Daily Brief Financials: Resona Holdings, Newmark Property REIT, USD, H&T Group Plc, Greentown China, Henderson International Income, Custodian REIT and more

• In the post meeting press briefing, governor Kazuo Ueda said there was an increasing chance of the BoJ’s 2% inflation target being hit; JGB 10Y yields rose as a result
• This implies that the BoJ could change from negative interest rate policy in the near future, perhaps as soon as March, which is positive for the Japanese bank sector’s fundamentals
• We believe that this new will give further impetus to Japanese bank shares, especially those banks that are well geared into rising domestic interest rates; we highlight eight banks

• Newmark Property REIT (NPR AU) has disclosed an off-market takeover merger proposal from Bwp Trust (BWP AU) of 0.40 BWP units per NPR unit, implying A$1.39 per NPR unit. 
• The proposal is conditional on a 50.1% minimum acceptance condition, which can be waived or lowered. Irrevocables represent 18.35% of NPR units.
• The offer is attractive given the weak sector sentiment due to ongoing high-interest rates. At the last close, the gross spread was 2.6%.

• The bond basis is a significant concern for investors, as the long end of the curve has been steepening and rates are rising, increasing the probability of shifts in the cheapest deliverable (CTD).
• There are several bonds that are nearly equally cheap, meaning they are not currently the CTD but are close enough to potentially become the CTD. This could impact futures pricing.
• Investors who are long the March bond futures contract can hedge against the risk of CTD duration extension by buying March bond contract puts with a strike price of 118. This can mimic a long basis position.

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• In our 15 March 2023 initiation, Pawnbroking royalty, with strong, profitable growth, and later notes, we have highlighted the strong market for pawnbroking and why H&T, as the market leader, is uniquely placed to take advantage of these opportunities.
• Subsequent to the initiation, we had raised our pledge book forecast twice, and we do so again with the latest trading statement.
• In this note, we explore how pawnbroking growth is a key driver to the retail offering, pawnbroking scrap and gold purchase, with varying degrees of time lag.

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.

• Anton Oilfield
• Greentown China
• Reliance Industries

Henderson International Income Trust (HINT) is meeting its long-term objectives to provide both rising income and capital appreciation. It adopted a more generous dividend policy in 2021 and its 4.7% dividend yield is the highest among its peers. HINT has also delivered average annualised gains of 8.4% in NAV terms over the 10 years ended December 2023. However, the manager’s cautious, balanced stance, which favours value and defensive names and underweights the US, has underperformed recently due to the AI-driven rally in a handful of tech stocks and the improvement in the United States’ economic outlook, which has benefited cyclical names. However, HINT’s manager is using what he believes to be unjustifiably low valuations to add good companies with the capacity to grow dividends, at attractive prices. This includes businesses exposed to structural trends such as decarbonisation and the rapid spread of technology. He expects such acquisitions to outperform as the market comes to fully appreciate their merits.

Custodian Property Income REIT (CREI) and abrdn Property Income Trust (API) have announced a proposed all-share merger, recommended by both boards. This recommendation reflects the increased diversification of income that the combined company will provide, with potential to benefit from increased scale and share liquidity, and the opportunity for cost savings. The investment strategy will remain income focused, emphasising below institutional-sized regional assets, typically offering a yield premium. The combined portfolio offers 24% reversionary potential.