In today’s briefing:
- Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs
- Shui On Land – Tear Sheet – Lucror Analytics
Banamex Update & Mexican Banks’ December Data; Risks of Credit Spread Erosion & Rising Credit Costs
- We explore Citibank’s upcoming Banamex disposal, which appears to have become a one horse race and question whether an IPO is completely off the cards
- Bank sector data trends to December remain robust, but headwinds are building; rising funding costs threaten credit spreads and worsening cost of credit trends, both set to erode 2023 returns
- BBVA Mexico generates consistent premium ROE of 25%+, investors can gain exposure through parent BBVA shares; we remain cautious on Banorte, due to the growing risks to returns and valuation
Shui On Land – Tear Sheet – Lucror Analytics
We view Shui On as “Medium Risk” on the LARA scale. Our opinion is underpinned by the company’s portfolio of high-quality assets situated in prime locations in major Chinese cities. Shui On has a large investment property portfolio, which generates sufficient recurring revenue to cover more than 1x of adjusted interest expense. The investment properties were worth CNY 51.2 bn as at end-June 2022, covering net debt by 1.7x. Moreover, the company can dispose assets to boost cash flow if needed. These positive factors are balanced against Shui On’s small scale and lumpy earnings profile.
Our fundamental Credit Bias on Shui On is “Stable”, supported by the improved operating and financing environment for stronger Chinese developers. The company has a high-quality asset base and sizeable investment property portfolio, which would support access to bank financing. We also believe Shui On’s differentiated business model (compared to peers with heavy reliance on property development) will thrive in the post-property crisis environment.
Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. Shui On’s management appears to place a strong emphasis on ESG issues, and we note positively the company’s high level of disclosure and transparency.
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