Credit Rating: M/P
Bangkok Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 23 Feb 2023Bangkok Bank (BBL: Baa1 (stable)/ BBB+ (stable)/ BBB(stable)) is a family run conservative financial institution, with high capital and liquidity levels.
It acquired Indonesia’s Permata Bank in 2020 which resulted in a meaningful decline in its CET1 ratio to 14%. Management aims to maintain the CET1 ratio ideally at the 15-16% level, but the timelines are unclear.
Its profitability as measured by ROA and ROE is below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. That said, this has supported its asset quality outperformance versus peers, and better positions the NIM to benefit from the rising rate environment given that debt servicing capabilities of households and SMEs remain fragile.
Business Description
AS OF 23 Feb 2023- Bangkok Bank was set up in 1944 and was listed on the Stock Exchange of Thailand in 1975. It is a family-run bank and the current President of the bank, Chartsiri Sophonpanich, is the grandson of the founder of the bank.
- It is the largest bank by assets in Thailand. It was briefly surpassed by Kasikornbank in 2018, but the Bank Permata acquisition has taken BBL back to No.1.
- The bank is corporate-loan focused, and the loan book was split 43% corporate (~60% including international loans), 20% SME, 12% retail, and 25% international as at 4Q22. It is by far the most international amongst the Thai banks, with branches in 14 countries.
- BBL's overseas presence has been enhanced by the acquisition of Bank Permata, the 12th largest bank in Indonesia. Bank Permata's asset size is ~10% of that of BBL.
Risk & Catalysts
AS OF 23 Feb 2023Profitability has been the main issue with BBL as its returns have perennially been below the industry average. This is down to its primarily corporates focus leading to the lowest margins among its country peers.
However, the greater resilience of corporates against the ill-effects of the COVID-19 pandemic than the SME and retail sectors has made for lower pandemic-related losses and restructured loans, supporting BBL’s asset quality outperformance against its peers. In the current rising rate environment, its corporates focused book should also better withstand rate hike pass throughs, which augurs well for its NIM.
The acquisition of Bank Permata of Indonesia in May 2020 provides BBL with exposure to the high growth opportunities of the Indonesian market, which is the bank’s identified main base for overseas expansion, but this also presents higher risks.
Key Metrics
AS OF 28 Feb 2023| THB mn | FY22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| PPP ROA | 1.60% | 1.65% | 1.50% | 2.49% | 2.14% |
| ROA | 0.67% | 0.65% | 0.49% | 1.13% | 1.14% |
| ROE | 5.9% | 5.6% | 3.9% | 8.5% | 8.7% |
| Equity / Assets | 11.5% | 11.4% | 11.8% | 13.3% | 13.3% |
| CET1 Ratio | 14.9% | 15.2% | 14.9% | 17.0% | 16.4% |
| Calculated NPL ratio | 3.10% | 3.20% | 3.90% | 3.40% | 3.40% |
| Provisions / Loans | 1.24% | 1.38% | 1.41% | 1.56% | 1.07% |
| Gross LDR | 84% | 82% | 84% | 88% | 86% |
CreditSights View
AS OF 23 Feb 2023Bangkok Bank’s strength has been its large corporate portfolio and high capital levels. Returns though have been lower due to thinner corporate margins. BBL completed the acquisition of Indonesia’s Bank Permata (about 11% of its loan book) in 2Q20 which reduced its CET1 ratio to 14%, but this has since been rebuilt to ~15%. While disclosure from BBL is less than other key Thai banks and both systems face an overhang of COVID relief loans, we take comfort from BBL’s strong loss buffers and China’s reopening which brightens the growth outlook for Thailand. The Thai banks also face some margin pressure but we see this as manageable given the improved growth outlook, particularly for BBL as its large corporates book is better able to withstand loan rate increases. We move BBL from U/P to M/P.
Recommendation Reviewed: January 25, 2023
Recommendation Changed: January 25, 2023
Who We Recommend
Siam Commercial Bank
Kasikornbank
Pertamina
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Fundamental View
AS OF 20 Jan 2023- Reliance Industries Ltd. (RIL) is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals, telecom and retail.
- RIL’s diversified operations across the consumer business continue to help it wade through the COVID-19 economic downturn and keep its earnings buoyant.
- It has strengthened its balance sheet considerably, with the help of a flurry of global investments into its retail and telecom (Jio) businesses, as well as a mega rights issue, bringing in a total of INR 2.5 bn/ $33.6 bn.
Business Description
AS OF 20 Jan 2023- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 14 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 16.6k stores (as of September 2022) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (426 mn as of March 2021) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 20 Jan 2023- RIL’s O2C (oil-to chemicals) business margins have been under pressure owing to the squeeze in key downstream chemical product margins (i.e. an absolute decline in product prices vs. feedstock prices), which impacted polymer and aromatics margins.
- RIL’s foray into the renewables space will require heavy investments to the tune of ~INR 750 bn over the next 3 years, which will raise its capex requirements, and weigh on its free cash flow generation. It may require RIL to take on more debt too.
- Possible further ‘waves’ of COVID-19 infections and consequent social restrictions could hamper demand for transportation fuels and petrochemicals sold by RIL.
- The key-person risk stands out as rather pertinent in the case of RIL, as 65-year-old Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
CreditSights View
AS OF 20 Jan 2023We have a Market perform recommendation on RIL. RIL is positioned as India’s largest company by revenues, profits and exports. It dominates a few of the country’s key sectors, such as crude oil refining, petrochemicals and organized retail. RIL has diversified its operations across the consumer (telecom and organized retail) business, which helped its earnings remain resilient amid the COVID pandemic. A flurry of global investments into JPL and RRVL and a rights issue generated large cash proceeds and deleveraged its balance sheet significantly. Investments in the renewable energy space will de-risk its O&G business, and could provide the next leg of growth. However, it will also increase its capex needs, which is in turn likely to pressurize its leverage. Its bonds trade fairly to peers.
Recommendation Reviewed: January 20, 2023
Recommendation Changed: June 30, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Fundamental View
AS OF 10 Jan 2023The Export-Import Bank of India (EXIMBK) was founded in 1982. Its credit standing is built upon the key role it plays in the promotion of India’s cross border trade and investment development as India’s official export credit agency.
EXIMBK is 100% owned by the Government of India. Given its crucial policy role, close governmental links and quasi-sovereign status, we view it as inconceivable that the Indian government would fail to provide EXIMBK with support in a timely manner, if needed.
EXIMBK’s credit ratings are thus in line with the Indian sovereign, at Baa3(stb)/BBB-(stb)/BBB-(stb).
Business Description
AS OF 10 Jan 2023- EXIMBK presently serves as a growth engine for the internationalization efforts of Indian businesses, facilitating the import of technology and export product development, export production, export marketing, pre- and post-shipment, as well as overseas investment.
- As at 1H23, EXIMBK's loan portfolio is principally made up of export finance (80%) and term loans to exporters (13%), with remaining split among the financing of overseas investment, import finance, and export facilitation. 66% come under the policy business while the remaining are to the commercial business.
- By geography, the bank has a primary exposure of 45% to Africa, 45% to South Asia, 6% to rest of Asia, and 4% to the Americas and Europe.
Risk & Catalysts
AS OF 10 Jan 2023As a quasi-sovereign issuer with backstops from the Government of India and the Reserve Bank of India (RBI), EXIMBK is rated in line with the Indian government at Baa3(stb)/BBB-(stb)/BBB-(stb). Any downgrades in India’s sovereign rating will have a negative impact on its credit ratings.
EXIMBK’s policy role may require it to, at times, take on exposures that could lead to financial losses. This has led to poor asset quality and high impairment charges similar to the public sector commercial banks during the years leading up to the pandemic.
Capital standing, however, is robust thanks to capital infusions from the Government of India which have been stepped up in recent years – INR 50 bn was injected in FY19, followed by infusions of INR 15 bn and INR 13 bn in FY20 and FY21 respectively. The bank continued to receive INR 7.5 bn in FY22 despite capital levels remaining strong during the year, and INR 15 bn from the FY23 budget has been allocated for EXIMBK.
Key Metrics
AS OF 28 Feb 2023| INR mn | 1H23 | FY22 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| Net Interest Margin (Annual) | 2.08% | 2.19% | 1.84% | 1.54% | 1.56% |
| ROAA | 1.19% | 0.54% | 0.19% | 0.10% | 0.07% |
| ROAE | 8.69% | 3.97% | 1.49% | 0.80% | 0.67% |
| Equity/Assets | 13.30% | 14.12% | 13.23% | 12.46% | 12.81% |
| Tier 1 Capital Ratio | 26.3% | 28.6% | 24.0% | 18.7% | 17.7% |
| Gross NPA Ratio | 6.14% | 3.56% | 6.69% | 8.75% | 11.34% |
| Provisions/Loans | 0.72% | 0.90% | 2.46% | 1.87% | 1.90% |
| Pre-Impairment Operating Profit / Average Assets | 2.21% | 2.31% | 2.13% | 1.66% | 1.74% |
CreditSights View
AS OF 10 Jan 2023Exim Bank of India is the country’s key policy bank with full government support. It provides financial assistance to exporters and importers with a view to promote trade in India. It is 100% owned by the Government of India (GoI) and is a proxy to the India sovereign in international debt markets (quasi-sovereign status). The bank cannot be liquidated without the government’s approval and has a track record of government capital infusions. The bank’s asset quality is back on track after some wobbles in previous years. Capital levels are strong. We maintain a Market perform recommendation on the bank.
Recommendation Reviewed: January 10, 2023
Recommendation Changed: January 04, 2021
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Search topics about wealth insights and investments.Honda Motor
- Sector: Manufacturing
- Sub Sector: Automotive
- Country: Japan
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 12 Dec 2022Honda is unique among its Automotive peers owing to its global leadership position within the motorcycle market, in which it maintains a 25% global market share and consistent low-double-digit operating margins. The larger automotive business – which accounts for roughly two-thirds of Honda’s consolidated revenue – has seen its profitability decline since 2017 and remains in turnaround mode. While the company’s Power Products segment provides it with added diversification, the segment has posted a profit only one year in the past decade.
Business Description
AS OF 12 Dec 2022- Honda Motor Co., Ltd. engages in the manufacture and sale of automobiles, motorcycles, and power products. It operates through the following segments: Automobile, Motorcycle, Financial Services, and Power Product and Other Businesses. The Automobile segment manufactures and sells automobiles and related accessories. The Motorcycle segment handles all-terrain vehicles, motorcycle business, and related parts. The Financial Services segment provides financial and insurance services. The Power Product and Other Businesses segment offers power products and relevant parts. The company was founded by Soichiro Honda on September 24, 1948 and is headquartered in Tokyo, Japan.
- American Honda Finance Corporation (AHFC) is a wholly-owned subsidiary of American Honda Motor Co., Inc. (AHM or the Parent). Honda Canada Finance Inc. (HCFI) is a majority-owned subsidiary of AHFC. Noncontrolling interest in HCFI is held by Honda Canada Inc. (HCI), an affiliate of AHFC. AHM is a wholly-owned subsidiary and HCI is an indirect wholly-owned subsidiary of Honda Motor Co., Ltd. (HMC). Honda Motor Co. (HMC) maintains Keep Well (support) agreements with its North American finance subsidiaries, AHFC and HCFI. Under the Keep Well agreements, HMC agrees to (1) maintain at least 80% ownership in AHFC and HCFI, (2) ensure AHFC and HCFI maintain a positive net worth, and (3) ensure both AHFC and HCFI have sufficient liquidity to meet their debt payment obligations.
Risk & Catalysts
AS OF 12 Dec 2022Honda’s Non-Financial Services credit metrics are strong with cash and cash equivalents more than 3x its debt balance. While we believe its credit rating has upside potential to mid-A over time – its longtime rating prior to the pandemic that would enable it to access the Tier 1 CP market – we do not expect positive rating momentum until the automotive supply chain normalizes and Honda improves the performance of its automotive segment.
While we believe all automakers are susceptible to deteriorating vehicle sales in the event of a recession, Honda’s motorcycle segment sales and profitability have remained resilient in previous recessions including the 2008-09 financial crisis and could lead to modest outperformance versus its peers in a recessionary environment.
Management trimmed its expected FY23 unit wholesale growth for Motorcycles and Automobiles by 1% and 2%, respectively, with lower Automobile wholesales tied to semiconductor availability in North America. Higher operating profit guidance is related to strength in its Motorcycle segment and favorable currency effects.
Key Metrics
AS OF 28 Feb 2023| ¥ bn | FY19 | FY20 | FY21 | FY22 | LTM 3Q22 |
|---|---|---|---|---|---|
| Revenue | 13,523 | 12,344 | 10,908 | 11,967 | 12,963 |
| EBIT | 719 | 578 | 576 | 741 | 751 |
| EBIT Margin | 5% | 5% | 5% | 6% | 6% |
| EBITDA | 1,403 | 1,216 | 1,175 | 1,334 | 1,365 |
| EBITDA Margin | 10% | 10% | 11% | 11% | 11% |
| Total Liquidity | 3,520 | 3,611 | 3,717 | 4,612 | 4,772 |
| Net Debt | (1,944) | (1,931) | (2,048) | (2,481) | (2,561) |
| Total Debt | 438 | 532 | 480 | 837 | 946 |
| Gross Leverage | 0.3x | 0.4x | 0.4x | 0.6x | 0.7x |
| Net Leverage | -1.4x | -1.6x | -1.7x | -1.9x | -1.9x |
CreditSights View
AS OF 12 Dec 2022Our Underperform recommendation on Honda Motor and American Honda Finance notes is based primarily on relative value as we expect relatively tight trading levels to offer limited opportunity for outperformance. Honda Motor has struggled with supply chain challenges more than some of its automotive peers such as Toyota and Hyundai, which has contributed to constrained production and lower wholesale and retail light vehicle sales. We expect Honda’s automotive business performance to improve in 2023 as volumes improve, while its motorcycle unit continues to drive the majority of the company’s industrial operating profit.
Recommendation Reviewed: February 28, 2023
Recommendation Changed: January 13, 2023
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
How may we help you?
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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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
How may we help you?
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
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Siam Commercial Bank
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Fundamental View
AS OF 18 Aug 2022KEXIM is a pure policy bank that is directly and indirectly wholly owned by the government of the Republic of Korea which is obliged under Article 37 of the Export-Import Bank of Korea Act to fund any losses that cannot be covered by the bank’s reserves.
While this is a solvency guarantee and does not explicitly guarantee the timely repayment of debt, we view it as inconceivable that the Korean authorities would fail to provide KEXIM with support in a timely manner, should this be needed, given its crucial policy role and close government links.
Business Description
AS OF 18 Aug 2022- KEXIM was set up in 1976 to support Korean companies in their overseas business through export credit guarantee programs, as well as providing finance for imports and for overseas investment. It provides funding for both short term trade and long term investment, manages the Economic Development Cooperation Fund, a Korean official development assistance program, and was a conduit through which the government doled out COVID-19 assistance to affected companies.
- Till 2030, KEXIM aims to preferentially focus on seven sectors (hydrogen energy, wind and solar power, rechargeable battery and energy storage systems (ESS), future mobility, 5G and next-generation semiconductors, pharmaceutical and healthcare, and digital technology and cultural content) which are considered new growth drivers of the Korean economy. It has historically focused on the shipbuilding, and engineering & construction industries.
- KEXIM is 100% owned by the Korean government: 69% directly and the remainder through stakes held by the Bank of Korea (9%) and Korea Development Bank (22%). In contrast to peer policy banks IBK and KDB, KEXIM has remained more consistently a policy bank but its role has been adjusted to ensure it complements rather than competes with the Korean commercial banks.
Risk & Catalysts
AS OF 18 Aug 2022Previous Korean governments have made moves to privatise the other policy banks, but KEXIM has retained its policy bank role and government ownership, and these are not likely to change.
Korea’s shipbuilders have long been the largest users of KEXIM’s services. Losses on exposure to the sector, in particular Daewoo Shipbuilding (DSME), pushed KEXIM into the red in 2016 but the government injected capital and its condition has recovered.
Together with KDB, KEXIM has played a key role in helping corporate Korea survive the COVID-19 induced crisis.
KEXIM’s ratings are the same as the Korea’s sovereign ratings, which are now all in the AA range.
Key Metrics
AS OF 28 Feb 2023| KRW bn | FY21 | FY20 | FY19 | FY18 | FY17 |
|---|---|---|---|---|---|
| Pre-Impairment Operating Profit / Average Assets | 1.12% | 1.17% | 1.34% | 1.34% | 1.42% |
| ROAA | 0.48% | 0.10% | 0.47% | 0.78% | 0.02% |
| ROAE | 3.2% | 0.7% | 3.2% | 5.3% | 0.1% |
| Provisions/Average Loans | 0.49% | 1.16% | 0.46% | 0.61% | 1.52% |
| Nonperforming Loans/Total Credits | 1.31% | 1.22% | 1.47% | 1.38% | 3.37% |
| CET1 Ratio | 13.3% | 13.4% | 12.9% | 12.7% | 11.4% |
| Total Equity/Total Assets | 15.1% | 14.8% | 14.9% | 15.0% | 14.8% |
| Net Interest Margin (NIR/Ave Assets) | 0.92% | 0.94% | 0.98% | 1.14% | 1.26% |
CreditSights View
AS OF 18 Aug 2022KEXIM is a wholly government owned policy bank benefiting from a Korean government solvency guarantee. It plays a key role in financing large-ticket exports in particular ships and large-scale overseas engineering projects. Its credit exposures include some industry and borrower concentrations especially to Korea’s shipbuilders and its financial performance has at times suffered. But the Korean government has always acted in a timely manner to endure its solvency and with this strong backing we view it as a sound credit. We view its secondary levels as in line with where we would expect it to trade and so continue with our Market perform recommendation.
Recommendation Reviewed: January 04, 2023
Recommendation Changed: September 22, 2020
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank
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Search topics about wealth insights and investments.Goldman Sachs
- Sector: Financial Services
- Sub Sector: BanksBrokers
- Country: US
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): M/P
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Fundamental View
AS OF 16 Aug 2022Goldman experienced record capital markets results driven by elevated markets activity in 2020-2021. Still, the company remains focused on its medium and longer-term goals unveiled at the start of 2020 to improve efficiency, revenue mix, and funding. We see these initiatives as well as the recent improvement in core results as credit positives.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt was upgraded to A2 from A3 by Moody’s, citing lower loss given default modeling. Its S&P ratings have remained unchanged since 4Q15.
Business Description
AS OF 16 Aug 2022- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.6 tn in assets as of 1Q22 and a market capitalization of $91.8 bn as of June 21, 2022.
- Goldman Sachs presents its activities through four business segments: Investment Banking, Global Markets, Asset Management, and Consumer & Wealth Management.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It is gradually expanding its business mix to include consumer lending, expand its wealth management client base, and add other stable fee income streams.
Risk & Catalysts
AS OF 16 Aug 2022Much of Goldman’s core business is tied to global macro economic trends & overall levels of capital markets activity; market conditions have been unusually positive since the pandemic began (including positive impacts from macro volatility in 2022), but could normalize over time. Goldman is seeking to expand its operations and client base outside of its traditional businesses, which carries execution risk.
Goldman could participate in further M&A to achieve its long-term strategic goals, such as its a deal for NN Group’s Europe-based asset management division, which shifts the balance of revenues within asset management away from equity investments.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil.
Key Metrics
AS OF 28 Feb 2023| $ mn | LTM 1Q22 | FY21 | FY20 | FY19 | FY18 |
|---|---|---|---|---|---|
| ROAE (annual) | 17.7% | 21.3% | 10.3% | 9.4% | 12.3% |
| ROAA (annual) | 1.2% | 1.5% | 0.8% | 0.9% | 1.1% |
| PPNR / Avg. Assets | 1.60% | 7.38% | 1.34% | 1.20% | 1.40% |
| Efficiency Ratio | 55% | 220% | 66% | 68% | 64% |
| Net charge-offs (LTM) / Loans | 0.21% | 0.19% | 0.70% | 0.46% | 0.30% |
| Common Dividend Payout | 13.6% | 40.5% | 19.0% | 18.2% | 11.7% |
| CET1 Ratio | 14.4% | 14.2% | 14.1% | 13.3% | 13.1% |
| Supplementary Leverage Ratio (SLR) | 5.6% | 5.6% | 6.9% | 6.2% | 6.2% |
| Liquidity Coverage Ratio (LCR) | 126% | 122% | 128% | 127% | 127% |
CreditSights View
AS OF 16 Aug 2022We maintained our Market perform recommendation for Goldman Sachs heading into 2023. Given spread levels we still see better value in some money center peers such as Citi and JPMorgan. Spreads reflect fundamental improvements made at Goldman in recent years, particularly improvements in the funding profile, but we believe the relative tightening is overdone, and as is becoming clear, the strategy to de-risk and diversify the overall business is taking a step backwards with GS abandoning some of its consumer banking initiatives that did not reach targets.
Recommendation Reviewed: January 18, 2023
Recommendation Changed: January 12, 2022
Who We Recommend
Siam Commercial Bank
Bangkok Bank
Kasikornbank