Financials

• Samyang Foods (003230 KS) will replace Hyundai Greenfood (005440 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close on 12 April.
• We expect DGB Financial Group (139130 KS) will replace Meritz Securities (008560 KS) in early April.
• Then we expect another 3 changes at the regular rebalance in June. The potential adds have moved sharply higher recently and there are flows from other index trackers too.

• A50 sell res near 14,100. Hard down close followed by 3% squeeze needs some digestion off of dual MA support. Our take is to sell strength.
• HSI is trading heavy after a muted bounce with 19,600 targeted and remains our top short.
• SPX needs a nudge and firm close below 4,080 to induce downside momentum and tip the global cycle.

At its capital markets day (CMD) Molten Ventures highlighted its successful growth since it listed in 2016, having grown its gross portfolio value by a CAGR of 59% (supported by several capital raises). We note that Molten posted a six-year NAV total return (TR) to end-September 2022 of c 15% pa. Since IPO, Molten has deployed an average £133m in capital per year (excluding secondary investments) and received £452m in total realisation proceeds. Portfolio growth has been underpinned by the 24% pa growth in European venture capital (VC) series A, B and C deal volumes (Molten’s ‘sweet spot’) between 2015 and 2022 (based on PitchBook data).

• China Renaissance (1911 HK) was once touted as a “leading investment bank and asset manager dedicated to the new economy“. At the time of its 1Q21 post-IPO high, it was.
• Late last Thursday, the 16 February, CR said it was unable to contact (hours, days, weeks?) Bao Fan, its chairman, CEO, and controlling shareholder. Shares subsequently fell 28%.
• Bao is the face of CR and instrumental in client dealing and complex large-scale deal making. Clarification is recommended before investors dip their toe back in the water.

• 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.
• USDCNH has delivered a most positive response to key Fibonacci support at 6.7143. February has the potential to confirm a renewed and sustainable multi-month uptrend.
• A February month end close above 6.9213 will provide such confirmation and target 7.10/7.20 on a multi-month basis.

• Our Dollar’O’Meter hints of further USD weakness on the cards in coming months
• Relative liquidity, relative inflation and relative forward interest rates suggest a weaker USD
• The outlook for the USD is a bit more muddy in H2-2023, but we remain negative for now

• Price Movements: Huobi listed a token representing a claim on FTX’s debt, which briefly surged to as high as $100 before crashing to $13. 
• Market Liquidity: Coinbase trade volume is increasingly outpacing Uniswap’s, suggesting traders still prefer CEXs.
• Derivatives: BTC open interest remains flat despite heavy volatility. 

• Royce Value Trust is ideally placed to benefit from a change in market risk attribution.
• The fund’s IR ratio suggests its managers provide value for money.
• In addition, the CEF’s fee structures are favorable.

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 Green Energy
• China SCE
• Lenovo
• O-Net Technologies (Group)
• Yuexiu Property

• After Asian indexes met targets we have now turned negative in a domino sequence.
• Our table pounding inflationary higher USD and higher yield thesis is seeing the dollar on the move with yield in hot pursuit.
• Bull divergence in yield and the USD warn or a multi month rise. This is just the beginning of the pain trade to unwind peak inflation and peak rate positioning.

• Mori Trust Sogo Reit (8961 JP) and Mori Trust Hotel Reit (3478 JP) will merge at the end of this month. 
• They pay divs, there is a unit split, then NEWCO. 
• If you are in the biz and you care, there is a small index thing to do.

• Kolte Patil reported weaker than expected Q3FY23 accounting earnings due to slight delay in arrival of OC for some projects. However, sales velocity and business development activity was robust.
• Reported Q3FY23 earnings had weak margins due to revenue contribution from two low-margin projects.
• Q4FY23 is on track to be strong both in terms of reported earnings (which depends on the timing of OC) and sales velocity.

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. Alam Sutera Realty
2. China SCE
3. China Jinmao Holdings
4. Lifestyle International Holdings
5. Geely Auto

and more…

• BEC revenues continue to match the pre-COVID level suggesting that the business has now normalized fully post-COVID. COVID led shift in working habits has had no structural impact.
• IT Office Leasing revenues grew 6%+ QoQ, led by the improvement in occupancy rates. Profitability also improved led by operating efficiencies. 
• BEC’s EBIT margin came in significantly lower than expected due to one-off expense of INR 15cr for demolition of a factory shed to build a new exhibition hall.

• We discuss the increasing likelihood of formation of another Internet bank, challenger banks, and other measures to foster competition and increase social contribution on the Korean banking sector in 2023.  
• The Korean banks underperformed in the past week due to President Yoon pointing out “banks and telcos need to share the increasing living costs.”
• We believe Kakao Bank is likely to underperform the market in the next several months as investors fear about greater competitive pressure, especially on the existing Internet banks.

• 4Q22 results confirm that Nubank is the benchmark among EM neobanks in terms of activity rates, as well as trends in revenues and costs per client and digital efficiencies
• We see further potential for broadening and deepening the product offer to customers, at little incremental cost especially in Brazil, to drive cost effective revenue growth
• Our proprietary Nubank model forecasts are broadly in sync with positive consensus estimates; we forecast group ROE of close to 30% in FY 2025, despite high cost of credit assumptions

• ESR-LOGOS REIT (EREIT SP) is looking to raise US$114m (S$150m) in a private placement. The proceeds will be used to fund potential acquisitions and finance the redevelopment of its properties. 
• Post offering, there will also be a US$114m (S$150m) non-renounceable preferential offering, which will bring the total gross proceeds of the equity fund raising to US$228m (S$300m).
• The deal is a relatively large one to digest at 46 days of ADV and 6.4% of current mcap. We’ll talk about the deal dynamics.

• Rakuten Bank, the online banking arm of Rakuten Inc (4755 JP), aims to raise around US$500m (estimated) in its Japan listing in April 2023. 
• RB is the largest internet bank in Japan, by number of accounts. As of Mar 2023, it had 13.39m deposit accounts with a total deposit base of JPY8.6tn. 
• In this note we take an early look at the IPO and talk about the not-so-positive aspects of its past performance.

We view China South City (CSC) as “High Risk” on the LARA scale given increasing refinancing risk, with significant maturities in the next 12 months. The company’s capital-market access is limited, amid the recent volatile market conditions and heightened yields for the existing bonds. We also note the risks associated with: [1] CSC’s weak financial risk profile; [2] the inherent volatility associated with commercial developments; and [3] potential regulatory changes, including delays in government-led support for infrastructure projects. The company will be increasingly reliant on asset disposals or shareholder support for future payment, especially as property sales have deteriorated.

That said, positives include the: [1] restructuring and introduction of Shenzhen SEZ Construction and Development (SZCDG) as the single largest shareholder following a capital injection in H1/22-23; [2] shift to fast-churn property sales; [3] recurring income from investment properties; [4] above-average, albeit declining, operating margins, thanks to the cheap land bank; and [5] decent geographical diversification in regional centres.

Our fundamental Credit Bias on CSC is “Negative”, given the expected slower recovery in contracted sales for 2023. That said, the company should be able to leverage its relationship with SZCDG for more strategic co-operation and improved access to onshore funding, thanks to its quasi-SOE status. We will look to reinstate a “Stable” Credit Bias on evidence of a turnaround in sales.

Controversies are “Immaterial”. We believe the Chinese property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and the satisfaction of homebuyers’ requirements. We believe that governance risks are more significant, due to the sector’s generally low transparency and weak internal controls. The ESG Impact on Credit is “Moderately Negative”, mainly owing to CSC’s corporate governance. We highlight that the extensions sought for two bonds due in 2022, and the subsequent extensions for all offshore bonds in July, indicate increasing governance risks.

• The crypto industry was again shaken this week when news came out that the NY Department of Financial Services (NYDFS) had ordered Paxos to stop issuing BUSD, with an NYDFS spokesperson saying Paxos “violated its obligation to conduct tailored, periodic risk assessments and due diligence refreshes of Binance and Paxos-issued BUSD customers to prevent bad actors from using the platform.”
• Additionally, it was revealed that the Securities and Exchange Commission (SEC) sent a Wells notice to Paxos, informing the company that the SEC is considering legal action against Paxos, alleging that BUSD is a security. (I’ve offered my thoughts on the regulatory aspect of this here.) 
• We’ve covered BUSD’s growth and market share extensively in previous Data Debriefs, noting that about 35% of Binance volume is denominated in BUSD and it quickly grew to the third largest stablecoin by market cap

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.

• Alam Sutera Realty
• Hopson Development

• Rakuten Bank, the online banking arm of Rakuten Inc (4755 JP), aims to raise around US$500m (estimated) in its Japan listing in April 2023. 
• RB is the largest internet bank in Japan, by number of accounts. As of Mar 2023, it had 13.39m deposit accounts with a total deposit base of JPY8.6tn. 
• In this note we take an early look at the IPO and talk about the positive aspects of its past performance.

• EEM topped ahead of the DXY 101 bottom (lead) showing strong synergy with our bull DXY and bullish yield charts from last week.
• Bull divergence implies a 2-3 month USD and yield up cycle is in store. EEM rising channel breakdown due.
• HK was the first to crack trendline support. Korea is a weak link. India is one of the clearer shorts. Australia, Taiwan and then Japan are set to roll over.

• KOSPI2 Index trading off the highs but supported by the 200-dma
• Implied vols are trading cheap offering a good entry point
• Options continue to be priced cheaply and we look at simple upside plays

For Q223, Target Healthcare REIT declared a second quarterly DPS of 1.69p, supported by inflation-linked rental growth and improving rent collection, which are in turn protected by fixed costs on 96% of borrowings. Yield widening across the broad property sector affected the portfolio’s property valuations, although the effect was significantly mitigated by the quality of Target’s portfolio and long-term, indexed leases.

Deutsche Beteiligungs (DBAG) posted a 7% increase in NAV per share in Q123 (ending 31 December 2022), supported by a €23.9m positive effect related to the higher earnings of portfolio companies, mostly due to the shift from 2022 to 2023 budgeted earnings in their carrying values. This was further strengthened by €36.5m valuation tailwinds from higher multiples amid the rally in public equities in the last quarter of 2022, as well as the recognition of agreed disposal prices (most notably for BTV Multimedia). DBAG’s shares trade at a 6% discount to NAV, while historically they have traded at a premium (6% on average in the last five years), reflecting the value of the fund services business.

• Link REIT (823 HK) (LREIT) aims to undertake a 1 for 5 rights issue at a subscription price of HK$44.20/unit, to raise around US$2.4bn.
• After announcing a S$2.2bn acquisition in late Dec 2022, the company explicitly mentioned that it didn’t need to raise any new capital. Thus, the rights issue marks an abrupt turnaround.
• In this note, we talk about the right issue, its previous acquisition and the overall implications.

• Lula increased his verbal offensive against the Central Bank’s independence and its monetary policy; is this a storm in a teacup or a threat to the Central Bank’s status quo?
• With the appointment of Fernando Haddad as left-leaning finance minister, there is genuine concern regarding the scope for potential interference by the Lula administration in forthcoming monetary policy
• Government interference could lead to public sector banks offering more subsidized credit to lower income groups; although this is Caixa Economica Federal’s domain, this could increasingly include Banco do Brasil

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.

• CIFI Holdings

• Last year, Coinbase had marketers purring when they spent their 30 second allocated slot during the Super Bowl with a simple floating QR code which redirected a reported 60 million people to their platform.
• That’s pretty good cost-per-click and marketers worldwide were pointing to it as an incredibly simple but effective campaign.
• This year, unsurprisingly, we saw very few crypto ads during the Super Bowl. The market is down and crypto companies are protecting runway.

In its trading update, Triple Point Social Housing REIT (SOHO) sets out the path to restoring rent collection from two lessees in arrears. It also underlines the quality of its portfolio, the continuing performance of most lessees and their progress with addressing regulatory concerns. Until resolved, the arrears will have an impact on earnings and valuation, but SOHO remains committed to its FY22 DPS target of 5.46p. We will revise our forecasts when the FY22 results are published in March.

• Concordia (38.9% stake) points out that none of Rothschild’s businesses require a high amount of capital thus a listing brings more troubles than advantages (the enlarged family concert owns 54.5%).
• Lo and behold, a possible €48/share cash offer, partly financed with Rothschild’s cash holdings (via dividend and extraordinary dividend) is the solution, arguably cheap for a high-quality firm.
• My conservative Fwd P/E-based SOTP valuation is €53.9/share. There’s some margin to improve the offer. Spread is 2.3%/5.6% (gross/annualised). I would be long the shares.

• In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
• In the March 2023 review, I do not see any changes for the DAX index although a couple names are close to the border.
• As it stands, I currently expect two more changes between MDAX and SDAX and one more ADD/DEL for the SDAX index based on the latest available data.

• January CPI is due on Tuesday 14th and the market is expecting the biggest rise since October
• The SPX has rallied over 7% since December but the Yield Curve has been moving higher and the equity rhetoric is turning negative
• We look at a short-term trading opportunity in the options market to play the print

• Relatively newly formed, increased free float, dominant Shariah market share
• All 9 peer Shariah banks combined have less branches than BRIS
• 57% market share of Shariah lending, where growth is highest

• On 10 February, the High Court made an order sanctioning the scheme of arrangement (effective on 14 February). 13 February will be the last day of dealings in the shares.
• The listing will be cancelled on 15 February. Although a cheap offer, the need of capital for growth will benefit both K3 and the main shareholders who will remain onboard.
• Considering the short timetable, from a risk arb point of view, this has been a good trade nevertheless.

• Bakkt is enhancing its focus onto scalable B2B2C products and sunsetting its consumer app.
• Bakkt will continue its core focus of providing businesses with crypto and loyalty experiences for their customers through SaaS and API solutions on a secure and compliant platform.
• President & CEO Gavin Michael commented that as the company continues to “gain traction with our B2B2C strategy, we are laser focused on providing our partners and clients with seamless solutions that best serve their needs.

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 SCE
• Hopson Development

• Price Movements: cbETH, Coinbase’s liquid staking derivative, started trading at a discount after news broke that the SEC had fined Kraken $30mn. 
• Market Liquidity: LocalBitcoins shut down after 10 years of service after competition and a prolonged bear market sapped trade volume. 
• Derivatives: ETH options markets look bullish but more volatile than BTC. 

• The stage is set for an equity/risk off decline after the SPX met our 4,200 rally objective as have Asian and European indices.
• We are treating the DXY 101 low as a key USD turn support that will see dollar upside follow through on the back of a bullish 10 yr yield breakout.
• Equity weakness due from mid- Feb into Q2. NDX is hovering near pivotal lows (tech/growth U/P). Scales are tipped toward new lows.

• FAB’s bid will be the fastest and easiest way to increase its global and product reach.
• The deal is likely to face plenty of scrutiny due to StandChart’s complexity.
• With ample capital, liquidity and on path for profit recovery, StandChart is not in need of a deal.

• In our latest South Korean banks screener; we add Industrial Bank of Korea to the buy list alongside Hana Financial; we cut KB Financial to a neutral rating
• Industrial Bank of Korea has very attractive multiples and PEG ratio and the best pre-provision and post-provision returns of the peer group, it also has sound broad credit quality metrics
• We introduce a broader credit quality metric to the screens and also EPS revisions over the last week and last month to give a sense of earnings momentum changes

• The Sabana Industrial REIT (SSREIT SP) 2022H2 dividend went ex- on 6 February 2023, setting the Offer to be lowered. The Offer by Volare was lowered. Docs out Friday night.
• The S$0.465 Offer, adjusted for dividends (to be paid 27 March (cash or DRP units)), is now S$0.4504 per unit. The first close is 10 March 2023. 
• Sabana has underperformed a basket of slightly higher beta peers by 1+% since the day before the announcement. Watch pro-ration risk.

• Ueda seems like a centrist candidate compared to Amamiya (dove) or Yamaguchi (hawk)
• Ueda, if he gets the nod on Tuesday, is likely to slowly but surely distance himself from YCC
• We continue to like JPY on the prospects of tighter USD-JPY rates spreads 

• Bajaj Finance Ltd (BAF IN) reported decent profitability. Growth was somewhat muted due to competition, however, this seems temporary.
• The immediate focus of BAF to drive the next leg of growth is to deepen its product penetration across its existing branches. Currently, only 3% branches have 80%+ products.
• BAF revealed its long-term strategic plan wherein it plans to enter into newer categories like Auto, Agri, and CV which comprise 28% of the Indian retail credit market.

This is Part 1 of our exclusive deep dive on “Sogo Shosha”, or Japanese trading companies.

We’ve decided to break this deep dive into two parts given its length.

Part 1 will build the foundation and covers the business, history, and a discussion of Berkshire’s investment.