Daily Brief Financials: Bank Of China Ltd (H), China Overseas Property, Standard Life UK Smaller Co Trust and more

• There is little in the long-term and current figures of Bank Of China Ltd (H) (3988 HK) that leaves one assured of strength, stability, earnings power, and rather the opposite.
• Sharply expanding LDR is an increase in loans relative to deposits, and it tends to drive rising NIM. Where LDR expands (a lot) but NIM contracts, it is a concern.
• The bank appears to have a 2-3x higher base of credit costs/operating profit, with an ROE of 10% now vs 18% some years ago – with much more geopolitical risk.

• China Overseas Property (2669 HK) announced an acquisition on October 11 of a technical consultancy business from China State Construction Development (830 HK), a sister company. 
• The deal consideration will be not higher than HKD950m, which amounts to a PE ratio of 17.5x based on estimated 2023 earnings of the acquired business.
• In the current extremely shaky market, this kind of deal is very damaging to the market confidence of the stock.  Further derating is likely. 

abrdn UK Smaller Companies Growth Trust (AUSC) is managed by Abby Glennie and Amanda Yeaman. The strategy of using the proprietary Matrix screening tool to search for stocks that fulfil strict quality, growth and momentum criteria has proved very successful over the long term but has been challenged since the start of 2022, as macroeconomic factors rather than company fundamentals have driven stock markets. Despite their frustrations, the managers are sticking with their tried-and-tested strategy and are highly confident that the trust will resume its record of outperformance when there is a change in the investment backdrop. This may already be underway as UK inflation is moderating, interest rates may be close to peaking and, in recent months, AUSC’s NAV performance versus the reference index looks to have stabilised.