Financials

• 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.

• Back on the 5 January, First Abu Dhabi Bank (FAB DH) said it had considered a bid for Standard Chartered (STAN LN/2888 HK),  but was no longer evaluating an Offer.
• Such a statement kickstarts a six-month cooling-off period whereby FAB is restricted from reloading. This means all deal work must cease.  Unless another bidder emerges or STAN’s board approves. 
• In a curious development, STAN’s shares popped ~11% yesterday, on no apparent news.

• After being halted this morning before the start of trade, post-close, Link REIT (823 HK) announced a fully-underwritten Rights Offering. 
• The Rights Offering intends to raise HK$18.8bn issuing 1 Right for every 5 Shares held, at a subscription price of HK$44.20, a 26% discount to TERP. 
• This will take an already under-levered REIT and add more capital to it. And there is going to be selling pressure at some point.

• Sabana Industrial REIT (SSREIT SP)’s partial offer from Volare to acquire a maximum of 109.6 million units at S$0.4504 per unit (S$0.465 in cash – S$0.0146 2H2022 distribution) is open.
• The offer is conditional on 10% minimum acceptances. Minorities appear willing sellers as both Volare and Quarz increased their unitholding over the last 12 months.  
• Quarz is supportive but its intentions are unclear. Based on a proration of 16.70% and at the last close of S$0.420 per unit, the breakeven price is S$0.415 per unit.

• Beijing’s city market regulator has warned the public to steer clear of firms promising big returns with little risk from investments in non-fungible tokens (NFTs) and the metaverse.
• The statement is the latest indication that China’s watchdogs are unlikely to change their stance on speculative investments like NFTs, a form of digital token, anytime soon.
• The latest warning comes less than two years after China outlawed cryptocurrency trading and mining, also seeking to stamp out rampant speculative investment in virtual currencies like bitcoin and ether.

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. Wynn Macau Ltd
2. Vedanta Resources
3. Softbank Group
4. Country Garden Holdings Co
5. China Hongqiao

and more…

• A flight to safety from the bank’s depositors and asset management clients has caused a maturity mismatch, which could affect the firm’s net interest income.
• The outcome of Credit Suisse’s investment banking unit pivot is near impossible to call, but a few key indicators provide an interesting juxtaposition.
• And there we have it, folks; Credit Suisse Group AG’s (NYSE:CS) stock is essentially a distressed asset.

S&U’s year-end trading update confirmed that trading for both Advantage motor finance and Aspen property bridging has remained excellent since its last update in December. Full-year results, due on 28 March, are expected to meet expectations and be above budget. The economic background and tightened lending criteria are likely to have an impact in FY24, but there is still scope for more measured, responsible growth in S&U’s areas of specialist lending expertise.

• On February 9, SES announced it was awarded cash grants from the South Korean Central Government, represented by the Ministry of Trade, Industry and Energy (MOTIE), as well as Chung-Buk Province and Chung-Ju City.
• In September 2022, President Yoon Suk Yeol of the Republic of Korea invited Dr. Qichao Hu, CEO and founder of SES, to a meeting, which included CEOs of renowned US technology firms, to discuss how SES and the South Korean government may collaborate to advance next-generation battery technology.
• Following this meeting, SES announced its intention to increase investments in South Korea to support manufacturing and development of its large-capacity Apollo cells.

• Kingston Financial (1031 HK)’s scheme resolution was approved at today’s scheme meeting – 99.89% of independent share votes cast FOR (0.09% of all independent shareholders AGAINST).
• The scheme comfortably passed the headcount test with 44 FOR and 13 AGAINST the scheme (56 FOR and 20 AGAINST on a look-through basis).  
• The last trading is on 10 February. At the last close and for the 3 March payment, the gross and annualised spread to the offer is 3.4% and 69.3%, respectively. 

• Bank Rakyat Indonesia (BBRI IJ) did not disappoint with a strong set of FY2022 results, which came in around  4% above expectations, driven by strong micro and expanding NIMS.
• The bank also saw improving credit costs and declining provisions, which helped to drive profits and returns close to pre-pandemic levels plus the bank continues its advance on digitalisation. 
• Bank Rakyat will drive growth through MSME lending, which now makes up 82.5% of loans, with micro and ultra-micro having significant upsides. Valuations are attractive on 2.1x FY2023 PBV.

• HDFC Bank (HDFCB IN) continues to focus on growing its offline distribution network and added 684 new branches in Q3FY23, taking the total to 7183.
• It is also focusing on niche under-penetrated segments like Gold Loans and Wealth Management. Its Payment Acceptance Points network has also seen rapid growth.
• QoQ loan growth was somewhat muted, largely due to underwhelming growth on the corporate side as pricing in the marketplace is not as remunerative due to elevated competition.

• To build on our earlier work on the insurance space — and as we search for beta-neutral relative value plays — we look at PICC Group-H’s SOTP valuation.
• The group’s life and health business has historically traded at a steep implicit discount to China Life-H, perhaps deservedly so. But price dislocations do occur from time to time.
• We share our cheat sheet on how we approach these opportunities, which are often good for a quick 10% trade. As usual, we highlight the potential risks as well.

• LICHF reported Q3FY23 earnings that was lower than expected due to the increase in provisioning. LICHF reported annualized credit cost of 1.2% vs expected run-rate of <0.5%.
• The higher provisioning was done purely from a management overlay perspective for extra caution. It led the PCR to rise to 51% vs 43%+ earlier. 
• The higher provisioning was not due to asset quality deterioration. In fact, asset quality improved slightly with GNPA at 4.75% vs 4.90% QoQ.

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.

• Sino-Ocean Service
• Sunny Optical
• Vedanta Resources
• Wynn Macau Ltd
• Yuexiu Property

• Bank Of Ayudhya (BAY TB), now branded as Krungsri, is a unique Thai bank with high-quality retail exposure, a low-risk corporate loan book, and a growing SME book. 
• The bank is growing its digital exposure through its KMB app, its GO app for auto customers plus its UChoose lifestyle app and it collaborates with Grab and Shopee.
• Krungsri’s move to acquire Nomura Thailand’s broking business and its acquisition of Home Credit in Indonesia and the Philippines provide an additional edge and ASEAN exposure. Valuations are inexpensive.

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
• Lippo Karawaci

• IndiaFirst Life Insurance (1083896D IN) is looking to raise about US$250m in its upcoming India IPO. 
• IndiaFirst Life Insurance (IFLI) is a private life insurer in India with a product portfolio of retail and group products, ranging across different segments. 
• Its GWP and AUM have grown over the track record period. However, bottomline growth has on the other hand, declined further. 

• The Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB) joint shareholder meeting is in two weeks and amalgamation could be completed in the next month or two.
• We forecast inflows to the NewCo from MSCI trackers while there will be no flows from FTSE All-World/All-Cap and Stock Exchange of Thailand SET 50 Index (SET50 INDEX) trackers.
• Srisawad Power 1979 (SAWAD TB) is currently comfortably in the lead to be added to the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) in an ad hoc rebalance.

• China’s swift and sudden abolishment of its Covid rules triggered across-the-board outperformance for Hong Kong stocks. The HSI is up ~13% since early December 2022. 
• A strong rebound of inbound tourism and the resumption of normalised travel between Hong Kong and the mainland should underpin the city’s recovery.
• The retail sector, notably the high street shop segment, should lead this post-Covid recovery in terms of both rents and prices. 

• Varo bank published 4Q22 results that revealed lower quarterly cash burn through cost control, but revenue per client declined and the very high customer acquisition cost
• SoFi’s cost reduction success in 4Q22 seems, in contrast to Varo, to have limited revenue loss, thereby bringing SoFi closer to breakeven; it trades at a premium to peers
• These early 4Q22 results signals may provide some read across which we believe could be negative for Dave in particular, as well being a reality check for Inter’s US ambitions

We view Road King as “Medium Risk” on the LARA scale. The company has increasingly focused on growing and improving its property development business. We view favourably Road King’s geographical exposure to the Yangtze River Delta and Pan Bohai Rim regions, as well as the steady cash flow from its toll-road segment. The toll-road business has high margins, and reflects the company’s decent relationship with the government.

However, Road King has little pricing power, as tolls are regulated to avoid excessive charges. We also negatively note the company’s reliance on JV structures for the property and toll-road segments, along with its heavy use of perpetual securities. Moreover, Road King has poor disclosure compared to peers.  

Our fundamental Credit Bias is “Negative”, as Road King may not be able to deleverage in the near term, given its need to replenish the small land bank. Positively, the company has a well-spread debt maturity profile, with the next offshore bond (USD 480 mn) due in September 2024. Road King does not have to redeem its perpetuals, given the absence of coupon step-ups.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. 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 ability to meet homebuyers’ requirements. We view governance risks as being more significant, due to the sector’s generally lower transparency and weaker internal controls.

• Deutsche Bank Aktiengesellschaft’s Q4 earnings miss is undesirable to its investors, but key variables could align and cause the bank’s stock to surge.
• The bank’s commissions-based business struggled during the past year, and M&A will probably remain flat.
• Deutsche Bank Aktiengesellschaft (NYSE:DB) released its fourth-quarter earnings report last week, revealing an earnings-per-share miss of 35 cents, coupled with a revenue miss of $213.4 million.

The trends seen in Numis’s H222 have continued in the first four months of FY23. Capital markets activity and revenues have been subdued but the strong momentum in M&A advisory has also been maintained, underlining the diversification benefits of previous investments in developing this area. A strong balance sheet provides flexibility to take further opportunities to broaden the group’s capabilities, which should support growth and returns through market cycles.

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
• Pertamina Geothermal
• Softbank Group
• Vedanta Resources
• O-Net Technologies (Group)

FY22 was a robust year for Foxtons with revenue up 11%, but the short-term outlook is less certain for recessionary reasons. However, the outlook remains encouraging with the new CEO on the cusp of announcing a growth-oriented operational review. 65% of revenue is now generated from the resilient Lettings and Financial Services divisions, a proportion that is likely to increase over time. Our ‘base’ case valuation gives a value of 53p/share, but ignores the potential of M&A expansion in particular. Our revised ‘bull’ case valuation implies a share price of 118p, which is more than twice the current share price, highlighting the potential.

• On 31 January, Korea’s Financial Services Commission (FSC) and the Ministry of Justice announced plans to improve rules regarding dividends to bring them in line with international standards.
• Companies will be able to decide the dividend amount prior to the record dates for quarterly dividends, while the ex-date of the final dividend will be post the AGM.
• This was one of the issues highlighted by MSCI for Korea’s upgrade from EM to DM. There are also implications for the KOSPI200 futures basis and futures rolls.

• In this insight, we take a look at the potential index changes for S&P ASX 20, 50, 100, 200, 300 in the run up to the March 2023 Rebalance.
• There could be one change for ASX 20 and one change for ASX 100 while ASX 200 could see four ADDs/DELs.
• For ASX 300, there could be 15 ADDs and 12 DELs in the March 2023 Rebalance including some high impact names based on days-to-trade.

• Investors will remember 2022 as the first real credit crisis that bitcoin and the broader crypto space have suffered. In historical terms, it was a significant year.
• The ensuing deleveraging eliminated many entities that got overzealous in the bull market and didn’t adjust their strategies to new market conditions.
• Almost the entirety of those now-insolvent entities were centralised conduits to the world of blockchain and digital assets. 

• 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.
• Last week delivered a host of bullish MT USD reversal patterns across USD/G10 and USD/Asia pairs.
• USDJPY has responded impulsively to critical LT support around 127.50. February has the potential to confirm a return to the multi-year uptrend with aggressive targets around 175/180.

• PICC P&C was a shelter for investors in 2022, as its earnings were largely shielded from the pandemic. However, momentum has shifted in favor of the rest of the sector.
• As the reopening story tails off, we expect the stock’s performance to recouple to the broader H-Financials index. 
• Valuation is undemanding, but the same can be said of almost any other stock in the space. If the HKD7.25/share resistance level breaks, we may see a major correction.

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
• Greentown China

JPMorgan Global Growth & Income (JGGI) invests in long-term structural winners, although in these uncertain times, managers Helge Skibeli, Tim Woodhouse and James Cook are looking to balance the portfolio via a mix of defensive and quality stocks. The trust’s strong performance track record continues. It has outperformed its benchmark, and its peers, over the short and longer term, thanks to the managers’ stock selection skills. JGGI also continues to deliver competitive and rising dividends, funded from a mix of portfolio income and reserves. Recent decisions by the boards of Scottish Investment Trust (SCIN) and JPMorgan Elect (JPE) to merge with JGGI attest to the relative attractiveness of the trust’s investment offering, while also greatly increasing assets under management (AUM) and liquidity, and reducing ongoing charges.

• Price Movements: DYDX has rallied 130% since the decentralized exchange announced they would postpone a planned unlock for the token. 
• Market Liquidity: BUSD’s market share has held steady since Binance admitted to mismanaging reserves.
• Derivatives: The open interest to market cap ratio suggests Optimism’s OP token is highly leveraged. 

• Bangkok Bank (BBL TB) has outperformed Kasikornbank PCL (KBANK TB) by 33% over the last 11 months and the price ratio is nearing the high end of the historical range.
• The number of NVDRs issued on Bangkok Bank Public (BBL TB) have continued to increase while decreasing on Kasikornbank PCL (KBANK TB).
• Bangkok Bank Public (BBL TB) now trades at a higher forward PE as compared to Kasikornbank PCL (KBANK TB) and the gap in price to book has narrowed significantly.

In the upcoming webinar, AIMS APAC REIT’s (“AA REIT”) CEO, Mr Russell Ng, will share a short company presentation. After which, he will engage in a fireside chat with Smartkarma Insight Provider, Angus Mackintosh. The Corporate Webinar will include a live Q&A session.

AIMS APAC REIT (“AA REIT”) is a real estate investment trust listed on the Mainboard of the SGX-ST since 2007. The principal investment objective of AA REIT is to invest in a diversified portfolio of high quality income-producing logistics, business parks and industrial real estate throughout Asia Pacific. As at 30 September 2022, AA REIT’s portfolio consists of 29 properties, of which 26 properties are located throughout Singapore and 3 properties located in Australia (including a 49.0% interest in Optus Centre held through a joint venture), with assets under management of S$2.2 billion. AA REIT is also a constituent of the FTSE EPRA Nareit Global Developed Index and the MSCI Singapore Small Cap Index. 

AA REIT is managed by AIMS APAC REIT Management Limited, which is wholly-owned by AIMS Financial Group (“AIMS”). Headquartered in Sydney, AIMS is a diversified financial services and investment group, active in the areas of fund management, mortgage lending, investment banking and property investment. AIMS is also the owner of the Sydney Stock Exchange.

• Although the operating metrics are expected to be weak in 4Q22 due to the lingering of Covid effects, we expect the resumption of travel to stimulate hotel demands in 2023. 
• We expect Atour to report its 4Q22 revenue at RMB580mn and OPM at 8.2%, both in-line with consensus. We expect a strong revenue growth at 60% YoY in 2023.
• We rate the stock as BUY and maintain the TP at US$35.

• Our Indian bank profitability and credit quality screens, in terms of credit quality metrics to end-December 2022, continued in a constructive trend
• This is reflected in NPA ratios and cost of risk trends; but Indian banks have to face increased NPA headwinds, especially if funding and liquidity tightens around Adani Group companies
• We remain negative on State Bank of India, especially given the concerns around the Adani Group, and also ICICI Bank; we remain positive on higher quality HDFC Bank

• StoneCo has disposed of its remaining 4.2% stake in Inter &Co, slamming the door shut on plans for a leading Brazilian neobank-paytech partnership originally announced in May 2021
• Stone acquired 5% of Inter for BRL2.5bn in June 2021; the extent of the fintech market malaise means that currently BRL2.5bn (c USD500m) would buy close to 50% of Inter
• This StoneCo stake disposal at least removes the Inter shares’ overhang risk; yet despite this technical relief, we reiterate that Inter’s fundamental outlook remains a challenging one

• Moody’s delivered a strong result in the quarter with an all-around beat and a major update with respect to the acquisition of SCRiesgo to expand its presence in Latin America.
• This quarter demonstrates the resilience and positive momentum of Moody’s Analytics (MA) and also reflects the impact of the challenging market situations on Moody’s Investor Services (MIS).
• Across MA, Moody’s enhanced several workflow offerings via analytics and data integration, creating new products to meet rising consumer needs.

• SX7E broke out of its range and has rallied 15% this year alone
• ECB are close to the end of their hiking cycle and a lot of good news is already priced
• Recessionary fears still remain in Europe and we see an opportunity to hedge recent gains whilst vols are low

• The new rules allow investors to decide whether to hold the stock until the dividend record date after knowing the dividend amount in advance.
• The new rules will be applied starting with the annual dividends for this fiscal year. We will know this year’s yearend dividend amount before deciding whether to receive it.
• From a trading perspective, the yearend dividend arb targeting ex-date mispricing will no longer be effective, which will likely change the swing trading strategy at the beginning of the year.

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. China Jinmao Holdings
2. Lifestyle International Holdings
3. Geely Auto
4. First Pacific Co
5. Tata Motors Ltd

and more…

Picton Property Income’s (PCTN’s) Q323 report shows asset management and leasing activity continuing to grow rental income. This provided a partial offset to strong market-wide pressure on property valuations in response to higher interest rates, while moderate gearing mitigated the impact on NAV. Although the NAV total return was a negative 11.7%, PCTN appears to have delivered strong outperformance relative to MSCI indices and those immediate peers that have so far reported.

• Key variables suggest BNP Paribas’ Q4 report could surprise the market, with its held-for-trading securities leading the way.
• The bank’s balance sheet possesses little maturity mismatch, but its Value-at-Risk could remain elevated amid sustained volatility in the FX and Bond markets.
• BNP Paribas (OTCQX:BNPQF) is scheduled to release earnings on Tuesday, the 7th.

• The Aussie local press is discussing renewed merger talks for Bendigo And Adelaide Bank (BEN AU) and Bank Of Queensland (BOQ AU).
• Talks of a merger are not new. And we have been here before when BOQ twice made overtures to Bendigo in 2007, but was rejected. 
• The swift removal of BOQ’s CEO, a lifetime high ratio – BEN/BOQ – and ANZ (ANZ AU)‘s tilt for Suncorp Bank – suggests a merger makes a lot of sense.

• There is only one large, liquid, listed, internet bank in all of the Asia-Pacific markets
• Earnings have been strong, with uplift in NIM and loan balance to support this
• Regulatory change to provisioning not likely to affect this bank, but big peers

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.

• Lippo Karawaci

• With the MSCI ACWI (ACWI-US) approaching the top-end of our expected 2023 trading range at $93, we see limited upside from here, and we believe caution is warranted.
• We want to remain overweight Europe and the UK, but we prefer to buy only on pullbacks.
• The Hang Seng and MSCI China (MCHI-US) are both getting rejected at their important resistances discussed last week, and we would expect to see a basing process develop below resistance.

Martin Currie Global Portfolio Trust (MNP) has been managed by Zehrid Osmani since 1 October 2018. Despite a tough period of absolute and relative underperformance in 2022 as growth stocks have been out of favour with investors, the manager continues to adhere to his long-term strategy of focusing on high-quality companies with sustainable growth potential. He believes that valuation discipline is a very important element of the investment process, even more so in periods of rising interest rates. Osmani only invests when he has high conviction in a company’s positive long-term prospects; this is evidenced by no new holdings (or complete disposals) in the five months from May to September 2022, although portfolio activity has subsequently picked up.

• This piece was originally going to compare the average and median size of liquidity events – meaning any mint (deposit) or burn (withdrawal) to/from a DEX liquidity pool – on the most popular Ethereum DEXs: Uniswap V3, V2, and Curve. 
• There have been some excellent Twitter threads comparing DEXs and considering whether providing liquidity on Uniswap V3 can be profitable.
• But after taking a look at the Uniswap V3 liquidity event data, it became clear that I had to write about an under-explored and rapidly developing topic: just-in-time (JIT) liquidity.