Daily Brief Financials: Australia and New Zealand Banking Group (ANZ), Rakuten Bank, Central China Real Estate, Numis Corporation, Hopson Development, Kwg Property Holding and more

• This morning, ACCC announced that it had released a “Statement of Preliminary Views” on the ANZ/Suncorp deal and sought further views. 
• For now, the ACCC questions “the nature, likelihood, and extend of claimed public benefits” including synergies or claims regarding investment in Queensland. 
• Based on my reading of the document, this view is likely to carry over through the final decision due mid-June 2023. That means there’s likely a trade here. 

• Rakuten Bank (5838 JP) has an advantage over competitors due to its connection with the Rakuten ecosystem, which has 39+ million monthly active users.
• It’s NIM has decreased, but the cost-to-income ratio is the lowest among digital banks, and its net-fee and commission-income has grown significantly, thanks to its association with the Rakuten ecosystem.
• The IPO price range is reasonable given its advantageous position. Therefore we intend to subscribe to the IPO when it opens.

Central China Real Estate’s (CCRE) FY 2022 results were much weaker than expected, as revenue declined 43% y-o-y and the gross margin contracted to a low of 8% (FY 2021: 16%). EBITDA turned slightly negative, and we estimate CFO (after interest and tax) at negative CNY 4.0 bn. Net debt increased due to the negative cash flows, contrary to our expectations of deleveraging. Liquidity is poor, and the company has announced a distressed exchange for USD 897 mn of notes due in 2023.

In our view, CCRE’s poor profitability suggests that its operating challenges are more severe than expected. This could have been exacerbated by the company’s high exposure to lower-tier cities and counties in Henan, despite its established brand position and market share.

We foresee that CCRE’s revenue and gross margin will remain weak in FY 2023. In addition, any improvement in the company’s medium-term prospects would hinge on a recovery in contracted sales and ability to restart land-banking activities in H2, in order to extend its sales pipeline. This is crucial as CCRE is a pure-play property developer. The company’s longer-term prospects could depend on the development of synergies with SOE minority investor Henan Railway, to obtain new business and financing opportunities.

UK equity capital market (ECM) activity has remained subdued and Numis does not expect a near-term revival. Nevertheless, its strategy of investing in diversification is bearing fruit with M&A advisory showing continued strength and private markets transactions showing signs of picking up. Numis’s strong balance sheet allows it to take opportunities to recruit and maintain investment in technology in the downcycle. This should pay dividends in a stronger market and underpin longer-term growth.

Hopson Development’s FY 2022 results were soft as expected, with sustained weakness in contracted sales and revenue, along with a lower gross margin. We note negatively the continued loss in its financial investments, which may point to poor strategy and/or management.

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.

• Central China Securities
• KWG Living Group
• Sino-Ocean Service
• West China Cement