Financials

• On 12 January we published a bullish tactical recommendation in Ethereum (XETUSD).
• We determined that Ethereum at 1400.813 was evolving into a sustainable multi-month uptrend and was likely to initially target a 19.6% upswing to 1675.58. 
• Ethereum achieved our initial target at 1675.58 (+19.6%) on 21 January 2023.

• Sabana Industrial REIT (SSREIT SP) disclosed a partial offer from Volare to acquire a maximum of 109.6 million units at $0.465 per unit, a 9.4% premium to the undisturbed price.
• The partial offer is conditional on minimum acceptances representing 10.00% of outstanding units. Quarz Capital, the activist fund, says the offer is attractive.
• ESR Group (1821 HK), the sponsor, is unlikely to tender. Based on a proration of 13.54% and at the last close price of S$0.425, the breakeven price is S$0.420.

• Japanese banks are the hottest new thing but unless you think Bank of Kyoto is going to change its spots, it’s still best thought of as a range trade. 
• WM Motors opts for a backdoor listing via merging with WE Solutions Limited (860 HK). There’s probably a good reason for doing so.
• You pay for the liquidity of Japanese banks by paying a higher PBR against not as much improvement in ROE. That’s life.

• Our models suggest that we should see further weakness in the USD in the coming months.
• Expected interest rate divergence (EU/US) would, all else equal, strengthen the Euro relative to the Dollar.
• Another source of dollar weakness can be attributed to the rise in the Chinese credit impulse.

• China Internet Investment Finance Holdings (810 HK)/CIIF disclosed that it received a letter from a potential offeror, stating that it is considering making a voluntary conditional cash offer.
• The possible offer will have two conditions – a 50% minimum acceptance condition and that the shares remain listed. No price or timeline has been disclosed.
• An offer if it materialises, will likely be a take-under due to the presence of a willing seller (Chairman) seeking a liquidity event and CIIF’s unjustified share price run.

• With JB Financial Group gone for Meritz Fire, the next one in line will enter KOSPI 200 in place of Meritz Securities. And the lucky one is DGB Financial.
• DGB can expect an inflow of 8.23x ADTV and will face a 2.8x ADTV in one day on March 31.
• Given the size of the preemptive flow that JB Financial is currently attracting, we should prepare for DBG to start receiving a similar level of price impact earlier than usual.

• Fintechs and neobanks suffered a valuations reality check in 2022, due to rising interest (and discount) rates, poor fundamental results coupled with – in certain cases – high cash burn
• Most neobanks need to improve customer activity rates as well as product and revenue penetration; legacy banks are responding to disruptors and in developed markets megafintechs are encroaching on neobanks
• We see 2023 neobank picks driven by bottom-up calls on focused execution; we turn constructive on Nubank, stay negative on Inter and Jago and neutral on Kakaobank and Banco PAN

• Sun Capital offers 350p/share for K3, 10.7x EV/NTM EBITDA, lower than median of peers at 11.3x and lower than my DCF-based estimate of 404.7p (implied 12.4x EV/NTM EBITDA).
• In spite of the underwhelming figure, the deal is likely to go ahead: top shareholders/managers (30.4%) will contribute to Bidco, and irrevocables total 10%. Court/GM meetings are on 26 January.
• Gross spread is 0.71%. Assuming it all goes smoothly, the estimated annual return assuming settlement by 28 February is 7%. Long.

• In six years, stablecoins have grown from making up just 1.5% of BTC trade volume relative to fiat currencies such as the Dollar or Euro, to more than 87%.
• This has been matched with an explosion in market capitalization for the three largest centralized stablecoins: Tether (USDT), USD Coin (USDC), and Binance USD (BUSD).
• The three had a combined market cap of $10bn in May 2020, the start of DeFi Summer.

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

• Goldman Sachs’ business model is not aligned to benefit from an elevated interest rate environment.
• The bank’s trading segment could pivot, but Goldman’s investment banking prospects remain gloomy.
• The firm’s stock presents reasonable valuation and dividend metrics, but they might not be enough to convince investors, analysts say.

• Intercontinental Exchange (ICE) is one of the largest providers of provider of market infrastructure, data services and technology solutions in the world.
• In ICE’s equity derivatives complex, the ADV in its MSCI complex has been rising as the volatility levels in the market have grown.
• Recurring revenues of the company have been increasing, driven by robust demand for the company’s energy exchange data rendering strong future foreseeability.

• This is our first report on insurance behemoth, MetLife.
• The company’s business has been negatively impacted by various macroeconomic trends such as the equity market falling, the interest rate rise, and the rising probability of a recession.
• However, MetLife continued to execute its Next Horizon Strategy which helps show some resilience in uncertainty.

• This is our first report on the Intercontinental Exchange (ICE), one of the largest providers of provider of market infrastructure, data services and technology solutions in the world.
• In ICE’s equity derivatives complex, the ADV in its MSCI complex was up as the volatility levels continued rising.
• Recurring revenues increased, driven by robust demand for the company’s energy exchange data as well as the continued benefit from its record 2021 listings performance.

• Jb Financial Group (175330 KS) will replace Meritz Fire & Marine Insurance (000060 KS) in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the close on 27 January.
• We estimate passive KOSPI2 INDEX trackers will need to buy 3.494m shares (KRW 36.34bn; 4.04 days of ADV) of Jb Financial Group (175330 KS) at the close on 27 January.
• DGB Financial Group (139130 KS) could be added to the KOSPI2 INDEX in April, replacing Meritz Securities (008560 KS) following its merger with Meritz Financial Group (138040 KS). 

• The crypto lending market has been decimated with casualties from both lenders and borrowers after the FTX fallout and credit crisis. 
• Most centralized lenders have been annihilated while DeFi platforms withstood the shock. The demand for lending has cratered and this will test the viability of existing platforms given lower volumes.
• However, we will likely see new platforms emerge that have the necessary lending, trading and risk management expertise from traditional finance that could propel further institutional participation in crypto. 

• ZaynFi, a stablecoin yield optimiser on BNB Chain, has announced a US$600,000 funding led by Cur8 Capital, the venture investing arm of UK-based Islamic Finance Guru.
• Started by Syakir Hashim and Aziz Zainuddin, ZaynFi is a DeFi protocol that helps users stake stablecoins safely and simply for top-of-the-range returns on the Binance Chain.
• According to the company, it helps users stake into the best liquidity pools across popular decentralised exchanges, enabling trades to happen while earning trading fees and rewards.

• Korean equities have recovered from the December sell-off but are still playing catch up versus other Asian indices over the last year
• We see the upcoming CPI release as an underpriced event in the vol space
• We consider some cheap derivative strategies on the upside to play the disinflation theme

In its FY22 post-close trading update, Secure Trust Bank (STB) announced that business has been trading in line with management expectations and with good momentum. Continuing profit before taxes and impairments was ‘significantly’ up, while its cost to income ratio ‘improved markedly’. Core loans rose by 19.1% y-o-y (we forecast 13%), with strongest growth in consumer finance as expected. New business lending did drop 11% y-o-y for Q422 as the bank tightened its lending criteria (as previously flagged by management) due to macroeconomic concerns. Loan arrears are back to pre-pandemic levels in vehicle finance and at record low levels in retail finance. This reflects STB’s repositioning to more prime segments and the de-risking of its loan book over the last few years. STB stated that its FY22 net interest margin percentage remained stable versus H122 despite rising funding costs (this matches our expectation).

Supermarket Income REIT (SUPR) has acquired an additional 25.5% beneficial interest in the Sainsbury’s Reversion Portfolio (SRP) from its joint venture (JV) partner. It now has a 51% interest with 49% held by Sainsbury’s. SUPR’s positioning in the winding up of the SRP structure is strengthened, its relationship with Sainsbury’s, operator of the stores, is deepened, and it expects to further enhance the return on its SRP investment. Separately, reflecting widespread expectations that yields will continue to widen across real estate sectors, our forecast net tangible assets (NTA) per share is reduced by c 10%.

• Foreign shareholding in HDFC Limited (HDFC IN) and HDFC Bank (HDFCB IN) has dropped over the December quarter resulting in higher foreign room.
• The merger is expected to complete in Q2/Q3 when we expect there will be large buying from MSCI trackers.
• The merger (and the timing of implementation) will have implications for changes to the NIFTY Index (NIFTY INDEX) and S&P BSE SENSEX Index (SENSEX INDEX) at the forthcoming rebalances.

• The Jafco Co Ltd (8595 JP) Greenmail Tender Offer to take Murakami-san out of his position is nearing its close. 
• Investors should make a decision imminently about where they believe the stock should trade in Price/NAV terms after the buyback is complete, once management is “stabilised.”
• My earlier piece written on the day of the announcement needs a few corrections. Those are below. 

• On 12 January we published a bullish tactical recommendation in Bitcoin (XBTUSD).
• We determined that Bitcoin at 18281 was evolving into a sustainable multi-month uptrend and was likely to initially target a 17.4% upswing to 21469.50.
• •Bitcoin achieved our initial target at 21469.50 (+17.4%) on 17 January 2023.

On 11 January 2023, Lippo Karawaci (LPKR) launched a cash tender offer for the USD 405 mn LPKRIJ 8.125% 25 and USD 417 mn LPKRIJ 6.75% 26. The early tender consideration for the 2025 and 2026 notes is USD 870 and USD 770 per USD 1,000 principal, respectively. The company will fund the tender offer with an IDR 6.0 tn (c. USD 380 mn) seven-year amortising secured credit facility by two local banks. The total tender amount will be up to the size of the credit facility (which is secured over land and some buildings).

We recommend to tender the USD LPKRIJ 2025 and 2026 notes. The amount of secured debt will increase significantly if the transaction is completed, and will likely account for the majority of LPKR’s total debt. The offering prices are somewhat in line with market prices. Hence, it is better to tender the notes, as the bonds may have lower recovery values.

• On 18 January, the KRX announced rebalance to KOSPI 200 index. The new addition to KOSPI 200 is JB Financial Group and the deletion is Meritz Fire & Marine Insurance.
• We expect JB Financial to continue to outperform the market in the first half of this year.
• However, we do not expect the sharp appreciation of JB Financial versus the other leading Korean banking stocks post JB Financial’s inclusion in KOSPI 200 on 30 January. 

• The tender offer of a month ago has helped reduce the selling pressure on the shares of HHC and is bringing attention to the underlying asset value of the business
• HHC’s MPCs have attracted more people causing the MPCs to reach optimal levels to sustain cash flow generation. 
• HHC’s ability to grow cash flow to reinvest into its MPCs should lead to greater earnings growth over the long-term. 

• After the market close today, Meritz Fire & Marine Insurance announced that it will cancel 6.57 million treasury shares, representing 5.9% of its outstanding shares. 
• This treasury shares cancellation by Meritz F&M Insurance should have a continued positive impact on its share price. 
• Share cancellation by Meritz F&M Insurance and the need to adjust to higher merger ratio are likely to lead to Meritz F&M Insurance outperforming MFG in the next few days.

• In this insight, we take a look at the names leading the race to become ADDs/DELETEs for the DAX, MDAX, and SDAX Indices.
• Vantage Towers (VTWR GR) is currently undergoing a Tender Offer and this could have interesting index consequences over the next few weeks.
• As it stands, there seems to be one change between MDAX and SDAX and there are multiple names hovering close to the border for DAX, MDAX, and SDAX.

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
• Powerlong Commercial Management Holdings
• Yuexiu Property

• Manchester United are arguably the biggest European football brand on the planet.
• So when they signed a deal in excess of £20m per year with layer 1 blockchain solution Tezos, eyebrows were raised.
• Mainly due to the bad reputation Web3 has within football generally.

• Japanese Banks have had a good run recently. From the day before the BOJ changed the 10yr yield target in December in its YCC programme to today, +30% vs TOPIX.
• The question is how that is spread out. There are lots of banks. Some are cheaper than others. Some are better than others. Can we draw conclusions to trade better?
• If you are looking at Japanese Banks to play a change in BOJ policy when Governor Kuroda’s term ends shortly, there are definitely conclusions one can draw. I offer comments.

• Markets price more than 35 bps ahead of the BoJ meeting. Is that too much?
• BoJ is not scared of inflation. They fear a lack of market functioning in JGB markets.
• JPY may be overbought into the meeting, while USTs are oversold

• Adjusted our SPX resistance level given overshoots with a focus on SPX futures trendline at 4,080 and price pivot at 4,100.
• We will take this week to measure overbought conditions and sentiment. Near term upside risk to SPX trendline that defines the LT trend.
• We have not given up on our macro bear cycle as long as trendline caps. Fine tuning top signals is the chore at hand.

• DCG’s subsidiary Genesis is likely to become the next insolvent crypto lender,  market fears its failure will lead to the dissolving of Grayscale, which held 3% of bitcoin’s total supply;
• Grayscale is a profitable business with $200 million annual fee income from the GBTC trust, DCG or any new buyer of Grayscale has no intention to dissolve the cash cow;
• Even if Grayscale dissolve, it won’t cause another crash as only $1 billion value of bitcoin may be dumped into the market, only 3.3% of bitcoin daily trading volume;

• Price Movements: Bullish sentiment has returned to crypto, with BTC up 20% over the past week.
• Market Liquidity: Binance.US’s market share relative to other U.S. exchanges climbed to 15%, a marked increase after dropping to 6% post-FTX.  
• Derivatives: BTC open interest fell sharply after a short squeeze caused millions in liquidations.

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.

• Azure Power Global Ltd
• China Hongqiao
• Fantasia Holdings Group Co
• Fosun International

• Bank of Kyoto (8369 JP) is a classic “deep value” trade. It has a low PBR, and… “Dude, it’s equity portfolio alone is worth more than the whole bank.”
• It has a larger market cap than most super-low PBR Japanese regional banks, is more liquid, and the narrative is quite easy to tell. 
• Japanese Banks are the hottest new thing but unless you think This Particular Leopard is going to change its spots, it is still best thought of as a range trade. 

• There are many different ways to analyse and understand crypto markets.
• On-chain analysis can be used to both understand a network’s fundamental health and provide some unique insights for potential investment opportunities over different time horizons. 
• On-chain data in 2022 provided an interesting picture and offered a deeper understanding of the bear market that we sat through and hope for the future. 

The Chinese Property Weekly focuses on providing updates in the Chinese real-estate sector, including recent regulatory and company developments, top and bottom performers, rating actions, as well as a list of bond maturities in the next 30 days.

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. Lippo Karawaci
2. China SCE
3. China Jinmao Holdings
4. Guangzhou R&F Properties
5. Sunac China Holdings

and more…

• BlackRock’s Q4 earnings report suggests an inflection point might be near.
• The company managed to mitigate systemic risks during its latest quarter, preserving its base rate rate-centric business model.
• In addition, aggressive investment in technology prompted a rise in product launch costs, according to the report.

• This is our first report on auto insurance major, Progressive Corp.
• The company had a disappointing quarter and failed to meet Wall Street expectations in terms of revenues as well as earnings.
• This quarter, the company increased personal auto rates in 20 states at an average of around 5% each day for an overall countrywide premium impact of +2%.

• 4.5 months ago I wrote about a possible “Sustained Flow Event” on Japan Excellent (8987 JP). Since then, the stock has outperformed every other Office REIT. It’s up since then.
• Outperformance within Office REITs has been a minimum of 3.5%, and a maximum of ~20.8% vs the biggest peer, with an average and median outperformance of 11.7% and 13.4% respectively.
• This idiosyncratic story has come to an end. It may be a temporary end, but I don’t see the next catalyst.

• Discounts to NAV of covered holdcos have generally widened since mid-December.
• Discounts to NAV (11 January): C.F.Alba, 48.9%; GBL, 36.3%; Heineken Holding, 19.5%; Industrivärden C, 14.3%; Investor B, 15.9%; Porsche Automobile Holding, 45%. The spread of Rio Tinto DLC tightened to 10.8%.
• Spreads tend to widen in bear markets but short-term recoveries provide opportunities on tightening discounts. Recommended trades are: GBL, Porsche Automobile Holding, Rio Tinto (DLC), CF Alba (long position).

• Today we step away from our ST / tactical TSS strategy and focus on definitive MT momentum confirmation.
• The uptrends that have evolved since the November lows in Bitcoin and Ethereum are small relative to the 2022 declines.
• This week is in the process of delivering definitive bullish MT momentum confirmation in both Bitcoin and Ethereum. Such an outcome will confirm a high probability multi-month uptrend bias.

• As a proof of stake network, Ethereum rewards stakers with block rewards and user fees.
• However, the 32 ETH minimum required to stake your ETH directly on the network prohibits the vast majority of users from doing so. Enter liquid staking derivatives, or LSDs.
• LSDs refer to the tokens created by DeFi protocols or centralized services designed to reward users who stake ETH on their platform.

• India-based KreditBee has added another US$100 million to its series D, with primary funding from equity investor Advent International.

• Founded in 2018 by Madhusudan Ekambaram, Karthikeyan Krishnaswamy, and Wan Hong, the startup offers tech-enabled personal loans to working professionals.
• KreditBee finances the loan through partnerships with banks and non-bank financial companies.

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
• China Vanke
• CIFI Holdings
• Lippo Karawaci