In this briefing:
- China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
- China Minsheng: Unless There Is Opposing Wind, a Kite Cannot Rise.
- Guotai Junan Securities Placement Quick Take – Might Be Too Big to Sail
- China’s Greater Bay Area: The Essential
- Studio City – Thoughts on Lock-Up Expiry
1. China’s New Semiconductor Thrust – Part 2: Commodities as a Quick Path to Success
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
This second part of the series explains how China chose commodity semiconductors (DRAM and NAND flash memory chips) as the best technology to pursue.
2. China Minsheng: Unless There Is Opposing Wind, a Kite Cannot Rise.
Profitability at China Minsheng Banking A (600016 CH) in 2018 slipped. Similar to other Chinese lenders, rising Loan Loss Provisions exerted a negative pull on the bottom-line, testament to gnawing Asset Quality issues. In addition, similar to some banks, the top-line came under pressure from the rising cost of source of funding. Also the bank was not alone in juicing up its bottom-line with hefty trading gains. Thus Earnings Quality could have been better.
Given the underlying squeeze on core Income, it was encouraging to see management at least restrain OPEX.
Regarding Asset quality, write-offs soared by 153% YoY while substandard and loss Loans jumped by 68% YoY and 14%, respectively, and Loan Loss Provisions rose by 35.6% YoY. It is perhaps a little surprising then that coverage ratios decreased given the trend in credit costs, NPL migration, and charge-offs.
LDR remains quite high though credit growth last year was not gung-ho and broadly in line with Deposit expansion. We do note though a ratcheting up of CRE lending which jumped from 8.8% of the total Loan book to 12.3%.
Shares do not appear optically dear: the bank trades on a P/Book, FV, Dividend and Earnings Yields of 0.7x, 9%, 5.2% and 17.4%, respectively. However, we see better quality value elsewhere, in particular at “The Big Four” which can be termed safer Income opportunities.
3. Guotai Junan Securities Placement Quick Take – Might Be Too Big to Sail
Guotai Junan Securities (H) (2611 HK) plans to raise around US$350m via placing new H-Shares. We had earlier covered the IPO, you can find our coverage below:
- Guotai Junan Securities IPO: Second, if Not the Largest, China Security Broker, A-H Premium Examined
- Guotai Junan IPO: A Big Player but Relatively Less Liquid, How A-H Premium Plays
This is a large deal to digest and the shares seem to be trading at a relatively tighter A-H spread versus peers.
4. China’s Greater Bay Area: The Essential
Executive summary
We launch our inaugural joint policy research on China’s Greater Bay Area (GBA) with the assistance from Joy Rich Securities Investment’s Guangdong-Hong Kong-Macau Greater Bay Area Academic Research Group. Here we highlight what comprises GBA, timeline, comparison against major economies and other bay areas, deep-dive research into key industries and policies toward each part of GBA. China is a Policy-induced story and GBA is in the Chinese government’s interest to prosper.
We believe the composition of 9 cities and 2 special administrative regions, together with policy support by the Chinese government provides a backdrop for rising credit growth backed by productivity. We will continue to monitor credits which either are based in GBA or will benefit from the GBA scheme (EXHIBIT 9).
5. Studio City – Thoughts on Lock-Up Expiry
Studio City, a spin-off by MLCO US, was listed on October 18th, 2018 and its lock-up will expire next week on April 16th. The company raised USD 359 million in its IPO with the majority of the shares taken up by its shareholders.
In this insight, we will review the company’s operation, shares subject to lock-up expiry and its valuation vs peers.
Our previous insights on Studio City
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