Financials

• AUD and NZD bear patterns stand out versus the Euro’s rebound which is at the top end of the range as the DXY finds a foothold at 102/101.
• Sterling met our 1.24 rally objective where we reversed to short. USD/JPY rise from 130 reaching for 134. USD/ZAR near our buy zone.
• Yield basing needed to support any sort of meaningful USD rise (DXY 104 near resistance) but there are tradable patterns to work with. USD shows a firmer tone in Asia.

• Just after Alibaba’s big news of a business split and possible fundraising and IPOs for spun-out entities, JD.com announced that they will list its Properties and Industrials businesses in HK.
• The pre-IPO funding round of $800m, led by Hillhouse and Warburg Pincus valued Jingdong Property (JDP HK) at RMB 7.15 per-share, which valued the company at RMB 46.8bn market cap.
• This implies a price-to-book multiple of 1.1x, which is towards the high side considering that the sector is trading at an average discount of roughly 10% to its book value.

Agile Group’s FY 2022 earnings were much poorer than expected, as the company reported a 26% y-o-y revenue decline and abysmal gross margin of just 2% (vs. 23% in H1/22 and 26% in FY 2021). The depressed gross margin reflects the company’s operational challenges, as well as aggressive inventory destocking to prioritise cash-flow generation (which has helped Agile avert a default).

The company’s liquidity position remains precarious, though we do not anticipate a default in FY 2023. This considers management’s high willingness to address debt commitments, as well as the industry’s improved financing environment. At FYE 2022, Agile had a CNY 8.5 bn unrestricted cash balance, which was barely sufficient to cover CNY 3.3 bn of short-term onshore bond/ABS and CNY 4-5 bn of interest expense. The company will have to refinance its bank and syndicated loans, with the government’s recent easing policies being supportive. In addition, we expect Agile to continue deferring new land acquisitions, as it still has a relatively large land bank. Still, the company is likely to continue deferring coupons on its perpetual securities, which are subject to a stoppage of dividend payments.

Seazen Group’s FY 2022 results were in line with expectations, with sustained weakness in contracted sales and revenue, as well as weaker margins. Total revenue declined 31% y-o-y to CNY 116.5 mn, with contractions in GPM and the EBITDA margin.

Key leverage ratios deteriorated over FY 2022, given the decline in revenue and profitability, despite debt reduction. Revenue/Debt weakened slightly to 137%, from 147% as at FYE 2021. Net Debt/Net Inventory was largely unchanged at a sound 19%. That said, Debt/EBITDA weakened to an aggressive 6.9x, due to the lower profitability. Liquidity was inadequate, with cash covering only 70% of ST debt.

• Our focus charts this month are on Brazil banks’ liquidity and capital adequacy trends, which seem reassuring to us, as these are currently topical bank ratios in investors’ minds
• The February NPL trends due to seasonal factors, we are concerned at the pace of NPL ratio worsening and arrears, especially in household credit
• YoY system loan growth to February decelerated further to +12.6%, largely due to slower corporate loan growth; credit spread trends were mixed with individual spreads widening, and corporate spreads eroding

Lippo Karawaci’s (LPKR) FY 2022 results were weak as expected. While the post-pandemic recovery has benefited the company’s malls and hotels, Siloam Hospitals (the largest contributor to revenue and earnings) no longer enjoyed the boost from COVID-19-related procedures. The second-largest segment, Real Estate, was weighed down by a very challenging operating environment, with a sharp increase in mortgage rates impacting demand. The financial risk profile continued to be weak. The only positives are LPKR’s adequate liquidity and the good pro-forma debt maturity profile.

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.

• AAC Technologies Holdings
• CIFI Holdings
• Fosun International
• Sands China
• Sino-Ocean Service
• Tata Motors ADR

• Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise up to $878m. Pricing is on 5 April and the listing is on 21 April. 
• We previously discussed the IPO in Rakuten Bank IPO: The Investment Case and Rakuten Bank Vs SBI Sumishin Net Bank. 
• In this note, we discuss valuation. Our analysis suggests that Rakuten Bank is fairly valued at the IPO price range of JPY1,630-1,960 per share. We would participate in the IPO.

Country Garden has released its FY 2022 results, with revenue and earnings declines as well as margin contraction. Reported debt decreased. EBITDA/Interest and Debt/EBITDA weakened significantly, but Net Debt/Net Property Assets remained sound. In December, the company received HKD 4.74 bn (c. USD 609 mn) from a private placement of 1.78 bn shares, with the funds primarily to be used for offshore debt commitments.

We are not surprised by Country Garden’s poor earnings performance in FY 2022, given that it had been a dire year for the Chinese property industry. We view positively the company’s repayment of debts due in 2022, despite difficulties in property sales and cash collection.

We remain cautious about the likelihood that management can achieve its goal of increasing Country Garden’s market share in higher-tier cities. We also continue to be highly concerned over the recovery trajectory for the group’s margins and property sales in FY 2023, considering the relatively large portion of existing inventory in Tier 3 and 4 cities compared to peers.

• Concentrix has signed a deal to merge with Webhelp (unlisted) in a cash and shares deal worth roughly $4.8 billion, including net debt. Webhelp is 59.15% owned by GBL.
• GBL obtains €1,787 million (vs. €1,721 million last valuation). GBL doesn’t miss on a good deal, even momentarily reversing the trend of increasing share of private assets in portfolio.
• The discount, albeit recently tightening, stays at a high level, 36.9%, despite the good deal and higher portfolio visibility and cash holdings.

SCE’s FY 2022 results were as expected, with sustained weakness in contracted sales and revenue, along with weaker margins. Going forward, management’s strategy includes progressing steadily to deal with the volatility in the industry. The delivery of projects will be a key objective, in order to maintain homebuyer confidence.

Sino-Ocean’s FY 2022 results were very weak. The decline in property sales revenue and profitability did not come as a surprise, given the moribund state of the property industry. The CNY 4.8 bn increase in gross debt and CNY 5.2 bn write-down on financial investments were, however, somewhat unexpected. These reflect very poorly on management and, needless to say, there have been no changes of note in this regard.

• Whatever one calls it – a boom-going-bust, a bubble bursting, a market correcting – the ESG party that has raged for years appears to be winding down for certain investors.
• Some partygoers have over-indulged in the ESG Kool-Aid, and regulators have the perfect elixir to sober them up – new and often confusing “anti-greenwashing” investing regulations.
• Particularly consequential for indexed ESG funds.  Index providers and asset managers struggle to comply, evidenced by recent methodology changes, reconstitutions, and fund closings.

Pakuwon Jati’s (PWON) FY 2022 results were acceptable. This was despite the company missing its pre-sales and earnings targets, given the sharp deterioration in the operating environment in H2 on the back of a steep rise in interest rates. Growth in y-o-y revenue, earnings and cash-flow was expected, given the COVID-19 lockdowns in FY 2021. Positively, the balance sheet remains in great shape, with net cash and no short-term debt. The company has the best credit profile among the companies under our Indonesian real estate coverage, and is the only one that has not carried out any bond tender offer below par. PWON has the best quality portfolio of retail assets and the highest portion of recurrent rental income among peers.

As a specialist lender, S&U is sensitive to the economic background, but in its main motor finance business it has a strong track record of managing and growing through bumpy conditions. The newer property bridging business is maturing and shares a focus on customer service and a conservative underwriting approach. This provides the group with a sound basis for sustainable long-term growth.

• Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m 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 provide our thoughts on valuation.

• Mapletree Logistics Trust (MLT SP) plans to raise around US$150 (S$200m) to partially fund the acquisition of logistics properties in Japan, Australia and South Korea.
• We have earlier covered the previous six placements for the REIT since 2017. Most of the past deals have done well except for the two most recent ones.
• In this note, we will run the deal through our ECM framework and talk about deal dynamics.

• We rate Bank Mandiri as our top pick with its attractive valuations including PEG ratio relative to solid returns and strong balance sheet – including liquidity –  metrics
• We also continue to favour Bank Negara, but it is our secondary value pick to Mandiri; Bank Central Asia, albeit fully valued, has impressive liquidity and return metrics
• Bank Rakyat had mixed returns in 4Q22, with pre-provision returns declining sharply QoQ although cost of risk continued to improve, due to better credit quality, thereby supporting post-provision profits

• Thai insurtech company Roojai has secured US$42 million in new financing round, as per multiple news reports.
• HDI International, a subsidiary of Germany’s Talanx Group, led the round that also saw participation from existing investor IFC.
• About US$32 million will be invested via direct injection and the remaining amount through a secondary share transaction.

• Vonovia has a high negative correlation to interest rates. What if interest rates were to stabilize or fall?
• Feedback from discussion with Head of IR gives confidence in the long-term prospects of the group
• Share price -32% ytd. Vonovia trades on a ~70% discount to its adjusted NTA

China Jinmao’s FY 2022 results were slightly weak, but in line with expectations. The company reported a slight top-line decline, while the gross margin contracted further to 16%. In addition, net debt continued to climb, due to acquisitions. For FY 2023, we expect revenue recognition to improve, although margins could remain weighed down by lower profitability at Jinmao’s city operations projects.

Positively, the company’s access to financing remains strong, as it was able to issue onshore bonds at low interest costs without having to provide credit enhancements. According to Jinmao, its average interest cost fell to a record low of 3.9%, despite the generally poor financing environment for the industry.

In other news, there were onshore rumours over the past week that the company may be merged with China Resources Land, with the energy businesses of China Resources Group to be integrated into Sinochem. All of the companies involved have denied the rumours. Still, we note that the business combination (if it materialises) will be positive for the CHJMAO notes, as China Resources Land is a stronger entity than Jinmao. That said, the merger is unlikely to trigger the Change of Control put, as the put option can only be triggered with a ratings downgrade.

• Indonesian insurtech startup Qoala announced that it has raised US$7.5 million in a series B extension round led by Europe’s responsAbility Investments.
• Existing investors Eurazeo and Indogen as well as new investor AppWorks also participated in the round.
• The startup declined to comment on its valuation, but VentureCap Insights currently pegs it at US$310 million following the fundraise.

• Binance is the world’s largest crypto exchange by a huge margin.
• It has achieved consistent growth since its founding in 2017, but its increasing dominance has been striking to watch since 2020, when it held around 25% of spot volume market share.
• Its market share approached 50% at the tail end of the 2021 bull market before retreating and again expanding to peak over 70% this year. 

• Today after market close, one of Japan’s largest office JREITs Japan Real Estate Investment (8952 JP) announced a US$150mn follow-on equity offering to fund their recent acquisition of two properties.
• The primary offer quantity will be 35,200 units and there is an over-allotment quantity of 2,464 units.
• In this insight, we take a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks.

• Ayala Land Inc (ALI PM) aims to raise around US$121m via selling around 11% of Areit (AyalaLand REIT) (AREIT PM).
• Ayala Land and AREIT have been moving towards concluding an asset for shares swap that had been in the works for a while. This placement appears to stem from that.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• In this insight, we take a look at the potential ADDs/DELs for the SET50 index rebalance in June 2023.
• Based on the latest available data, I expect 2 ADDs/DELs but there are couple of names close to the border and final rankings could change with changes in share prices.
• The three-month reference period used for the June 2023 rebalance will end on 31st May 2022.

• Established in 1946, Turkiye Garanti Bank (Garanti) is Turkey’s second-largest private bank.
• As of June, 30 2017, it reported consolidated assets of TRY 335,942 MM, aided by a pioneering position in all lines of business by pursuing a profitable and sustainable growth strategy.
• Garanti is an integrated financial services group that operates in the corporate, commercial, SME, payment systems, retail, private and investment banking sectors, along with its subsidiaries in pension and life insurance, leasing, factoring, brokerage, and asset management.

• Japan Real Estate Investment (8952 JP) is looking to raise around US$140m (JPY18.3bn) through a follow-on offering to acquire one new property and an additional co-ownership interest in another property.
• The deal is a large one to digest at 10 days of three month ADV while there will be a dilution of approximately 2.7% of TSO (assuming overallotment option exercised). 
• In this note, we will look at the assets to be acquired, impact on forecast and portfolio, and run the deal through our framework.

• Established in 1993 and headquartered in Cairo (Egypt), the African Export-Import Bank (“AFREXI”) is a sub-regional Multilateral Development Bank (MDB) that was established by its then 27 member states (now 44 countries) to promote intra-African and extra-African trade.
• The bank is universally recognised as an MDB under Article 102 of the United Nations Charter and enjoys supranational status in all its member states.
• Being an MDB accords AFREXI certain rights and privileges not accorded to normal financial institutions within its member countries.

• Earnings fall 80% YoY on slow revenue recognition, higher interest expense and FX loss. 1H18 presales momentum remains strong.
• TP lowered to IDR2,000, valuations look undemanding.
• With a vast and low cost landbank centred on its BSD City township, BSDE offers attractive exposure to Indonesia’s long term growth in property demand, especially in the wealthy Greater Jakarta region.

• Core profits +13% y/y due to contribution from newly acquired infrastructure & utility business
• Recurring income +38%, growing ahead of management target and supporting dividend growth
• Strong balance sheet support further share buyback and acquisition.

Leaning into opportunities in China, along with stock selection in India, Korea and Hong Kong, has contributed positively to performance. The fund is ahead of its Asian closed-ended peers on an NAV total return (TR) basis for the year to end-February 2023 and over the long term it continues to generate a double-digit annualised NAV TR (c 10% in sterling over the past 10 years), supported by consistent income. IAT pays a regular six-monthly dividend equivalent to 2% of NAV (4% pa). The managers, Ian Hargreaves and Fiona Yang, target double-digit annualised returns from each portfolio holding over a rolling three-year period.

• Operating Income +15.5% YoY [excluding Healthcare expenses, up +21.2% YoY], with solid cost discipline and expense control
• Net Income rose fractionally 0.3%, impacted by Healthcare initial ramp-up expenses, and other one-time non-recurring charges
• Net Cash [zero debt, and not including restricted cash/client deposits] increased of RMB536 million [$83 million], or $2.85 per ADR equalling 43% of the stock price

• 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.
• 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 ADDs.
• Separately, I see 3 more ADDs and DELs for the STX Europe 600 index in the regular review in June 2023.

• 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.
• Q1 2023 has confirmed that the material 2022 downward correction is likely complete. Subsequently, after a period of correction, the resumption of the Q4/Q1 uptrend was confirmed.
• Bullish price triggers combine with positive MT/LT momentum triggers to initially target 13740. A break above 13740 is increasingly likely and would present a far more bullish MT outlook.

• SBI Sumishin Net Bank (7163 JP) (SSNB) raised around US$370m in its second listing attempt.
• SBI Sumishin Net Bank is a Japanese digital bank set up as a 50-50 joint venture between Sumitomo Mitsui Trust Bank, Japan’s largest trust bank, and SBI Group.
• In this note, we talk about the recent updates and trading dynamics.

• Home First Finance (HOMEFIRS IN) lends to a customer segment exposed to high income volatility.
• Soft bounces are used by customers to manage their cash flow, with bounce charge collection done on a best-effort basis, management attitude towards financial discipline warrants attention. 
• While there may not be any immediate asset quality issues, caution is warranted. 

• Yuzhou Properties Company Limited (Yuzhou) is a property developer that focuses on residential housing in West Strait Economic Zone and Yangtze River Delta.
• The company has moved its headquarters to Shanghai from Xiamen.
• The company has been listed on the Hong Kong Stock Exchange since November 2009. As of 31 Mar 2017, market capitalization of Yuzhou stands at HKD12.4b (USD1.6b).

• Interim results beat with strong results across most business lines
• Life insurance new business value growth reversed to positive growth in 2Q and should accelerate
• Fair value trimmed to HKD98 but headwinds abating in 2H

• Established in 1993, PT Alam Sutera Realty Tbk (Alam Sutera) is a small Indonesian property developer, focused on the development and management of large-scale townships of residential and commercial property.
• As of FY16, the company held total land bank of 1,898 hectares in gross area.
• Key source of earnings remain property development sales, with recurring income limited and derived from leases in its shopping malls.

• On March 22, Binance halted its no-fee trading promotion for 13 BTC spot trading pairs, reversing a move that helped boost the exchange’s market share by more than 20% relative to its competitors.
• The exchange also announced that it would be eliminating trading fees for the BTC-TUSD pair, which was mothballed in September and only recently re-listed.
• It is unclear why Binance has chosen to promote its TUSD pair, although it appears the exchange has selected the stablecoin as a successor to BUSD, which is being phased out because of regulatory actions in the U.S. 

Shui On Land’s FY 2022 results were acceptable, supported by reasonable contracted sales, along with a strong revenue recovery in H2 (following a poor H1, when revenue recognition was impacted by pandemic-related lockdowns in Shanghai). Going forward, we believe contracted sales could decrease meaningfully in FY 2023, owing to the thin sales pipeline and reduced land bank size. That said, revenue recognition might continue to rise on the back of past robust sales.

Negatively, the company’s financial profile weakened slightly, with net debt rising more than expected. Still, we believe that Shui On’s liquidity profile remains manageable and expect the company to repay the USD 500 mn SHUION 5.75 23 (due November) using cash on hand.

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.

• Anton Oilfield
• Yankuang Energy Group
• Yanlord Land

• Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise about $870 million. The pricing is on 5 April and the listing is on 21 April. 
• In Rakuten Bank IPO: The Investment Case, we highlighted the key elements of the investment case. 
• SBI Sumishin Net Bank (7163 JP), the key peer, will list on 29 March. In this note, we compare Rakuten Bank and SBI Sumishin across several key metrics.

• Samsung FN REIT announced its IPO book building results. The IPO price was determined at 5,000 won per share. The demand ratio was 24.88 to 1. 
• The core investment thesis of Samsung FN REIT is that it is the only publicly listed Samsung affiliate that provides REIT services.
• It is a stable business with excellent locations for its existing properties and the company is expected to provide 5.6% annual dividend yield in the next three years.

• The troubles of Silicon Valley Bank, Silvergate Capital, Credit Suisse, an ongoing lack of confidence in European banks, and First Republic Bank have resulted in extreme volatility in Short dated Interest rates, Banks, and Financials.
• The sharp rise in fixed-income volatility has not happened to FX, Commodity, and Equity volatility.
• We saw record one-day moves in 3-month SOFR futures, and 2-Year Treasury yields dropped the most since 2008.

• As expected, DGB Financial Group (139130 KS) replaces Meritz Securities (008560 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close on 31 March.
• We estimate passive trackers will need to buy 5.15m shares (KRW 35.5bn; 12.1 days of ADV) of DGB Financial Group (139130 KS) at the close of trading on 31 March.
• DGB Financial Group (139130 KS) trades cheaper than its peers on forward PE and Price to Book. There could be relative outperformance over the next week.

• The Korea Exchange announced special changes in KOSPI 200 index.
• Effective 3 April, Meritz Securities (008560 KS) will be excluded from the KOSPI 200 index and DGB Financial Group (139130 KS) will replace it. 
• We think that there could be slightly better capital flow into DGB Financial as compared to other regional/smaller banks in Korea including BNK Financial

• Burgan Bank is the second-largest commercial bank in Kuwait, with total assets of USD 24 billion as of December 2016, and it is the fourth largest bank in the country in terms of its locally based banking assets.
• Kuwait Projects Co. (KIPCO), a preeminent Kuwaiti investment holding company controlled by the ruling family of Kuwait, owns 64.88% of Burgan Bank and has historically been supportive.
• Thanks to its operations in Turkey, Iraq, Algeria, and Tunisia, the bank enjoys a geographically welldiversified revenue base. The Kuwaiti operations represented 59% of its revenues, while those in Turkey and Algeria accounted for 21% and 12% of revenues respectively.

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. Evergrande
2. Vedanta Resources
3. Sino-Ocean Group
4. Lippo Karawaci
5. Japfa Comfeed Indonesia

and more…

FY22 was the first year since its inception that CVC Income & Growth (CVC IG) saw a negative NAV total return (TR). Its euro and sterling share classes produced NAV total negative returns of c 8.3% and 6.8%, respectively, which compares with 3.3% and 1.9% negative TRs by the Credit Suisse Western European Leveraged Loan Index (CS WELLI) in euro and sterling terms, respectively. This was primarily the result of downward mark-to-market valuation adjustments (resulting in unrealised losses for CVC IG), driven by price declines in the European loan market amid higher risk aversion. Meanwhile, defaults in the European loan market remained low at 0.4% in 2022, based on the Morningstar European Leveraged Loan Index (with no defaults in CVC IG’s portfolio). Subsequently, European loan markets rebounded strongly in January and February 2023, leading to 6.7% and 6.9% returns for CVC IG’s euro and sterling share classes, respectively (therefore allowing CVC IG to almost fully recoup the 2022 loss).

• Established in 2002 by current Chairman Hussein Sajwani based on a predecessor company founded in 1992, Damac Real Estate Development Company (Damac) is a property developer focused primarily on the high-end residential segment (apartments and villas).
• Since inception, the company has delivered approximately 17,900 units as of 31 December 2016, of which 90% were in Dubai.
• Of the company’s roughly 44,000 units currently in progress (and 62 million square feet development pipeline) and in planning stages, roughly 96% are in the UAE with the remainder in Jordan, Saudi Arabia, Qatar, Jordan, Bahrain, Lebanon and Iraq.

• 1H18 net profit of MYR3.83bn grew 14% yoy, driven by higher interest income growth and continued cost management. Interim dividend of 25 sen consisting of 15 sen cash portion and 10 sen electable portion.
• Group gross impaired loans ratio picked up in 2Q largely due to deterioration in Singapore corporate book (classified Hyflux group exposure of MYR1.95bn as impaired and provisioned ~RM315.1mn in 2Q).
• Fair value reduced to MYR11 implying 1.6x p/b. FY18 targets were maintained. Focus ahead on continued costs controls and margins after taking cautious approach on liquidity in 1H.