Financials

• Open House (3288-JP) is a niche homebuilder in Japan that has a special expertise in building/selling cheap detached homes in urban cities.
• It participates in many segments of the residential property market, though earns the lions share (~60-65%) of its profits from the single-family homes business.
• Despite its relatively modest profile in the investment community, the company has a ~US$4bn capitalization. It trades at ~1.3x 2023e P/B and ~6.8x P/E.

• This is our first report on Lloyds Banking Group PLC ADR, one of the largest UK-based retail and commercial banking service providers.
• During the year, commercial banking balances have increased, driven by attractive corporate, institutional, and FX growth possibilities.
• We initiate coverage on the stock of Lloyds Banking Group PLC ADR with a ‘Hold’ rating.

• This is our first report on Prudential, a major provider of life and health insurance.
• Prudential had a very strong quarter with 19% sales growth.
• Despite slower revenue recognition in the life insurance market, the company has been witnessing strong cash flows and returned over $800 million to shareholders in the latest quarter.

EML Payments’ H123 results reflected the changing mix of revenue (lower establishment fees and breakage, higher interest income), the effect of the ongoing remediation of regulatory issues in the European and UK PFS businesses and the restructuring of the group. With the Irish regulator raising additional concerns post results and applying a more stringent growth cap to EML’s Irish subsidiary, PFS Card Services Ireland Limited (PCSIL), the board has initiated a strategic review of the business.

• While the market has aggressively moved the US rates and the rate expectations lower, the European rates are pricing in higher for longer, with a rate hike possibility still on the cards.
• In the current market environment, the Dollar crosses are driven by rate differential and sentiment rather than growth differential and geopolitical risk of the Ukraine war.
• The Cross rate and the 13-day RSI are overlaid with two standard deviations Bollinger Bands to plot the mean reversion boundaries.

• Charles Schwab is due to release its first-quarter 2023 earnings report on Monday.
• The firm’s sell-side trading activities remain in decline.
• The company’s elevated price-to-book multiple is a severe concern as slowing growth, a goodwill build-up, and recent impairment losses provide structural problems.

• Rakuten Bank’s IPO will add an attractively valued Japanese neobank to the globally listed neobank universe; furthermore, the Rakuten Group ecosystem is a powerful tool for customer acquisition and retention
• On efficiency metrics, Rakuten Bank scores well versus its key domestic peers as well as global comparables; Rakuten Group companies act as a key conduit for new clients
• At the announced issue price of ¥1,400, Rakuten Bank’s PBV ratio implies an attractive 25% discount to its core Japanese peer SBI Sumishin Net Bank, for similar ROE

• It’s a truism within the industry that crypto is not an effective tool for crime.
• Yes, it’s possible to send value without an intermediary, but all transactions leave a permanent trace that can become more visible over time as tracking tools improve.
• It’s even possible to track funds that move through Tornado Cash – a protocol built specifically to enhance privacy by obfuscating token flows. 

Triple Point Social Housing REIT’s (SOHO’s) FY22 results were robust. Indexed rent growth compensated for higher debt costs and expected credit losses, and the DPS target was met. Income and dividends have grown each year since listing, while the company has generated strong social returns. We expect progress in FY23 despite a continuation of credit losses, for which SOHO has set out a path to recovery. Sector issues raised by the regulator continue to generate uncertainty despite a positive response and good performance from many lessees, and tangible progress at others. This seems unrecognised in the share price.

• Hong Kong is the weak link in Asia to short. Bear wedge set to break lower after the rally failed under the 21,000 sell resistance. Similar fate for the A50.
• ASX met sub 7,400 zone to trim. Korea 327 sell zone, starting to unwind. NKY 28,300-500 sell zone at hand.
• A number of markets are approaching sell levels in Asia and Europe. Does the SPX rise may fall short of 4,200? Third week in April is when bull energy dissipates.

• Compelling intraday reversal that kissed 4,177. Concern over an early fade below 4,200 was justified and formed a dual top. Fade below 4,165 was negative and used to sell.
• Growth concerns overshadowing lower inflation (transitioning) and this is a theme that we expect will expand over the summer along with the next round of bank failures/ripples and systemic risk. 
• Cycle: May/June a more negative cycle. Second half of April is when bull energy dissipates and starts the turning process.

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 SCE
• Sino-Ocean Service
• Softbank Group
• Vedanta Resources

Alam Sutera’s (ASRI) FY 2022 results were surprisingly strong, particularly the Q4 numbers. We note the opportunistic nature of the company’s tender offer (at a discount) for its USD 2024 notes. Instead of reassuring noteholders of its improving performance, ASRI opted to take advantage of the market, apparently a typical move among Indonesian HY issuers. The financial risk profile improved significantly and is now quite modest. It is also much better than suggested by the ratings from the agencies (Caa1 (negative) and B- (stable) from Moody’s and Fitch, respectively). Liquidity is sound. The debt maturity profile has been lengthened substantially, with minimal maturities until 2025 (when the USD 241 mn 2025 notes will mature).

We move our recommendation to “Buy” from “Hold” on the ASRIIJ 8.25 25, which is trading at 83/85, yielding 20%/19.5%. The company’s debt maturity profile has been significantly extended following the tender offer in Q4/22, with minimal debt to mature before the 2025 notes. This could give ASRI time to weather the impending downturn. We foresee that the company will continue generating positive FCF, due to its low-cost land bank and high-margin sales of land lots.

• This is our first report on one of the largest asset managers, BlackRock.
• While the market situation in 2022 was among the most difficult years, BlackRock delivered decent organic growth and ended the year with an all-around beat.
• The company generated $300 billion in total net inflows in 2022, which led the industry, and experienced positive organic base fee growth.

• This is our first report on a global investment behemoth, KKR & Co.
• Inc.
• The company delivered strong set of quarterly results surpassing Wall Street expectations on all fronts.

• This is our first report on American Express, one of the world’s largest integrated payment companies.
• The company continued the upward trend in Card Member spending, engagement, and retention in the fourth quarter.
• We initiate coverage on the stock of the American Express Company with a ‘Hold’ rating.

• Binjiang Service Group (3316 HK) reported a solid earnings growth of 28% YoY, with revenue up 41%. Binjiang has outperformed its peers in the PMC space by a long way.
• Net cash on the balance sheet increased to 37% of the current market capitalization, led by the growth of operating profits and payables.
• The PE FY23e/24e now is a modest 11.2x FY23e/9.2x FY24e with dividend yield of 5.4%/6.5% FY23e/24e (assuming a 60% payout ratio).

• 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 others in China and in Asia.
• As of Dec 22, the firm’s portfolio of Modern Infrastructure Assets has a total AUM of RMB93.7bn, occupying a total gross floor area (GFA) of 23.3m sqm. 

• The share price has declined by 15% from its March high, perhaps on misplaced concerns about its HTM bond book and capitalization. 
• We have little concern about a collapse in the Japanese housing market and see little impact from higher defaults on capitalization. 
• We see a modest 19% downside if management continues to build up excess capital.  Hibiki’s plan points to over 20% upside. 

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• A large triple bottom in 2021/2022 has confirmed a likely multi-year base and evolving multi-year uptrend. Q1 2023 has delivered a correction within the evolving uptrend.
• A bullish weekly reversal pattern last week has confirmed that the 2023 correction is likely complete. Initial target at 23.20 (+11%), the break above which will target 27.35 (+30%).

abrdn UK Smaller Companies Growth Trust’s (AUSC’s) lead manager is Abby Glennie following the retirement of Harry Nimmo at the end of 2022. She had been the trust’s co-manager since mid-November 2020 and had worked closely with Nimmo since January 2016; Glennie manages the fund with investment director Amanda Yeaman. There is no change to the investment process, which has proved successful over multiple market cycles. Stocks are screened using the proprietary Matrix to highlight which companies fulfil the managers’ strict quality, growth and momentum criteria. They are confident that over the long term, investors will benefit from the high quality attributes of investee companies as they should have a greater ability to deliver against consensus earnings expectations, regardless of economic conditions.

• Kotak Mahindra Bank (KMB IN) was added to the MSCI India Index at the November 2020 SAIR. However, a LIF of 0.5 was applied due to the low foreign room.
• The latest shareholding pattern as of end-March shows a foreign room higher than 25%. That should result in a removal of the LIF at the May QCIR.
• The increase in foreign room is a result of FPIs selling the stock despite the inclusion of Kotak Mahindra Bank (KMB IN) in a global index in March.

• Despite fears of a banking crisis, Citibank’s held-for-sale and trading securities are likely to be marked higher amid a favorable 3-month liquid bond and equity market environment.
• Citi’s ex-market debt portfolio is at risk of lower recoveries and heightened cyclical exposure.
• Citigroup Inc. (NYSE:C) is due to release its first-quarter earnings report before the market opens on Friday, April 14th.

• In the wake of soaring energy prices and heightened concerns over energy security following the Russia-Ukraine conflict, residential demand for solar power has skyrocketed.
• This surge in interest is further fueled by a combination of factors: the reduced cost of solar panels thanks to increased manufacturing scale and the Inflation Reduction Act that extends the 30% solar tax credit, making solar more accessible to a broader segment of society.
• Amidst this solar boom, Complete Solaria is gearing up to go public through a SPAC merger later this 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.

• China Vanke
• Lenovo
• Sunny Optical
• Times China
• Yanlord Land

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Sino-Ocean’s ESG as “Weak”, in line with its “Weak” Governance score. That said, the company has an “Adequate” Environmental score and a “Strong” score for the Social pillar. Controversies are “Material”, but Disclosure is “Strong”.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments – Rakuten Bank (5838 JP), ZJLD Group (ZJLD HK), PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) and Merdeka Battery Materials (2012725D IJ) IPOs.
• Event-Driven developments – Golden Energy & Resources (GER SP), Toyo Construction (1890 JP), Estia Health (EHE AU), Genesis Minerals (GMD AU), Mincor Resources NL (MCR AU), Pushpay Holdings (PPH NZ). 

• Atour reported its 4Q22 revenue/non-GAAP operating profit/non-GAAP net income 8.0%/78.3%/114.6% higher than our estimate. 
• We adjust Atour’s hotel expansion estimate from 2.4k to 1.9k until 2025 due to its low appetite in expanding midscale segment.
• We raise our 2023 earnings estimate due to better operating efficiency, but trimmed its hotel network expanding pace in 2023-2025, leading to TP cut by US$2.5 to US$34.

• Rakuten Bank (5838 JP) has priced at a new range of ¥1,300-1,400/share, down from ¥1,630-1,930/share. That lowers TTM PER and PBR to well below where SBI Sumishin was priced.
• This will now be universally recognised by pre-IPO analysts as a raging buy. Even at the top end. Important considerations:  Rakuten parent TAM, growth, index inclusions, etc. 
• There are OTHER important considerations going forward which show themselves in the documents. 

• Rakuten Bank announced its IPO price range at ¥1,300-1,400 per share, which is 20-29% lower than the initially indicated price range at the time of filling of the IPO prospectus.
• The new price puts Rakuten Bank (5838 JP) on 4.9-5.3x FY+2 PE, which is the lowest in Japan’s banking sector.
• Japanese banks usually trade at a price-to-book of 0.2x per 1% ROE. This indicates that Rakuten Bank, which is priced at 1.0-1.1x, may deserve a fair price-to-book of over 2.0x.

• Today, it was announced that HS Holdings (8699 JP) subsidiary Khan Bank LLC – Mongolia’s largest bank – would IPO this month. 
• This is a big deal. The IPO is for 10% of the bank (US$521mm equivalent). Priced at 4x Dec 2022 earnings for a bank which has ~ 25% ROE.
• There is a reason to expect substantial realisation of this value within 2023 due to a section of Feb 2021 Amended Mongolian Banking Law. Plus there is boatloads of cash.

• Industrivarden AB (INDUA SS) is resilient: NAV on 31 March was SEK 138.3 billion, or SEK 320/share, an increase q-o-q of SEK 27/share, +9%, with some minor additions to the portfolio.
• The balance sheet is strong, with a debt/equities ratio kept at 4%. A+ rating was confirmed on 27 March. 5-year total return was 67.5% vs. 66% for the OMX30.
• The discount to NAV of C shares is 8.1% (vs. 10.7% average over the last 8 years). During Q1 the discount has tightened from 13.6% on 31 December.

• This is our first report on Prudential, a major provider of life and health insurance.
• Prudential had a very strong quarter with 19% sales growth.
• Despite slower revenue recognition in the life insurance market, the company has been witnessing strong cash flows and returned over $800 million to shareholders in the latest quarter.

• Last quarter 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.
• Liquidity has arguably never been at more of a premium than right now in crypto, with USD payment rails being shut down and market makers pulling orders from exchanges.
• With market depth at 10 month lows, price volatility has picked up and so it is essential investors can accurately evaluate the liquidity of each individual asset to gain an understanding of how much short term volatility to expect.

• Ally Financial has emerged as a potential target after the recent events in the banking sector.
• There are certain macroeconomic risks involved, but the company has changed dramatically over the past decade.
• There are also major differences between the recently failed banks and Ally Financial that need to be considered, according to the company.

• Rakuten Bank (5838 JP) has set its IPO price at JPY1,300-1,400 per share which is 20%-29% lower than the IPO reference price range of JPY1,630-1,960 per share.
• We previously discussed the IPO in Rakuten Bank IPO: The Investment Case, Rakuten Bank Vs SBI Sumishin Net Bank and Rakuten Bank IPO: Valuation Insights.   
• The new price range values Rakuten Bank at a discount vs peers for the ROE it delivers. SBI Sumishin Net Bank (7163 JP) strong post-IPO performance suggests strong sector sentiment.

• Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$630m in its Japan listing in April 2023.
• 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 the company’s past performance and undertook a peer comparison. In this note, we talk about valuations in the IPO price range.

• Taiwan has been our top long but showing momentum deterioration. ASX and Kospi met rally targets to finesse a dip and secondary push. HSI long struggling. Short near 21,000.
• Japan and India are our immediate short plays. NKY dip and rally with bigger top due at 28,500.
• April is a bullish month but once the buoyant cycle terminates, we will turn more aggressive on the short side (NKY, HSI, Korea and even Taiwan is on our radar.

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.

• Adaro Energy
• Country Garden Holdings Co
• Gajah Tunggal
• NagaCorp Ltd
• Yuexiu Property

IP Group’s NAV per share came in at 132.9p at end-2022, only 2% below the end-June 2022 level. The NAV decline during 2022 was primarily due to the £428.5m loss from listed holdings (before foreign exchange (FX), mostly Oxford Nanopore Technologies, ONT), while private holdings posted gains before FX of c £101.4m (or 5.8% of opening NAV). Excluding ONT, IP Group posted a £25.2m profit in 2022. Most notably, its four major cleantech holdings posted a valuation uplift of c £120m in FY22. IP Group now trades at a 58% discount to end-2022 NAV which, together with a strengthened balance sheet, largely up-to-date portfolio marks and several potential portfolio catalysts, provides a certain degree of downside protection.

Utilico Emerging Markets Trust’s (UEM’s) manager Charles Jillings, at value-focused ICM Group, is excited about the prospects for the trust as he strongly believes that the operational strength of investee companies is not reflected in their current share prices. He has good visibility into the businesses in UEM’s portfolio, and a recent trip to Latin America reinforced his view that their management teams are taking advantage of available growth opportunities. Jillings and his team are making a dedicated effort to introduce UEM to a wider audience, including retail investors, via a greater number of presentations and an active social media presence. Up to 10% of the portfolio may be held in unlisted securities, which includes top 10 holding Petalite, whose recent revaluation has led to a meaningful uplift in UEM’s NAV.

• This morning, ACCC announced that it had released a “Statement of Preliminary Views” on the ANZ/Suncorp deal and sought further views. 
• For now, the ACCC questions “the nature, likelihood, and extend of claimed public benefits” including synergies or claims regarding investment in Queensland. 
• Based on my reading of the document, this view is likely to carry over through the final decision due mid-June 2023. That means there’s likely a trade here. 

• Rakuten Bank (5838 JP) has an advantage over competitors due to its connection with the Rakuten ecosystem, which has 39+ million monthly active users.
• It’s NIM has decreased, but the cost-to-income ratio is the lowest among digital banks, and its net-fee and commission-income has grown significantly, thanks to its association with the Rakuten ecosystem.
• The IPO price range is reasonable given its advantageous position. Therefore we intend to subscribe to the IPO when it opens.

Central China Real Estate’s (CCRE) FY 2022 results were much weaker than expected, as revenue declined 43% y-o-y and the gross margin contracted to a low of 8% (FY 2021: 16%). EBITDA turned slightly negative, and we estimate CFO (after interest and tax) at negative CNY 4.0 bn. Net debt increased due to the negative cash flows, contrary to our expectations of deleveraging. Liquidity is poor, and the company has announced a distressed exchange for USD 897 mn of notes due in 2023.

In our view, CCRE’s poor profitability suggests that its operating challenges are more severe than expected. This could have been exacerbated by the company’s high exposure to lower-tier cities and counties in Henan, despite its established brand position and market share.

We foresee that CCRE’s revenue and gross margin will remain weak in FY 2023. In addition, any improvement in the company’s medium-term prospects would hinge on a recovery in contracted sales and ability to restart land-banking activities in H2, in order to extend its sales pipeline. This is crucial as CCRE is a pure-play property developer. The company’s longer-term prospects could depend on the development of synergies with SOE minority investor Henan Railway, to obtain new business and financing opportunities.

UK equity capital market (ECM) activity has remained subdued and Numis does not expect a near-term revival. Nevertheless, its strategy of investing in diversification is bearing fruit with M&A advisory showing continued strength and private markets transactions showing signs of picking up. Numis’s strong balance sheet allows it to take opportunities to recruit and maintain investment in technology in the downcycle. This should pay dividends in a stronger market and underpin longer-term growth.

Hopson Development’s FY 2022 results were soft as expected, with sustained weakness in contracted sales and revenue, along with a lower gross margin. We note negatively the continued loss in its financial investments, which may point to poor strategy and/or management.

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
• KWG Living Group
• Sino-Ocean Service
• West China Cement