DOWNLOAD
Archives: CreditSights Issuer List
Pertamina
- Sector: Energy
- Sub Sector: Oil and Gas
- Region: Indonesia
- Bond: PERTIJ 3.1 30
- Indicative Yield-to-Maturity (YTM): 4.782%
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 30 Dec 2024Pertamina enjoys very strong linkages with the Government of Indonesia (GoI) and is assured of extraordinary support in times of distress.
Slightly higher YoY FY24E Brent crude prices could lift upstream margins and overall EBITDA (given the upstream business accounts for >65% of consolidated EBITDA).
Although leverage typically remains low, Pertamina incurs large capex spending that could pressure its free cash flow generation.
High persisting dividend outflows could restrain free cash flow improvements.
Business Description
AS OF 30 Dec 2024- Pertamina is involved in a broad range of upstream and downstream oil, gas, geothermal and petrochemical operations.
- In the upstream sector, it engages in the exploration, development and production and supply of crude oil, natural gas and geothermal energy.
- As for the downstream sector, the company carries out refining, marketing and distribution of oil, gas, fuel products and petrochemical and other non-fuel products.
- As of 31 December 2022, its total proved oil reserves stood at ~1,289 mmbbl (mn barrels of oil) and gas reserves stood at ~817 mmboe (mn barrels of oil equivalent). Its average daily oil and gas production was ~1,044,000 boe per day in FY23. The company owns and operates 6 refineries in Indonesia.
- Under the Public Service Obligation (PSO) mandate, Pertamina is responsible for providing certain grades of motor gasoline, automotive diesel oil, kerosene and LPG at subsidized prices. The subsidized retail price is often times lower than the cost of production, creating a shortfall, for which it receives reimbursements from the GoI.
Risk & Catalysts
AS OF 30 Dec 2024Pertamina’s profitability is materially affected by volatility in oil & gas prices. Prolonged periods of low oil prices could hurt upstream earnings that form the bulk of overall EBITDA (>65%).
As retail prices of certain fuel products are regulated, realized prices may be below its cost of sales.
Pertamina has to initially absorb the shortfall between the regulated retail price and the cost of producing and distributing certain fuel products. If the price of crude oil exceeds the price ceiling set by the GoI, the company may receive insufficient subsidy reimbursements.
Capex typically remains elevated and which pressurizes its free cash flow generation.
Key Metric
AS OF 30 Dec 2024| $ mn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 36.2% | 38.5% | 41.2% | 42.1% | 37.6% |
| Net Debt to Book Cap | 22.4% | 18.9% | 21.9% | 12.5% | 8.5% |
| Debt/Total Equity | 56.8% | 62.5% | 70.0% | 72.7% | 60.4% |
| Debt/Total Assets | 26.4% | 28.3% | 29.9% | 30.8% | 27.4% |
| Gross Leverage | 2.2x | 2.4x | 2.5x | 1.9x | 1.9x |
| Net Leverage | 1.3x | 1.2x | 1.3x | 0.6x | 0.4x |
| Interest Coverage | 8.1x | 7.8x | 8.7x | 11.2x | 8.9x |
| EBITDA Margin | 14.9% | 19.9% | 16.0% | 16.7% | 17.7% |
CreditSight View Comment
AS OF 30 Dec 2024We have a Market perform recommendation on Pertamina. We think Pertamina should trade 40-50 bp tighter than Indonesian SOE PLN as Pertamina’s lower net leverage, less material ESG concerns, and potential regulatory changes to improve the efficiency of the power sector that would affect PLN adversely. We remain comfortable with Pertamina’s credit profile aided by its strong government backing and expectations of slightly higher YoY FY24 average Brent crude prices that could support upstream margins (FY23 credit metrics: 1.9x/0.4x). Capex remains elevated amid a ramp up in energy transition goals.
Recommendation Reviewed: December 30, 2024
Recommendation Changed: May 16, 2023
Who We Recommend
PLN
Starbucks
Export-Import Bank of India
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 30 Dec 2024PLN enjoys extremely strong ties with the Government of Indonesia (GoI) given its critical policy role of electrifying the nation.
We see a modestly poorer FY24 credit outlook as resilient domestic power demand, flattish power tariffs and insulation from input cost volatility are offset by sizable capex for coal and renewable capacity additions.
President Prabowo’s plans to tamp down on PLN’s monopoly could induce longer-term regulatory uncertainties.
Business Description
AS OF 30 Dec 2024- PLN is involved in the entire electricity value-chain, from power generation, to transmission, distribution and retail.
- It alone accounts for 76% (~47 GW) of Indonesia's generation capacity (of which 8 GW is renewable capacity), while IPPs provide the remainder.
- The company controls and operates the entire transmission and distribution network in the country. It is the sole buyer of electricity produced by IPPs, through power purchase agreements (PPAs).
- It sells electricity to well-diversified off-takers – 41% to households, 25% to industrial customers, 21% to businesses and 12% to others.
- Since 2015, the GoI has gradually implemented monthly tariff adjustments for 13 customer groups, so that rates charged to customers are better matched with production costs.
- However, under the Public Service Obligation (PSO), the company will continue to sell electricity at subsidized rates of 50% to 450-volt amperes (VA) power households and 25% to 900 VA power households. The GoI subsequently reimburses the company for the difference between the subsidized tariff rate and production cost, typically within 2-3 months.
Risk & Catalysts
AS OF 30 Dec 2024The company provides subsidized electricity to certain households for which it subsequently receives reimbursements from the GoI; though these payments tend to get delayed during major events such as COVID-19 pandemic.
In order to increase the country’s electrification ratio to 97%, the company had been mandated by the GoI to develop large electricity capacities through the Fast Track II and 35,000 MW Programs. Implementation of such complex programs has required significant capital expenditure, which has led PLN’s FCF to fall deep into the red in recent years and created a funding gap.
The success of the above programs is also contingent on the company’s ability to source coal cheaply, select quality contractors, acquire land rights and receive adequate subsidy reimbursements from the GoI.
Being primarily a thermal power producer, PLN may be viewed unfavourably from an ESG perspective.
Key Metric
AS OF 30 Dec 2024| IDR bn | FY21 | FY22 | FY23 | 1H23 | 1H24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 29.7% | 28.9% | 27.8% | 26.9% | 27.5% |
| Net Debt to Book Cap | 26.9% | 25.2% | 23.7% | 24.6% | 25.4% |
| Debt/Total Equity | 42.2% | 40.7% | 38.5% | 36.7% | 38.0% |
| Debt/Total Assets | 25.7% | 24.6% | 23.4% | 22.6% | 22.9% |
| Gross Leverage | 5.0x | 4.2x | 4.3x | 4.0x | 4.3x |
| Net Leverage | 4.6x | 3.7x | 3.7x | 3.6x | 4.0x |
| Interest Coverage | 3.2x | 4.3x | 3.6x | 3.9x | 3.2x |
| EBITDA Margin | 28.0% | 30.1% | 26.4% | 33.4% | 29.5% |
CreditSight View Comment
AS OF 02 Jan 2025We shift our recommendation on PLN to Market perform from Underperform. While we acknowledge PLN’s higher coal-related ESG risk and potential long-term regulatory concern, we remain comfortable with PLN’s resilient credit profile supported by healthy domestic power demand, good insulation from input cost volatility and strong state-ownership. We see fair spread differential of 20 bp wider than Pertamina; we think PLN’s shorter-dated trade close to fair. Against its own curve, PLN’s 2047-2050 trade on average 56 bp wider than its 2030s; similarly rated Indonesian state-owned O&G Pertamina on the other hand sees an average spread differential of 42 bp across its longer-dated versus its own 2030. We thus see scope for PLN’s long-end to tighten another ~15 bp and prefer its 2047-2050.
Recommendation Reviewed: January 02, 2025
Recommendation Changed: December 06, 2024
Who We Recommend
Pertamina
Starbucks
Export-Import Bank of India
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024SBUX operates and licenses Starbucks care locations. Management has historically targeted lease-adjusted leverage of under 3x and has expressed support for the current ratings profile.
Recent results showed headwinds from lower traffic across the company’s locations in the U.S. amid weaker consumer spending. SBUX also reported weak results in its second-largest market, China, due to increased competition in the market.
SBUX navigated a volatile 2024, which included activist investments and an abrupt CEO change. While new CEO Brian Niccol is an experienced operator, we have reservations about the company’s restaurant reimaging plans.
Business Description
AS OF 27 Dec 2024- SBUX is a leading coffee roaster and retailer. The company operates and licenses over 40,000 Starbucks locations worldwide where it sells premium coffee beverages as well as other specialty drinks and prepared foods. Slightly over half the locations are company operated (52%) and the rest are licensed to third party operators.
- In F2023, SBUX generated $36.2 bn in revenue and $7.0 bn in adjusted EBITDA. SBUX has three reporting segments: N. America (75% of F2023 revenue), which covers cafes in the U.S. and Canada; International (20%), which includes China, Japan, Latin America, and EMEA; and Channel Development (4.9%) which includes revenue from other branded products sold outside retail locations.
- SBUX is prioritizing International development, particularly within China. Currently, 42% of the total cafes are in the U.S., but the company is guiding to an ambitious unit expansion strategy that emphasizes unit growth across China. Long-term, SBUX is targeting 55,000 cafes globally by 2030.
Risk & Catalysts
AS OF 27 Dec 2024In response to the activist attacks, SBUX announced an unexpected change in CEO and hired Brian Niccol, a veteran of the quick service restaurant industry with a successful track record at Taco Bell and Chipotle.
Lower discretionary spending in the U.S. could continue to weigh on SBUX’s sales outlook. We view its premium-priced beverage offerings as having significant risk of consumer trade down into more value-oriented options.
SBUX faces activist pressure from both Elliott and Starboard Value. There have been reports that the company is considering strategic partnerships or alternatives for its locations in China, where SBUX has consistently reported weak results (China locations represent ~10% of total company operating income).
Key Metric
AS OF 27 Dec 2024| $ mn | Y20 | Y21 | Y22 | Y23 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue | 23,518 | 29,061 | 32,250 | 35,976 | 36,176 |
| EBITDA | 3,636 | 6,775 | 6,385 | 7,252 | 7,001 |
| EBITDA Margin | 15.5% | 23.3% | 19.8% | 20.2% | 19.4% |
| EBITDA-Capex to Revenue | 9.1% | 18.3% | 14.1% | 13.7% | 11.7% |
| Total Debt | 16,348 | 14,616 | 15,044 | 15,400 | 15,568 |
| Net Debt | 11,997 | 8,160 | 12,226 | 11,848 | 12,282 |
| Net Leverage | 3.3x | 1.2x | 1.9x | 1.6x | 1.8x |
| Lease Adjusted Debt to EBITDAR | 5.0x | 2.9x | 3.1x | 2.8x | 2.9x |
| EV / EBITDA | 31.0x | 20.4x | 17.1x | 16.1x | 17.6x |
CreditSight View Comment
AS OF 31 Oct 2024We maintain an Underperform view on SBUX. Recent results showed slower traffic across the portfolio of cafes amid tighter consumer spending patterns in the U.S. and an increasingly competitive coffee shop market in China. We think both headwinds could continue over the medium-term. While we do see a path for the company to keep leverage near management’s communicated sub-3x lease-adjusted target even with subdued results, we are wary of a potential shift to more shareholder-friendly capital allocation amid the current environment. To that end, SBUX confirmed that activist Elliott Management has taken a stake. We see stronger relative value at high-BBB rated McDonald’s where we like the more franchised operating model and value-oriented menu options.
Recommendation Reviewed: October 31, 2024
Recommendation Changed: May 01, 2024
Who We Recommend
Pertamina
PLN
Export-Import Bank of India
How may we help you?
Search topics about wealth insights and investments.Export-Import Bank of India
- Sector: Financial Services
- Sub Sector: Financial Services
- Region: India
- Indicative Yield-to-Maturity (YTM): 4.92%
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): ( Baa3 / BBB- / BBB- )
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024The 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.
Business Description
AS OF 27 Dec 2024- 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 F1H25, EXIMBK's loan portfolio was principally made up of export finance (68%) and term loans to exporters (18%), with the remaining 14% split among the financing of overseas investment, import finance, and export facilitation. 44% come under the policy business/face GOI risk while the remaining 56% are to the commercial business.
- By geography, the bank has a primary exposure of 33% to Africa, 56% to Asia (mainly South Asia), 7% to Europe and the Americas, and the remaining to the rest of the world.
Risk & Catalysts
AS OF 27 Dec 2024As a quasi-sovereign issuer with backstops from the Government of India and the Reserve Bank of India (RBI), it is viewed as a proxy to the sovereign. Any downgrade to India’s sovereign rating will flow through to EXIMBK as well.
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 received INR 7.5 bn in FY22 despite capital levels remaining strong during the year. No infusions have been made since FY23 due to the comfortable capital position.
Key Metric
AS OF 27 Dec 2024| INR mn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| Net Interest Margin (Annual) | 1.84% | 2.19% | 2.29% | 2.06% | 1.70% |
| ROAA | 0.19% | 0.54% | 1.04% | 1.43% | 1.16% |
| ROAE | 1.49% | 3.97% | 7.76% | 11.47% | 9.54% |
| Equity/Assets | 13.23% | 14.12% | 12.87% | 12.06% | 12.31% |
| Tier 1 Capital Ratio | 24.0% | 28.6% | 23.7% | 19.6% | 27.4% |
| Gross NPA Ratio | 6.69% | 3.56% | 4.09% | 1.94% | 2.02% |
| Provisions/Loans | 2.46% | 0.90% | 1.24% | 0.29% | 0.16% |
| Pre-Impairment Operating Profit / Average Assets | 2.13% | 2.31% | 2.41% | 2.12% | 1.68% |
CreditSight View Comment
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
How may we help you?
Search topics about wealth insights and investments.BMO Financial
- Sector: Financial Services
- Sub Sector: Consumer Finance and Banking
- Region: Canada
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 30 Dec 2024BMO is geographically diversified within Canada & via its commercial banking business in the U.S. and is also well-diversified by revenue with contribution from fee income businesses.
Credit has performed worse than peers in 2024, but losses are likely to stabilize and gradually improve in 2025, based on underwriting and risk management changes in recent years as well as seasoning effects.
Business Description
AS OF 20 Dec 2024- BMO Financial Group is the fourth largest depository institution in Canada with C$1.41 tn in assets as of F4Q24 and a market capitalization of US$70 bn. Total deposits were C$982 bn at F4Q24.
- BMO operates 1,890 branches in Canada and the United States in 2024.
- As of YE23, BMO had 1,013 branches within the United States, mostly in the Midwest. BMO ranked 11th in deposit market share in the U.S. (SNL), with a top-2 share in Illinois.
Risk & Catalysts
AS OF 20 Dec 2024BMO has a strong core deposit base in Canada and in the U.S., which mitigates the potential for a liquidity event. BMO remains well-capitalized relative to requirements with a target CET1 ratio of 12.5% (13.6% at F4Q24).
BMO closed the acquisition of Bank of the West from BNP Paribas in February 2023, significantly expanding its footprint in the U.S. We don’t expect deal integration to have much impact on the credit profile.
We view real estate-related risk in Canada as manageable for BMO given low LTV of exposures in vulnerable markets and conservative underwriting. Commercial real estate accounts for ~10% of total loans, and office is quite manageable at ~1% of total.
Credit deterioration was worse than peers in 2024, leading to elevated provisions in 2H24; BMO has indicated the problem loans were mostly originated in 2021, and provisions should start to improve in 2025.
Key Metric
AS OF 20 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue | 17,461 | 20,509 | 26,727 | 21,694 | 24,095 |
| Net Income | 3,790 | 6,167 | 10,519 | 3,291 | 5,380 |
| ROAE | 0.94% | 0.92% | 0.92% | 0.92% | 0.92% |
| NIM | 1.58% | 1.53% | 1.53% | 1.53% | 1.53% |
| Net Charge-offs / Loans | 0.25% | 0.14% | 0.08% | 0.14% | 0.39% |
| Total Assets | 713,376 | 797,018 | 860,451 | 969,851 | 1,011,587 |
| Unsecured LT Funding | 51,916 | 51,915 | 64,886 | 63,418 | 66,700 |
| CET1 Ratio (Fully-Phased-In) | 11.9% | 13.7% | 16.7% | 12.5% | 13.6% |
CreditSight View Comment
AS OF 11 Dec 2024We maintain our Market perform for BMO, with our preference within the group remaining to trade up in quality to RBC and TD. Surprising deterioration in asset quality metrics has been the story throughout the latter part of F2024, with provisions well above historical average levels. Management has attributed the weakness largely to large wholesale loans to new borrowers originated in 2021, but given the steady climb in reserve coverage as well as changes to risk management and underwriting in recent years, BMO is confident quarterly provision ratios should moderate across F2025 alongside further potential benefits from efficiency initatives.
Recommendation Reviewed: December 11, 2024
Recommendation Changed: August 26, 2020
Who We Recommend
How may we help you?
Search topics about wealth insights and investments.Hyundai Motor
- Sector: Manufacturing
- Sub Sector: Automotive
- Country: Korea
- Bond: HYNMTR 5.5 26
- Indicative Yield-to-Maturity (YTM): 4.60%
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 20 Dec 2024Hyundai and Kia once again posted solid results in 3Q24, although they were somewhat tainted by an unexpected proactive warranty provision. The warranty provision lowered the combined automotive operating margin of the Hyundai Motor Group (HMG) by 160 bp, although the unadjusted operating margin of 8.5% was still solid. HMG’s LTM operating margin of 10.3% is the highest in our automaker coverage universe.
HMG continues to grow its new energy vehicle business with vehicle sales accounting for ~20% of sales at both Hyundai and Kia. Management has indicated its hybrid vehicle profitability is about the same as ICE vehicle profitability. This is an important point of differentiation between HMG and its peers that we attribute largely to the scale of its new energy vehicle business.
Business Description
AS OF 20 Dec 2024- Hyundai Motor Co., Ltd. engages in the manufacture and distribution of motor vehicles and parts. It operates through the following business areas: Vehicle, Financial and Others. The Vehicle division offers motor vehicles. The Financial division provides financing, leasing and credit cards. The Other division includes manufacture of railways. The company was founded on December 29, 1967, and is headquartered in Seoul, South Korea.
- Hyundai Capital America benefits from a support agreement with Hyundai Motor (HMC). HCA investor relations confirmed its support (keepwell) agreement contains a fixed charge coverage provision that it views as particularly strong compared to other peers.
Risk & Catalysts
AS OF 20 Dec 2024Hyundai Motor Co. did not update its FY24 financial guidance, which is customary for the automaker, unless it envisions a material change from its previous expectations. Kia, however, raised its FY24 guidance for consolidated revenue and operating profit by 6% and 8%, respectively. Kia now expects its FY24 consolidated operating margin of 12% at the midpoint of the guidance range compared to its previous expectation of 11.9%. Hyundai Motor Co. expects its consolidated operating margin to be in the range of 8% to 9%.
Kia also provided 4Q24 retail sales guidance, which it expects to increase on both a sequential (+9%) and YoY (+5%) basis. The retail sales growth is based on increased production from the expansion of its Hwaseong plant and EV plant expansions, which it expects to increase production of Sorrento (+11k units) and EVs (+11k units). These plants were temporarily shut down in 3Q24 for expansion and conversion activities.
Key Metric
AS OF 20 Dec 2024| KRW bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 80,577 | 94,143 | 113,718 | 130,150 | 134,400 |
| EBIT | 890 | 5,459 | 8,950 | 15,440 | 14,883 |
| EBIT Margin | 1.1% | 5.8% | 7.9% | 11.9% | 9.0% |
| EBITDA | 5,076 | 10,015 | 13,998 | 20,387 | 19,706 |
| EBITDA Margin | 6.3% | 10.6% | 12.3% | 15.7% | 12.5% |
| Total Liquidity | 17,082 | 19,745 | 26,639 | 26,507 | 21,652 |
| Net Debt | (4,453) | (5,202) | (11,035) | (10,916) | (18,136) |
| Total Debt | 10,920 | 12,569 | 12,940 | 12,940 | 4,184 |
| Gross Leverage | 2.2x | 1.3x | 0.9x | 0.6x | 0.2x |
| Net Leverage | -0.9x | -0.5x | -0.8x | -0.5x | -0.8x |
CreditSight View Comment
AS OF 20 Dec 2024We maintain Outperform recommendations on notes of Hyundai Capital America (HYNMTR), Hyundai Capital Services (HYUCAP), and Kia Corp. (KIA) notes based on relative value, expectations of stable to growing market share in developed markets, sustained strong automotive profitability and margins, its innovative hybrid vehicle and EV product offerings that we believe should fuel further share gains, and solid free cash flow generation.
Recommendation Reviewed: December 20, 2024
Recommendation Changed: December 20, 2023
Who We Recommend
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 30 Dec 2024TD’s credit profile is supported by its scale, profitability, and history of strong credit quality, particularly in its core domestic banking footprint. TD also sees significant revenue contributions from the growing capital markets business and wealth management. U.S. retail banking has scale and is an important part of the overall franchise, but profitability will remain challenged.
We expect TD to continue to manage capital levels conservatively given profitability and regulatory pressures stemming from BSA/AML issues.
Business Description
AS OF 18 Dec 2024- Toronto Dominion is the second largest depository institution in Canada with C$2,062 bn in assets as of F4Q24 and a market cap of US$93.3 bn as of December 16, 2024. The company has C$1,269 bn in total deposits.
- As of 2024, TD ranked 9th in terms of U.S. deposits with approximately US$290.1 bn in deposits and 1,137 branches (SNL). The U.S. footprint is focused on the Atlantic coast including Delaware, New Jersey, New York, Massachusetts, New Hampshire, Connecticut, Maine, Vermont, and Pennsylvania.
Risk & Catalysts
AS OF 18 Dec 2024Toronto Dominion has a strong, largely retail-driven deposit base in both Canada and the U.S., which should mitigate the potential for a liquidity event.
The remediation efforts related to the U.S. business represent a medium term headwind for TD’s overall earnings profile, but one we view as manageable given the strength of the Canadian and Wholesale banking parts of the franchise. We expect TD to maintain strong capital and liquidity positions throughout the remediation period.
With the CEO transition, TD is conducting a strategic review of its business priorities and capital allocation, and therefore suspended its medium-term profitability targets. Management expects to provide an update to the medium-term targets in 2H25.
We view real estate-related risk in Canada as manageable for TD given low LTV of exposures in vulnerable markets and conservative underwriting, as well as significantly lower interest rates in Canada compared to the start of 2024.
Key Metric
AS OF 18 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | LTM 4Q24 |
|---|---|---|---|---|---|
| Revenue | 30,311 | 31,801 | 35,848 | 33,866 | 37,163 |
| Net Income | 8,846 | 11,371 | 13,544 | 7,883 | 6,509 |
| ROAE | 1.30% | 0.79% | 0.79% | 0.79% | 0.79% |
| NIM | 1.72% | 1.56% | 1.69% | 1.75% | 1.73% |
| Net Charge-offs / Loans | 0.34% | 0.18% | 0.15% | 0.24% | 0.34% |
| Total Assets | 1,289,484 | 1,394,270 | 1,406,122 | 1,407,709 | 1,479,549 |
| Unsecured LT Funding | 55,061 | 67,073 | 88,875 | 90,998 | 87,128 |
| CET1 Ratio | 13.1% | 15.2% | 16.2% | 14.4% | 13.1% |
CreditSight View Comment
AS OF 09 Dec 2024We maintain our Outperform recommendation for Toronto Dominion. Historically TD has traded as one of the tightest names in the Canadian bank peer group. However, over the past several quarters TD has traded towards the middle of the pack among Canadian banks, closer to BMO and BNS than to RBC. We continue to believe the best value in the sector in current conditions involves trading up in quality to TD and RBC (which we already rate at Outperform). With the direct financial impact of the BSA/AML settlement in the rearview mirror (but with many of the the costs of the multi-year build-out as well as costs/benefits of strategic changes in the U.S. business, still very much pending), we remain confident in credit fundamentals long-term.
Recommendation Reviewed: December 09, 2024
Recommendation Changed: March 08, 2023
Who We Recommend
How may we help you?
Search topics about wealth insights and investments.State Bank of India
- Sector: Financial Services
- Sub Sector: Banks
- Country: India
- Bond: SBIIN 4.875 28
- Indicative Yield-to-Maturity (YTM): 5.23%
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024State Bank of India (SBI) is the largest state-owned bank in India and is in some respects the country’s flagship bank. Given the bank’s ~57% government ownership and systemic importance, government support for SBI is very strong.
The bank’s capital buffers are relatively low, but we take comfort in the strong government support.
Business Description
AS OF 18 Dec 2024- State Bank of India is the largest commercial bank in India. Its predecessor banks date back to the 19th century. In the early 20th century, they merged to form the Imperial Bank of India, which became the State Bank of India after India gained independence in 1947.
- The Government of India remains the largest shareholder with a 56.92% stake. Per the SBI Act, the government's shareholding cannot fall below 55%.
- SBI's merged with its 5 associate banks and Bharatiya Mahila Bank in 2018. The merger catapulted SBI into one of the world's 50 largest banks.
- The bank has 85% of its loans in the domestic market, and has steadily increased its international business too over the past few years with offices across all international business centres. The domestic book is split 42% retail, 35% corporates, ~14% SMEs and ~10% to the agri segment as of end-September 2024.
- It has diversified its operations with well regarded subsidiaries in the areas of fund management, credit cards, insurance, and capital markets.
Risk & Catalysts
AS OF 18 Dec 2024SBI does not have a strong buffer vs. the regulatory minimum of 8%, but its size, systemic importance and majority government shareholding confer particularly strong government support. But consequentially, any deterioration in the sovereign ratings will also affect the bank’s credit.
Increasing consolidation in the country’s financial space may narrow the gap between SBI’s market leading position vs its peers, particularly HDFC Bank.
Continued tight system liquidity has led to pressure on margins and loan growth of the Indian banks, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for robust loan growth of 14-16% YoY in FY25, above its deposit growth guidance of 10-11% YoY.
Asset quality is also trending well despite a stretched urban middle and lower-middle class consumer class, and slower than anticipated economic activity in India, as SBI’s personal unsecured loans book is ~95% to salaried employees of top tier corporates and the government. Net slippages however should still normalize this year.
Key Metric
AS OF 18 Dec 2024| INR mn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| NIM | 3.04% | 3.12% | 3.37% | 3.28% | 3.18% |
| ROAA | 0.48% | 0.67% | 0.96% | 1.04% | 1.13% |
| ROAE | 8.4% | 11.9% | 16.5% | 17.3% | 17.8% |
| Equity to Assets | 5.6% | 5.6% | 5.9% | 6.1% | 6.6% |
| CET1 Ratio | 10.3% | 10.3% | 10.6% | 10.6% | 10.3% |
| Gross NPA Ratio | 4.98% | 3.97% | 2.78% | 2.24% | 2.13% |
| Provisions/Loans | 1.77% | 0.91% | 0.54% | 0.14% | 0.41% |
| PPP ROA | 1.65% | 1.58% | 1.59% | 1.60% | 1.78% |
CreditSight View Comment
AS OF 18 Nov 2024SBI is India’s largest bank and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, it has the lowest net NPA, a sufficient (though could be higher) CET1 ratio, good operating metrics and business plans, and the best management among the public sector banks. Deposit competition from tight system liquidity is putting pressure on interest margins, but SBI’s less tight liquidity position than its private sector peers has allowed it to guide for continued higher loan growth than deposit growth in in FY25. India’s continued macro resiliency and SBI’s lower risk personal unsecured loans clientele is supporting asset quality well, though gross slippages are higher than key private sector peers. We like the name and affirm our M/P recommendation.
Recommendation Reviewed: November 18, 2024
Recommendation Changed: December 07, 2020
Who We Recommend
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 30 Dec 2024We view Morgan Stanley’s credit profile positively, supported by high capital levels, diversification in revenues and continued progress on building out wealth/asset management both organically and through acquisition.
Morgan Stanley’s capital markets businesses have rebounded as capital markets conditions improved in 2024, and should continue to benefit from market conditions in 2025. Wealth Management also saw some slowdown in growth in 2023 but appears back on track as market conditions improved.
Business Description
AS OF 18 Dec 2024- The company is now the sixth largest bank holding company by assets in the U.S. with $1.26 tn of assets as of 3Q24, and is the fourth largest by market capitalization ($216.9 bn as of Nov 21, 2024).
- Morgan Stanley maintains "significant market positions in each of its business segments," which include Institutional Securities, Wealth Management, and Investment Management.
Risk & Catalysts
AS OF 18 Dec 2024Ted Pick took over as CEO in 2024, and MS was able to retain other key managers under consideration for the role; we see no clear changes in strategy as a result of the handover.
Much of Morgan Stanley’s core business is tied to global macroeconomic trends and investor risk appetite. Additionally, it has significant trading risk and counterparty exposures, though such risk appears well-managed overall and is reflected in capital requirements which are governed by the annual DFAST and SCB regime. MS has typically run with capital levels at or near the highest among GSIBs given the trading losses included in the Fed’s model.
Rapid growth in the Wealth business in recent years at MS has had some publicized missteps in vetting clients; there remains a possibility of regulatory action, though we wouldn’t expect anything that alters the long-term strategy for the Wealth business.
Key Metric
AS OF 18 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 12.4% | 14.3% | 10.8% | 9.1% | 11.2% |
| ROAA (annual) | 1.0% | 1.3% | 0.9% | 0.8% | 0.9% |
| PPNR / Avg. Assets | 1.40% | 1.64% | 1.22% | 4.41% | 1.20% |
| Efficiency Ratio | 69% | 66% | 72% | 298% | 73% |
| Net charge-offs (LTM) / Loans | 0.05% | 0.05% | 0.01% | 0.06% | 0.06% |
| Common Dividend Payout | 20.9% | 25.4% | 46.3% | 215.5% | 50.5% |
| CET1 Ratio | 17.4% | 16.1% | 15.3% | 15.2% | 15.1% |
| Supplementary Leverage Ratio (SLR) | 7.4% | 5.6% | 5.5% | 5.5% | 5.5% |
| Liquidity Coverage Ratio (LCR) | 129% | 134% | 132% | 129% | 131% |
CreditSight View Comment
AS OF 05 Dec 2024We maintain our Market perform recommendation for Morgan Stanley, with our positive view of fundamentals supported by another solid quarter in 3Q24, where Morgan Stanley’s investment banking and trading results continued to improve along with market conditions. We see slightly better valuation among some of the money center banks (increasingly WFC, as well as Citi and BAC) but like MS relative to GS given similar spread levels recently. Performance rebounded in the Wealth segment from a difficult 2023. Recent reports on difficulties in vetting international wealth clients could result in regulatory action, though we expect very manageable financial impacts largely from continued investments in compliance.
Recommendation Reviewed: December 05, 2024
Recommendation Changed: March 14, 2016
Who We Recommend
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024ICICI Bank is one of the leading private banks in India and has a good diversified business model, with well regarded life and general insurance subsidiaries.
Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18, but the situation has since stabilised following a leadership change and the bank has done well ever since.
Business Description
AS OF 18 Dec 2024- The original Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 by the World Bank, the Government of India and representatives of Indian industry as a financial institution to provide Indian businesses with medium and long-term project financing.
- In 1994, ICICI established a commercial banking subsidiary, ICICI Bank as India's financial sector opened up, and in 2002 ICICI merged with ICICI Bank, keeping the latter's name.
- Retail now accounts for 53% of its loan book, corporates are at 20%, while rural and business banking & SMEs are at 6% and 18% respectively, and overseas (which is being de-emphasised) consists of just 3% at F1H25.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 18 Dec 2024The Indian banks are moderating their loan growth to minimize the impact of the tight system liquidity environment on NIMs and returns, and as the RBI has guided banks to align their loan and deposit growth. ICICI however has continued to deliver both relatively strong loan and deposit growth momentum, while maintaining its leading LDR and profitability, in testament to its strong franchise.
We are cautious about Indian unsecured retail given a stretched urban middle and lower-middle class consumer with high inflation and interest costs, and economic activity in India has been slower than anticipated. ICICI’s earlier prudence towards the segment than peers however is keeping asset quality well controlled. We are though watchful of the MSME and business banking segments where growth has been brisk.
Leadership and governance issues under the previous CEO Ms. Chanda Kochhar have been dealt with well, since her replacement in Oct-18.
Key Metric
AS OF 18 Dec 2024| INR bn | FY21 | FY22 | FY23 | FY24 | 1H25 |
|---|---|---|---|---|---|
| NIM | 3.69% | 3.96% | 4.48% | 4.53% | 4.31% |
| ROAA | 1.39% | 1.77% | 2.13% | 2.37% | 2.37% |
| ROAE | 12.3% | 14.7% | 17.2% | 18.7% | 18.3% |
| Equity/Assets | 12.0% | 12.1% | 12.6% | 12.7% | 13.0% |
| CET1 Ratio | 16.7% | 17.3% | 16.9% | 15.4% | 14.4% |
| Gross NPA Ratio | 4.96% | 3.60% | 2.81% | 2.16% | 1.97% |
| Provisions/Loans | 2.05% | 0.97% | 0.65% | 0.30% | 0.38% |
| PPP ROA | 3.13% | 2.97% | 3.28% | 3.36% | 3.40% |
CreditSight View Comment
AS OF 18 Dec 2024ICICI Bank is a preferred name among the Indian FIs we cover. We like the bank’s robust capital and loan loss buffers, strong asset quality, as well as peer leading margins, profitability and liquidity position. Under its previous CEO, the bank suffered setbacks from sizable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change. The bank has emerged stronger from a capital, asset quality and earnings perspective, as it de-risked its book, and took pro-active actions to protect its capital by raising equity and selling small stakes in its well-regarded insurance subsidiaries to raise funds and set aside more general provisions. ICICI last issued a $ bond in 2017.
Recommendation Reviewed: December 18, 2024
Recommendation Changed: December 07, 2020
Who We Recommend