Country: China
Alibaba
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): O/P
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Fundamental View
AS OF 07 Dec 2022We have an Outperform on Alibaba, and we remain constructive on its credit outlook.
Alibaba reported a decent set of F2Q23 results, with growth showing signs of emerging recovery and its profitability margins improved. Looking ahead, we expect Alibaba growth to continue to rebound on the back of China’s reopening, and for its profitability to remain stable. We also expect Alibaba to maintain its healthy leverage metrics and net cash position in the next 6-12 months.
We think that Alibaba $-bonds are trading at attractive levels compared to its A-rated US tech and China corporate peers. We have a preference for its $-bonds with maturity <5Y. We expect Alibaba's spreads to tighten against its aforementioned peers as China gradually reopens, alongside a supportive tech regulation environment.
Business Description
AS OF 07 Dec 2022- Founded in 1999, Alibaba is now the largest retail commerce company in the world based on gross merchandise volume (GMV). GMV transacted on Alibaba's China retail marketplaces was RMB 8.3 tn for the year ended 31 March 2022.
- The company's business segments comprise Core Commerce (73.0% of F2Q23 revenue), Cloud Computing (10.0%), Digital Media and Entertainment (4.1%, which includes Youku and UC Browser), Cainiao (6.5%), Local Consumer Services (6.3%), and Innovation Initiatives/Others (0.2%, which includes Amap, DingTalk and Tmall Genie).
- Alibaba's core online market places include Taobao and Tmall. The "New Retail" business fuses online and offline shopping through physical stores such as Sun Art and Hema supermarkets. Alibaba also operates outside China through Lazada and AliExpress. As of 31 March 2022, annual active consumers on Alibaba's China retail marketplaces reached 903 mn.
- Alibaba had a market capitalization of RMB 1.69 tn as of 7 December 2022.
Risk & Catalysts
AS OF 07 Dec 2022Resurgence in COVID-19 cases may cause supply chain disruptions if production suspensions are implemented.
Regulatory clampdown (e.g. US SEC delisting risk, anti-monopoly guidelines, data security laws) may adversely affect Alibaba. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.
Alibaba may be subject to lawsuits for items listed on its marketplaces, which may be pirated, counterfeit, or illegal.
Key Metrics
AS OF 28 Feb 2023| CNY BN | LTM F1Q22 | FY22 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.2% | 11.6% | 12.1% | 12.5% | 17.9% |
| Net Debt to Book Cap | n/m | n/m | n/m | n/m | (7.9%) |
| Debt/Total Equity | 0.1x | 0.1x | 0.1x | 0.1x | 0.2x |
| Debt/Total Assets | 8.9% | 8.3% | 8.8% | 9.6% | 13.9% |
| Gross Leverage | 1.2x | 1.1x | 1.2x | 1.0x | 1.6x |
| Net Leverage | n/m | n/m | n/m | n/m | n/m |
| Interest Coverage | 26.2x | 27.3x | 28.7x | 24.3x | 15.9x |
| EBITDA Margin | 15.0% | 15.7% | 17.9% | 24.7% | 22.0% |
CreditSights View
AS OF 07 Dec 2022We affirm our Outperform recommendation on Alibaba. Its F3Q23 revenues, EBITDA and EBITDA margins were ahead of our expectations. Debt metrics also improved in F3Q22 and its net cash position expanded. We expect China commerce, offline retail, direct sales, international commerce and cloud businesses to gain more momentum starting from F1Q24. We expect Alibaba’s EBITDA margin to marginally improve from FY22. We also expect Alibaba’s cash flow generation capacity to improve and the company to maintain a net cash position in FY24. We view its $-bond as attractive compared to its Single-A rated Asia Corporate peers, and its tech peers, Baidu and JD. We see an additional ~20-30 bp spread tightening when Alibaba deliver earning recovery over the next few quarters. We prefer its 2024 and 2027.
Recommendation Reviewed: February 27, 2023
Recommendation Changed: August 05, 2022
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Search topics about wealth insights and investments.Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 09 Nov 2022The Bank of China (BCHINA; ratings: A1/A/A) is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in Hong Kong.
BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
BCHINA’s financial metrics are a little weaker than ICBCAS and CCB due to its larger overseas exposure, but the Big 4 banks have generally been managed more prudently compared to the smaller and more aggressive joint stock banks.
Business Description
AS OF 09 Nov 2022- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66%-owned subsidiary Bank of China (HK) Ltd.
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK and is the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 09 Nov 2022China’s sovereign ratings (A1/A+/A+) are a key factor behind BCHINA’s credit standing.
BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
BCHINA has greater exposure to property developers than the other Big 4 banks (8% of gross loans vs 3-4%), and it also seems to take greater heed to the authorities’ guidance to provide credit support to the property sector as it had the highest property sector corporate loan growth in 1H22. These could impact BCHINA’s asset quality as China’s property sector is still not out of the woods.
Key Metrics
AS OF 28 Feb 2023| RMB bn | 9M22 | 9M21 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| PPP ROA | 1.46% | 1.56% | 1.48% | 1.55% | 1.60% |
| Credit Costs | 0.67% | 0.76% | 0.70% | 0.87% | 0.82% |
| Reported ROA | 0.87% | 0.91% | 0.89% | 0.87% | 0.92% |
| Reported ROE | 11.2% | 11.6% | 11.3% | 10.6% | 11.5% |
| Total Equity/Total Assets | 8.3% | 8.2% | 8.3% | 8.4% | 8.1% |
| CET1 Ratio | 11.6% | 11.1% | 11.3% | 11.3% | 11.3% |
| NPL Ratio | 1.31% | 1.29% | 1.33% | 1.46% | 1.36% |
| Loan-Deposit Ratio | 87% | 87% | 87% | 84% | 83% |
CreditSights View
AS OF 09 Nov 2022We maintain our Market perform recommendation on BCHINA. BCHINA is one of the Big 4 banks (the 4th-largest by assets) with a reasonable capital stack and sufficient liquidity. Its NIM and profitability has trailed its more domestically-focused peers, but it is also facing less NIM pressure in the current environment with increasing overseas rates and reducing domestic rates. Its majority government ownership and systemic importance also assures it of strong state support. We view BCHINA as a core portfolio holding, particularly if market conditions are volatile. The bond complex is relatively less attractive when compared to other Asian banks.
Recommendation Reviewed: November 28, 2022
Recommendation Changed: July 16, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Search topics about wealth insights and investments.This article is exclusive to Metrobank preferred clients.
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Fundamental View
AS OF 09 Nov 2022Our credit view on AGRBK (credit ratings: A1/A/A) is based on the strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
AGRBK’s financial metrics are a tad weaker than those of peer-group leaders ICBCAS and CCB and in line with BCHINA; however they have been on an improving trend. The Big 4 have been managed more prudently in recent years than the smaller and more aggressive joint stock banks.
We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 09 Nov 2022- AGRBK is the third-largest bank in China and is classified as a G-SIB with a capital surcharge of 1.0%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40%), MOF (35%) and the Social Security Fund (7%).
- AGRBK has the second largest branch network in China after Postal Bank, with a particularly good presence in rural areas.
Risk & Catalysts
AS OF 09 Nov 2022China’s sovereign ratings (A1/A+/A+) are a key factor behind AGRBK’s credit standing.
Post the initial onset of the pandemic, asset quality has been well-managed. However, transparency is limited and credit risks in China are hard to assess as they often depend on the extent of the government’s willingness to socialise losses. The big 4 banks are under pressure to provide support to the property sector which may lead to further deterioration in their asset quality.
AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative as these actions reflect close state links that underpin ABC’s credit standing.
CreditSights View
AS OF 09 Nov 2022We maintain our Market perform recommendation on AGRBK. AGRBK is the 3rd-largest of the Chinese state-owned commercial banks and has a strong deposit franchise especially in rural areas which gives it access to a large pool of low-cost deposits. Capital is in line with BOC though lower than ICBC and CCB. We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support if needed. Its reserve cover, although saw a significant drop in 3Q22, remains at the highest among the Big 5 banks. Strong loan growth has offset the NIM contraction to boost topline revenue growth. Spreads are relatively less attractive when compared to other Asian banks.
Recommendation Reviewed: November 01, 2022
Recommendation Changed: July 16, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Search topics about wealth insights and investments.China Construction Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 09 Nov 2022Our credit view on China Construction Bank (CCB; ratings: A1/A/A) is based on the strong likelihood of state support in event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by the key role it plays in financing China’s economic development and its close government links (and large government shareholding).
CCB has maintained relatively stronger financial metrics in recent years as the Big 4 are generally more prudently managed than their more aggressive smaller competitors.
Business Description
AS OF 09 Nov 2022- CCB was originally formed in 1954 as a subsidiary of China's MOF to disburse funds intended for fixed asset investment. In the early 1980s, it started taking deposits and making loans outside of direct MOF control. In 1998, its NPLs were transferred to Cinda AMC in exchange for RMB 247 bn of Cinda bonds.
- The bank was re-capitalised again in 2003 with an injection of $23 bn by the PBOC. It was listed in 2005 but the Chinese government remains its controlling shareholder with a 57% stake held through state-owned Central Huijin.
- The bank owns CCB Asia and CCB International in Hong Kong as well as operations in a number of countries.
- CCB is the second-largest of the Big 4 and is classified as a G-SIB requiring an additional capital surcharge of 1.5%.
Risk & Catalysts
AS OF 09 Nov 2022China’s sovereign ratings (A1/A+/A+) underpin CCB’s credit standing. Any deterioration in the sovereign ratings could negatively affect CCB’s ratings.
Asset quality pressure is rising amid flagging economic momentum and risks stemming from the property sector. CCB has the largest balance of inclusive finance loans which may come under greater stress when relief measures end.
CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and extending loans at lower rates during the pandemic. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
Key Metrics
AS OF 28 Feb 2023| RMB bn | 9M22 | 9M21 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| PPOP ROA | 1.79% | 1.99% | 1.87% | 1.96% | 2.01% |
| Reported ROA | 1.02% | 1.07% | 1.04% | 1.02% | 1.11% |
| Reported ROE | 12.8% | 13.2% | 12.6% | 12.1% | 13.2% |
| Equity/Assets | 8.1% | 8.4% | 8.6% | 8.4% | 8.7% |
| CET1 Ratio | 13.9% | 13.4% | 13.6% | 13.6% | 13.9% |
| NPL Ratio | 1.40% | 1.51% | 1.42% | 1.56% | 1.42% |
| Provisions/Average Loans | 0.95% | 1.08% | 0.95% | 1.19% | 1.14% |
| Loan-Deposit Ratio | 84% | 82% | 84% | 81% | 82% |
CreditSights View
AS OF 09 Nov 2022We maintain our Market perform recommendation on CCB. CCB is the 2nd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. It has posted peer-leading results and asset quality for years, along with strong capital ratios. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. We view CCB as a core portfolio holding due to its strong B/S fundamentals and operational strength, particularly if market conditions are volatile. Spreads are relatively less attractive when compared to other Asian banks.
Recommendation Reviewed: November 01, 2022
Recommendation Changed: July 16, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
How may we help you?
Search topics about wealth insights and investments.CNOOC
- Sector: Energy
- Sub Sector: Oil and Gas
- Country: China
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 20 Sep 2022- We expect CNOOC’s credit profile to remain strong in 2H22 thanks to elevated oil and gas prices, strong cost control and rising production volume.
- We believe CNOOC is well positioned in terms of cost management, and we expect the company to continue to post strong operating profits in 2H22 against the still elevated oil and gas prices.
- We expect CNOOC to continue to benefit from the implied government support due the company’s critical role in China’s offshore upstream value chain and safeguarding China’s energy security.
- The O&G industry recovery is credit positive to CNOOC but there are rising geopolitical risk and the spillover risk of Russian sanctions, though still manageable as of now.
Business Description
AS OF 20 Sep 2022- CNOOC is an upstream oil and gas (O&G) company, and is one of the three Chinese major national oil companies (NOCs). Globally, it is also among one of the largest exploration and production (E&P) firms in terms of assets/reserves and production. CNOOC engages in E&P independently or through production sharing contacts (PSCs) with foreign/domestic partners. CNOOC is also the largest liquefied natural gas (LNG) importer in China, where it accounted for ~44% of total domestic imports.
- As of 30 June 2022, 71% of CNOOC's revenue is derived from customers in China. Globally, CNOOC has exposure to Canada, the United States of America, the United Kingdom, Nigeria, Argentina, Indonesia, Uganda, Iraq, Brazil, Guyana, Russia and Australia. In terms of foreign exchange risk, CNOOC is primarily exposed to $ and RMB.
- CNOOC produced 304.8 mmboe of O&G output in 1H22. As of FY21, the company had a net proved reserves of about 5.73 bn BOE, of which, around 48.2% of its net proved reserves are currently undeveloped.
Risk & Catalysts
AS OF 20 Sep 2022- Vulnerability and exposure to global/domestic oil benchmarks, which may fluctuate in response to changes in supply and demand, market uncertainty and other exogenous factors beyond the company’s control.
- CNOOC’s business is capital intensive as it has to regularly increase capex spending on acquisitions/JVs, exploration and development once it depletes its proved O&G reserve in offshore China.
- Policy risk from strict regulations over O&G prices, E&P licensing, and import/export quotas. CNOOC is also exposed to geopolitical risk and it is included in the US DoD military and US Entity blacklists. The spillover risk of Russian sanctions and potential US secondary sanctions could affect its business operations.
- CNOOC’s high reliance on crude oil sales may result in elevated energy transition risk and conflict with ESG mandates for its carbon-intensive nature.
Key Metrics
AS OF 28 Feb 2023| RMB bn | LTM 2Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| Debt to Book Cap | 19.1% | 21.9% | 24.9% | 26.1% | 25.3% |
| Net Debt/Capitalization | (4.6%) | 9.0% | 13.5% | 17.8% | 23.2% |
| Debt to Equity | 23.7% | 28.1% | 33.1% | 35.4% | 33.9% |
| Total Debt/Total Assets | 14.1% | 17.2% | 19.9% | 20.9% | 20.8% |
| Total Debt/EBITDA | 0.6x | 0.8x | 1.5x | 1.1x | 1.1x |
| Net Debt/EBITDA | -0.1x | 0.3x | 0.8x | 0.7x | 1.0x |
| EBITDA/Gross Interest | 49.5x | 31.1x | 15.9x | 24.3x | 23.8x |
| EBITDA Margin | 64.4% | 66.7% | 61.8% | 63.7% | 56.8% |
CreditSights View
AS OF 20 Sep 2022We affirm our Market perform recommendation on CNOOC. Over the next 6 to 12 months, we do not expect CNOOC’s $ bonds to lag the ICE BAML Asia $ IG Corporate Index (ADIG) as oil and gas prices remain elevated and investors stay defensive. CNOOC’s $ bonds on average widened 6 bp YTD compared to the 39 bp widening of ADIG; and its short-end and long-end bonds also outperformed Sinopec and CNPC on year-to-date (YTD) basis. Despite the outperformance YTD, CNOOC’s $ bonds on average are still cheaper than Sinopec and CNPC as it remains on the US sanction lists. We like the belly part of the CNOOC $ bond curve (i.e., CNOOC 2028, 2029 and 2033), which on average provides 36 bp and 47 bp yield pickup versus CNPC and Sinopec.
Recommendation Reviewed: October 28, 2022
Recommendation Changed: May 03, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank