (FY23), to be released on 25 May. This shows stabilising property valuations, mirroring broad market trends so far in 2023, and progress with a range of asset management initiatives. We will review our forecasts with the results.

• Despite a more difficult environment, Morgan Stanley had a strong quarter and managed an all-around beat.
• The merging of Eaton Vance and E-Trade increased the company’s potential to gain new clients, increase assets, and support its stability.
• We initiate coverage on Morgan Stanley with a ‘Hold’ rating with a revised target price.

Target Healthcare REIT’s decision to rebase the quarterly DPS targeted for H223 (-17% to 1.4p per quarter) established full DPS cover from a base that we forecast will grow, driven by indexed rental growth. The yield remains attractive and rather than the rebase signalling new challenges, operational performance continues to strengthen.

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.

• Adani Ports & Special Economic Zone
• Hopson Development
• Vedanta Resources

• On Thursday morning, Yuexiu Property (123 HK) halted trading in its shares and then later in the day announced a rights offering. Shares fell hard but gained back a little.
• The rights offering lowers BVPS by about 11.3% so the current price is “about right” for the fundamentals if the price the day before the news was right.
• There are, however, flow dynamics which are of interest. There almost always are.

• Jingdong Property (JDP HK) is looking to raise about US$1bn in its upcoming Hong Kong IPO.
• JD Property (JDP) develops and manages modern infrastructure, consisting primarily of logistics parks, as well as business parks and other assets in China and in Asia.
• In this note, we will talk about the positive aspects of the deal.

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.

• Reliance Industries
• Sunac China Holdings

• HDFC Bank (HDFCB IN) reported a steady and broadly in-line-with-expected Q4FY23 earnings. In particular, its growth in deposits at 8.7% QoQ was commendable.
• Advances also grew at a healthy pace of 6% QoQ. Retail advances grew 5% QoQ, while CRB (Commercial and Rural Banking) grew the most at 9.7% QoQ.
• Aided by low credit costs, HDFCB continues to invest in expanding its geographical and digital distribution to deepen its penetration.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• All eyes were on Rakuten Bank (5838 JP) listing this week. It didn’t disappoint, neither did Merdeka Battery Materials.
• Anta Sports Products (2020 HK) pulled off one of the largest placements so far in 2023, despite being net cash.

• This is our first report on the Royal Bank of Canada, one of the top 2 banks in the country.
• This quarter’s performance included significant capital markets revenue, led by excellent Global Markets results, as well as market share improvements in Investment Banking and origination operations across the sector.
• We initiate coverage on the stock of the Royal Bank of Canada with a ‘Buy’ rating.

• This is our first report on a major Canadian banker, Toronto Dominion Bank.
• In Q1, the bank had a good quarter and delivered an all-around beat.
• We initiate coverage on the stock of the Toronto Dominion Bank with a ‘Buy’ rating.

• This is our first report on one of the American banking major, Wells Fargo.
• The company performed well in the quarter despite operating losses and managed an all-around beat.
• Increasing interest rates fueled a rapid rise in net interest income.

• Taiwan has been a top long but losing bull energy. RSI second support break warns of a price break below pivotal trendline turning our stance from exhaustive to bearish.
• Taiwan has been a good hiding place but appears over owned amid waning upside momentum and high conviction RSI bear divergence.
• Bearish rising wedge amid divergence are the key chart components to focus on.

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. Vedanta Resources
2. Yankuang Energy Group
3. Alam Sutera Realty
4. Guangzhou R&F Properties
5. Fosun International

and more…

• Mandiri delivered solid 1Q23 results, underscoring its attractive valuations with single digit prospective PE multiples and premium growth potential all backed by a strong balance sheet
• Mandiri improved 1Q23 pre-provision operating profit and net profit YoY; Mandiri’s credit quality metrics were sound in 1Q23, with strong liquidity and funding ratios
• Mandiri has an attractive PEG ratio and delivers 20%+ ROE on a strong capital base for its PBV ratio comparing well against Indonesian and big cap EM bank peers

Foxtons Group’s Q1 trading update highlighted increased revenue per transaction and market share gains, evidence of early progress in rolling out the new strategy – characterised by upgrades to data infrastructure, investment in staff and a reinvigoration of the Foxtons brand. If the strategy succeeds, over the medium term Foxtons expects margins to expand by 500bp and operating profit to more than double. We retain our base case valuation of 59p/share and our preferred ‘bull’ case valuation of 124p/share, more than three times the current price.

• To look at the Rakuten Bank (5838 JP) IPO and how trading and pricing may occur, some are looking at SBI Sumishin Net Bank (7163 JP). 
• To understand the movements of SBI Sumishin Net Bank, it may help to look at other IPOs in Japan and how they trade post-IPO.
• I looked at the last 200+ IPOs in Japan to understand volume decay and price evolution. It leads to suggestions for investors regarding Rakuten Bank.

• After being halted this morning before the start of trade, post-close, Yuexiu Property (123 HK) announced a fully-underwritten Rights Offering. 
• The Rights Offering intends to raise HK$8.36bn issuing 30 Rights for every 100 Shares held, at a subscription price of HK$9.00, a 23.3% discount to TERP. 
• This will take a moderately-levered property/services/leaseco and add more capital to it. Not terribly bullish. Looks opportunistic. And one has to look through 3 capital actions to see dividends ahead.

• Yuexiu Property (123 HK) will raise US$1.1bn through a rights offering – 30 rights shares for every 100 existing shares. The subscription price is HK$9.00, a 23.3% discount to TERP.
• As Yuexiu is in no danger of breaching the three red lines, the rights issue is an opportunistic play on capitalising on the strong share price run.
• Rights shares will be entitled to the final and special dividend announced on 15 March. Shares go ex-rights on 2 May and the rights start trading on 15 May.

• Bank Mandiri (BMRI IJ) released a well-balanced set of results with some pressure on NIMs more than offset by higher loan yields, lower credit risk, and great cost efficiency.
• The rapid and widespread adoption of the Livin’ app for new customers and onboarding customers has positively impacted efficiencies and helped gather more CASA.
• Bank Mandiri Persero (BMRI IJ) is optimistic about the outlook for 2023 with loans expected to grow +10%-12% with table NIMs and lower credit costs. 

• This is our first report on the Bank of Nova Scotia, one of Canada’s Big Five multinational banking and financial service companies.
• Although banking revenues increased by a solid 11%, overall revenues were down 1% year over year due to reduced noninterest income.
• Mortgage lending increased by 7% while commercial loans increased by 22%, bringing loan growth to 9% year over year.

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.

• Renewable Energy Group
• Sands China
• Shui On Land
• Vedanta Resources
• Yuexiu Property

• The events of the last few months, namely the relentless regulatory enforcement and the banking crisis have upended crypto exchange market structure.
• During a bear market, consolidation among exchanges is expected.
• However, as the SEC targets specific exchanges and leave some cutoff from USD payment rails, many exchanges have been left at a competitive disadvantage.

• Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), raised around US$630m in its Japan IPO.
• RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
• In our earlier notes, we have looked at various aspects of the deal. In this note, we talk about the deal dynamics and trading updates.

• Rakuten Bank (5838 JP) priced its IPO at JPY1,400 per share to raise gross proceeds of US$620 million. The shares will start trading on 21 April.
• We previously discussed the IPO in Rakuten Bank IPO: The Investment Case, Rakuten Bank Vs SBI Sumishin Net Bank and Rakuten Bank IPO: New Price Range Is a Steal. 
• Peers have re-rated and our valuation analysis points to a fair value of around JPY1,900 per share, 36% above the IPO price. Therefore, the IPO price remains attractive.

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
• Nickel Industries Ltd
• China Datang Corp Renewable Power
• Yankuang Energy Group

EML Payments has announced the appointment of a new interim CEO and a renewed focus to solve the immediate challenges facing the company. This includes strengthening support for the regulatory remediation process, optimising costs, targeting growth in core business areas and retaining talent. The board has also appointed Barrenjoey to conduct a strategic review of the business. We maintain our estimates.

• Block’s stock has been in the news and faced a strong correction after becoming the latest target of Hindenburg.
• The report alleges that Block has overstated its genuine user counts and has understated its customer acquisition costs.
• It was damaging enough to result in a sharp correction in the company’s share price.

Tetragon Financial Group (Tetragon) published its annual results on 3 March, posting a 1.0% net asset value (NAV) per share total return (TR) in US dollar terms in FY22. In last year’s adverse environment, Tetragon outperformed public equity markets (the MSCI AC World index was down 18%), despite results being below its annual target (ROE of 10–15%). It is continuing distributions to shareholders through NAV-accretive share buybacks (US$72m in 2022) as well as cash dividends (US$24m in 2022), with a current dividend yield of 4.3%.

• It appears that Rakuten Bank (5838 JP) received a significant number of subscriptions at the revised offer range, leading the company to set the IPO price at ¥1,400 per share.
• The grey market trading suggests that shares are currently trading close to the lower end of the previous IPO price range, indicating a potential upside of 20% on the debut.
• The IPO has potential to rise beyond 20% on debut. However, in the event that it does not pop more than 100%, we would looking to buy more shares.

• Blackstone launches a recommended 168p/share cash offer (via a scheme of arrangement) for Industrials REIT, which needs funding to increase its portfolio (and scale) and lower its blended cost ratio. 
• The asset class seems attractive in an economic upturn. The offers represents a 42% premium, 1.04x to latest reported NTA, 1.2x P/23e BVPS; 22.1x Fwd P/E (source IBES). 
• The offer should succeed, although irrevocables are just 6.3% (plus 22.4% letters of intent). Spread is 0.89%/4.52% (gross/annualised). While not terribly exciting, I would be long, in case of sweetening.

JDC Group (JDC) reported FY22 results that were in line with the preliminary results published on 9 March. After slower than expected growth in H222, JDC expects 2023 revenue growth to accelerate again to 17% at the midpoint of guidance and the EBITDA margin to improve. Nevertheless, we have lowered our 2023 and 2024 revenue estimates by 5% and 6% and our EBITDA estimates by 7% and 12%, respectively, due to a lower FY22 base. JDC trades at an FY24e EV/EBITDA multiple of 12.0x on consensus estimates, which we believe is very undemanding for what is essentially a fast-scaling platform business. Our DCF calculation provides a valuation of €32.51/share (versus €36.40/share previously).

Regional REIT (RGL) delivered a good income performance in FY22, led by strong leasing (well above pre-pandemic levels) and continued strong rent collection. DPS of 6.6p was fully covered and we forecast the same for FY23. Market-wide valuation yield widening reduced NAV and increased gearing, but RGL notes that it has ample headroom available across its debt facilities, which are fixed at a cost of 3.5%. In this note we explain why we think DPS is sustainable and review some of the key issues that appear to be weighing on the valuation.

• SBI Sumishin Net Bank (7163 JP) lowered its listing price vs what were already lowered expectations from a year prior. Then Rakuten Bank (5838 JP) lowered its IPO range. 
• SBI Sumishin dilly-dallied around IPO price for three days then went nuts, rising 40% as of Friday morning. Rakuten Bank’s IPO looks dirt cheap now. 
• But it is worthwhile comparing it on a spectrum of OTHER Japanese banks and neobanks. 

• Japan and Korea are meeting rally objective action points. NKY 28,500 touted as the level to short. Korea meeting the 337/338 upper wedge range target to lock in some gains.
• Japan has formed previous tops below 29,000. Korea will need to backfill and likely retest the top of the rising wedge given the impulsive nature of the rise. 
• These topping patterns show conviction to form bigger cycle peaks into late April ahead of a more negative phase in May. Factor in final SPX push to 4,200-20.

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.

• Fosun International
• Guangzhou R&F Properties
• China Datang Corp Renewable Power
• Shui On Land

• The review period for the MSCI May QCIR starts on Monday. The most changes inclusions by far are expected to be in China.
• There will be an ad hoc change for the S&P/ASX 100 Index, S&P/ASX 200 (AS51 INDEX) and KOSDAQ 150 Index (KOSDQ150 INDEX) at the close on 18 April.
• After a period of sustained outflows, there were some inflows to the IShares Core MSCI Asia Ex Japan ETF (3010 HK) during the week.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• Momentum appears to be picking up on the IPO front with a few successful listing helping sentiment
• On the placement front, GDR flow appears to have resumed.