Daily Brief Financials: Srisawad Power 1979, Hongkong Land, Dave, Road King Infrastructure, Deutsche Bank, Numis Corporation, Seazen (Formerly Future Land), Foxtons and more

• The Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB) joint shareholder meeting is in two weeks and amalgamation could be completed in the next month or two.
• We forecast inflows to the NewCo from MSCI trackers while there will be no flows from FTSE All-World/All-Cap and Stock Exchange of Thailand SET 50 Index (SET50 INDEX) trackers.
• Srisawad Power 1979 (SAWAD TB) is currently comfortably in the lead to be added to the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) in an ad hoc rebalance.

• China’s swift and sudden abolishment of its Covid rules triggered across-the-board outperformance for Hong Kong stocks. The HSI is up ~13% since early December 2022. 
• A strong rebound of inbound tourism and the resumption of normalised travel between Hong Kong and the mainland should underpin the city’s recovery.
• The retail sector, notably the high street shop segment, should lead this post-Covid recovery in terms of both rents and prices. 

• Varo bank published 4Q22 results that revealed lower quarterly cash burn through cost control, but revenue per client declined and the very high customer acquisition cost
• SoFi’s cost reduction success in 4Q22 seems, in contrast to Varo, to have limited revenue loss, thereby bringing SoFi closer to breakeven; it trades at a premium to peers
• These early 4Q22 results signals may provide some read across which we believe could be negative for Dave in particular, as well being a reality check for Inter’s US ambitions

We view Road King as “Medium Risk” on the LARA scale. The company has increasingly focused on growing and improving its property development business. We view favourably Road King’s geographical exposure to the Yangtze River Delta and Pan Bohai Rim regions, as well as the steady cash flow from its toll-road segment. The toll-road business has high margins, and reflects the company’s decent relationship with the government.

However, Road King has little pricing power, as tolls are regulated to avoid excessive charges. We also negatively note the company’s reliance on JV structures for the property and toll-road segments, along with its heavy use of perpetual securities. Moreover, Road King has poor disclosure compared to peers.  

Our fundamental Credit Bias is “Negative”, as Road King may not be able to deleverage in the near term, given its need to replenish the small land bank. Positively, the company has a well-spread debt maturity profile, with the next offshore bond (USD 480 mn) due in September 2024. Road King does not have to redeem its perpetuals, given the absence of coupon step-ups.

Controversies are “Immaterial” and the ESG Impact on Credit is “Neutral”. We believe the Chinese Property sector has moderate exposure to environmental and social risks. The sector is not energy intensive, but may face social issues related to construction safety and ability to meet homebuyers’ requirements. We view governance risks as being more significant, due to the sector’s generally lower transparency and weaker internal controls.

• Deutsche Bank Aktiengesellschaft’s Q4 earnings miss is undesirable to its investors, but key variables could align and cause the bank’s stock to surge.
• The bank’s commissions-based business struggled during the past year, and M&A will probably remain flat.
• Deutsche Bank Aktiengesellschaft (NYSE:DB) released its fourth-quarter earnings report last week, revealing an earnings-per-share miss of 35 cents, coupled with a revenue miss of $213.4 million.

The trends seen in Numis’s H222 have continued in the first four months of FY23. Capital markets activity and revenues have been subdued but the strong momentum in M&A advisory has also been maintained, underlining the diversification benefits of previous investments in developing this area. A strong balance sheet provides flexibility to take further opportunities to broaden the group’s capabilities, which should support growth and returns through market cycles.

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.

• China Vanke
• Pertamina Geothermal
• Softbank Group
• Vedanta Resources
• O-Net Technologies (Group)

FY22 was a robust year for Foxtons with revenue up 11%, but the short-term outlook is less certain for recessionary reasons. However, the outlook remains encouraging with the new CEO on the cusp of announcing a growth-oriented operational review. 65% of revenue is now generated from the resilient Lettings and Financial Services divisions, a proportion that is likely to increase over time. Our ‘base’ case valuation gives a value of 53p/share, but ignores the potential of M&A expansion in particular. Our revised ‘bull’ case valuation implies a share price of 118p, which is more than twice the current share price, highlighting the potential.