Archives: CreditSights Issuer List
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Fundamental View
AS OF 10 Jul 2024Honda continues to post impressive growth in its Automobile segment wholesale volumes and profitability following the normalization of its supply chain. While Motorcycle wholesale volumes remain pressured by weak economic conditions in Vietnam, volumes are increasing in most other regions. Honda posted significantly higher YoY profit in its automobile segment, supported by margin expansion from the motorcycle segment in its FY24 reporting. Management expects to lean into the increasing demand for hybrid vehicles by introducing a Civic hybrid this year that it expects should account for about 40% of the models’ sales in the U.S.
For additional information on Honda Motor Corporation see Honda Motor.
Business Description
AS OF 10 Jul 2024- 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.
- 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. Non-controlling 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 10 Jul 2024Management unveiled its FY25 guidance, including flat automobile wholesale volumes, and a modest increase of +5% YoY in global motorcycle volumes driven primarily by growth in Asia. Global automotive wholesales of 4.1 mn units anticipates incremental unit growth in North America and Japan, offsetting volume declines in Asia. Consolidated volumes are expected to increase modestly in FY25 while sales revenues are expected to decline 1% and operating profit is expected to increase 3% YoY as the positive impacts of elevated selling prices is expected to more than offset increased labor costs.
Changes in hybrid vehicle architecture, through increased design commonality, have resulted in increased power density and cost efficiency expected to continue improving through the decade’s end, supporting longer-term operating profit margins of 7%. Consolidated operating profit margins are expected to expand 20 bp to 7% in FY25 as the benefits of stronger pricing are expected to be nearly offset by increased warranty expense, greater R&D expenditures and currency headwinds.
Key Metrics
AS OF 10 Jul 2024$ mn | FY20 | FY21 | FY22 | FY23 | FY24 |
---|---|---|---|---|---|
Total Company Earning Assets | 73,397 | 76,778 | 71,105 | 65,363 | 74,626 |
Cash and Investments | 1,503 | 1,870 | 2,607 | 1,544 | 1,670 |
Excess Liquidity | 8,503 | 8,870 | 9,607 | 8,544 | 8,670 |
Unsecured Debt | 40,399 | 43,037 | 38,026 | 33,410 | 41,566 |
Secured Debt | 9,748 | 8,890 | 8,888 | 6,927 | 9,351 |
Total Debt | 50,147 | 51,927 | 46,914 | 40,337 | 50,917 |
Allowance % Retail Rece. | 1.07% | 0.75% | 0.58% | 0.71% | 0.80% |
Allowance / Net Charge-offs | 1.68x | 2.41x | 3.75x | 2.41x | 1.72x |
Net Charge-offs % Avg. Receivable | 0.63% | 0.33% | 0.15% | 0.29% | 0.52% |
30+ Day Delinquency Rate | 1.2% | 0.7% | 1.1% | 1.2% | 1.2% |
CreditSights View
AS OF 11 Jul 2024We are maintaining our Underperform recommendations on Honda Motor Co. (HMC) and American Honda Finance Corporation (AHFC) based on relative value, the company’s dominant position and resilient performance within the Motorcycle segment, expected sustained improvement within its Automobile segment performance in FY24, its EV strategy that lags most peers, and its excellent liquidity and stable credit rating.
Recommendation Reviewed: July 11, 2024
Recommendation Changed: January 13, 2023
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Fundamental View
AS OF 24 Jun 2024Goldman Sachs has had solid but mixed results in recent years, with strength in trading results particularly during periods of market volatility. Investment banking results have weakened in line with market conditions but Goldman’s market share remains strong. Investment banking appears to be rebounding in early 2024. The funding profile has improved over time with increased deposit funding.
Goldman remains well behind “Big 6” peers in diversifying its revenue base beyond its historical strong points. Wealth and Asset Management are now the most likely areas of growth in the coming years. Goldman’s results have been weighed by costs related to consumer banking and exits from those businesses.
Goldman Sachs’ (A2/BBB+/A) HoldCo long-term debt ratings have stable outlooks.
Business Description
AS OF 24 Jun 2024- Goldman Sachs is now the fifth largest bank holding company in the U.S. with approximately $1.69 tn in assets as of 1Q24 and a market capitalization of $158.9 bn as of May 16, 2024.
- Goldman Sachs presents its activities through three business segments: Global Banking & Markets, Asset & Wealth Management, and Platform Solutions.
- Goldman's historical strengths include equity and FICC sales & trading, investment banking, institutional investment management including alternatives, and high net worth wealth management. It has been expanding its wealth management client base, and adding other stable fee income streams amid a sluggish capital market environment.
Risk & Catalysts
AS OF 24 Jun 2024From a fundamental standpoint, the past several years have been a mixed bag. Goldman’s foray into consumer lending was costly and ultimately did not work, diverting capital and management attention away from its core businesses and providing a meaningful drag on profitability. Management through most of the process of selling consumer-related businesses. Goldman’s performance has remained strong in its legacy areas of strength in trading and investment banking.
Goldman could participate in further M&A to achieve its long-term strategic goals, as it has in recent years with mixed results; most likely through add-on deals related to asset/wealth management.
Goldman could be impacted by the lack of liquidity in the secondary markets during periods of market turmoil, but for the most part, has been positively impacted by bouts of volatility.
Key Metrics
AS OF 24 Jun 2024$ mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
ROAE (annual) | 10.3% | 21.3% | 9.7% | 7.3% | 8.1% |
ROAA (annual) | 0.8% | 1.5% | 0.7% | 0.5% | 0.6% |
PPNR / Avg. Assets | 1.34% | 1.86% | 1.08% | 3.29% | 0.83% |
Efficiency Ratio | 66% | 54% | 65% | 282% | 70% |
Net charge-offs (LTM) / Loans | 0.70% | 0.19% | 0.30% | 0.68% | 0.73% |
Common Dividend Payout | 19.0% | 10.6% | 28.4% | 158.9% | 38.8% |
CET1 Ratio | 14.1% | 13.6% | 15.0% | 14.4% | 14.6% |
Supplementary Leverage Ratio (SLR) | 6.9% | 5.5% | 5.8% | 5.5% | 5.4% |
Liquidity Coverage Ratio (LCR) | 128% | 122% | 129% | 128% | 128% |
CreditSights View
AS OF 18 Apr 2024We maintained our Market perform recommendation for Goldman Sachs; we remain quite comfortable with the name fundamentally but see better value at money center banks as well as Morgan Stanley, given recent spread levels, which we believe have been pulled tighter by a lack of HoldCo issuance by GS since the start of 2023. We see Goldman Sachs as an improving credit story despite messy results in 2023 as it exited a number of consumer-facing businesses, and 1Q24 results were stronger in core business lines within Global Banking & Markets and Asset & Wealth Management with less of a drag from Platform Solutions.
Recommendation Reviewed: April 18, 2024
Recommendation Changed: January 12, 2022
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Fundamental View
AS OF 24 Jun 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. Capital markets revenues have been impacted by challenging conditions particularly for investment banking, but profitability has remained solid, helped by the revenue shift to Wealth.
Morgan Stanley (A1/A-/A+) was upgraded by Moody’s to A1 on reduced risk of loss from the capital markets business in 2021. The S&P rating was upgraded to A- in May 2022.
Business Description
AS OF 24 Jun 2024- The company is now the sixth largest bank holding company by assets in the U.S. with $1.23 tn of assets as of 1Q24, and is the fourth largest by market capitalization ($162.8 bn as of May 16, 2024).
- Morgan Stanley maintains "significant market positions in each of its business segments," which include Institutional Securities, Wealth Management, and Investment Management.
Risk & Catalysts
AS OF 24 Jun 2024Ted Pick took over as CEO in 2024. The runner-up candidates for the job are staying with the company and Gorman is remaining as Executive Chairman, and we don’t expect major strategic changes.
Much of Morgan Stanley’s core business is tied to global macroeconomic trends and investor risk appetite. Additionally, it has significant trading risk and counterparty exposures, though such risk appears well-managed overall and is reflected in capital requirements.
Capital levels are governed by the annual DFAST process and the SCB regime. MS has typically run with capital levels at or near the highest among GSIBs given the trading losses included in the Fed’s model.
Key Metrics
AS OF 24 Jun 2024$ mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
ROAE (annual) | 12.4% | 14.3% | 10.8% | 9.1% | 9.5% |
ROAA (annual) | 1.0% | 1.3% | 0.9% | 0.8% | 0.8% |
PPNR / Avg. Assets | 1.40% | 1.64% | 1.22% | 4.41% | 1.05% |
Efficiency Ratio | 69% | 66% | 72% | 298% | 76% |
Net charge-offs (LTM) / Loans | 0.05% | 0.05% | 0.01% | 0.06% | 0.04% |
Common Dividend Payout | 20.9% | 25.4% | 46.3% | 215.5% | 57.5% |
CET1 Ratio | 17.4% | 16.1% | 15.3% | 15.2% | 15.0% |
Supplementary Leverage Ratio (SLR) | 7.4% | 5.6% | 5.5% | 5.5% | 5.4% |
Liquidity Coverage Ratio (LCR) | 129% | 134% | 132% | 129% | 129% |
CreditSights View
AS OF 17 Apr 2024We maintain our Market perform recommendation for Morgan Stanley, with our positive view of fundamentals supported by 1Q24 results. We see better valuation among some of the money center banks (particularly Citi and BAC) but like MS relative to GS given similar spread levels recently. Performance rebounded in the Wealth segment and investment banking fees have started to show signs of a turnaround recently, both supported by market conditions in combination with the company’s long-term investments.
Recommendation Reviewed: April 17, 2024
Recommendation Changed: March 14, 2016
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Fundamental View
AS OF 21 Jun 2024Petronas’ FY23 and 1Q24 credit metrics remained resilient even as EBITDA fell as we had expected.
We expect credit metrics to improve slightly from hereon due to expectations of slightly stronger upstream price realizations that could offset growth slowdown concerns. We expect Petronas to maintain its net cash position.
We take comfort in Petronas’ strong support from the Government of Malaysia, given it is strategically vested with Malaysia’s entire oil & gas resources and provides a substantial source of government income.
Sizable O&G and renewable capex and high dividend payouts could restrain improvements in Petronas’ credit metrics and free cash flows.
Business Description
AS OF 21 Jun 2024- Petronas is an integrated oil and gas company, wholly owned and controlled by the Government of Malaysia.
- Its activities span the entire up/mid/downstream value chain both domestically and internationally. Key products and services provided include the sale and marketing of petroleum products, crude oil and condensates, LNG, natural and processed gas, petrochemicals, shipping services, property development and automotive engineering.
- Petronas carries out its exploration, development and production activities via production sharing contracts (“PSCs”), mostly with international O&G companies and Petronas' wholly-owned subsidiaries.
- Its Downstream segment is aimed at refining, supplying, trading, manufacturing and marketing of crude oil, petroleum products, and petrochemical products. Its key projects and factories include Pengerang Integrated Complex (PIC), Sabah Ammonia Urea in Sabah, and Integrated Aroma Ingredients Complex in Gebeng, Kuantan.
- Its Gas and New Energy division was set up in FY19 and groups all of Petronas' LNG, gas and renewable revenues into a single segment. Activities within this division include production of LNG, processing and transportation of gas and solar power production.
- Its 6 listed subsidiaries include MISC Berhad (57.56%), KLCC Property (75.46%), Petronas Chemicals Group Berhad (64.35%), Petronas Gas Berhad (51%), Petronas Dagangan Berhad (63.94%), and Bintulu Port Holdings Berhad (28.52%).
Risk & Catalysts
AS OF 21 Jun 2024Broad growth slowdown concerns could hamper sales of Petronas’ Downstream (petroleum products) and Gas & New Energy (LNG and natural gas) segments.
Prolonged periods of low crude oil prices could harm upstream O&G EBITDA (which typically contributes 50%-70% of total profit after tax), albeit mitigated partly by stronger downstream O&G EBITDA.
Sizable capex on domestic O&G and renewable energy ventures could restrain improvements in Petronas’ credit metrics and free cash flows.
Petronas is regularly required to pay dividends to the Government of Malaysia, which may weigh on its cash flows.
Key Metrics
AS OF 21 Jun 2024MYR mn | FY21 | FY22 | FY23 | 1Q23 | 1Q24 |
---|---|---|---|---|---|
Debt to Book Cap | 21.1% | 18.4% | 18.2% | 19.1% | 18.9% |
Net Debt to Book Cap | n/m | n/m | n/m | n/m | n/m |
Debt/Total Equity | 26.7% | 22.6% | 22.2% | 23.6% | 23.2% |
Debt/Total Assets | 17.0% | 14.7% | 14.4% | 14.7% | 14.4% |
Gross Leverage | 1.1x | 0.6x | 0.8x | 0.6x | 0.9x |
Net Leverage | n/m | n/m | n/m | n/m | n/m |
Interest Coverage | 20.9x | 33.9x | 24.9x | 32.9x | 25.3x |
EBITDA Margin | 45.2% | 50.7% | 44.8% | 47.8% | 45.2% |
CreditSights View
AS OF 21 Jun 2024We have a Market perform recommendation on Petronas. Its shorter-dated and longer-dated bonds trade 16-31 bp and 38-50 bp tighter respectively than Pertamina’s bonds. We see this as fair given Petronas’ larger EBITDA, stronger net leverage and more transparent financial reporting that negates Indonesia’s relatively stronger FY24E GDP growth. Petronas’ credit profile stood resilient even amid poorer O&G price realizations through FY23 and maintained its net cash position. We expect Petronas to continue doing so over the next few quarters, aided by resilient domestic demand and slightly stronger price realizations. We also like its strong state support by the Government of Malaysia. However, sizable capex and high dividends could restrain free cash flow improvements.
Recommendation Reviewed: June 21, 2024
Recommendation Changed: September 07, 2020
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Fundamental View
AS OF 18 Jun 2024KORGAS is Korea’s sole integrated gas utility company and a quasi-sovereign credit in Korea with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas.
Its credit profile is underpinned by its dominant market position in Korea’s natural gas and hydrogen utility market, and the strong support from the Korean government. This partly mitigates its delayed and incomplete pass-through of gas procurement costs when natural gas price surges, such as in FY22.
We expect its credit profile to improve in FY24 supported by lower natural gas procurement costs and higher gas tariffs, which would partially mitigate concerns over its larger capex planned for FY24 and FY25.
Business Description
AS OF 19 Jun 2024- KORGAS is 54.6% directly/indirectly owned by the Korean Government (Central Government 26.2%, KEPCO 20.5%, Local Government 7.9%). It is Korea's sole integrated gas utility company with an effective monopoly over the exploration & production (E&P), procurement, storage & production, transmission and wholesale distribution of natural gas. It is crucial to Korea's green transition plan to increase LNG generation by 56% by 2036 from 2022. In addition, KORGAS was licensed as Korea's sole hydrogen distribution agency in 2020.
- KORGAS is one of the largest LNG importer in the world and sells imported natural gas to domestic companies in South Korea. As of YE23, KORGAS operates 77 storage tanks at 5 LNG terminals in Incheon, Pyeong Taek, Tong Yeong, Sam Cheok and Jeju. It has 5,178 km of pipeline network nationwide, and is looking to construction additional 440 km by 2026.
- The Korea natural gas industry is divided into wholesale and retail segments. KORGAS is the only wholesaler in Korea, and the regional city gas companies are in charge of supplying natural gas to retail consumers through regional retail pipelines. KORGAS sold 47% of its gas sales to domestic LNG-fired power generation companies (gencos), including the genco subsidiaries of KEPCO and independent power producers (IPPs), and the remaining 53% to city gas companies and heating companies in FY23.
Risk & Catalysts
AS OF 18 Jun 2024Key risks to KORGAS’ standalone credit profile include: (1) Significant depreciation of the KRW against the $ ; (2) Delayed and/or smaller-than-expected retail tariffs hikes; and (3) higher-than-expected capex and investments related to Korea’s green transition.
However, we do not foresee these risks to materially impair KORGAS’ ability to access funding, credit rating and overall credit profile as we expect KORGAS to remain as the sole integrated gas utility company and continue to receive extremely strong financial support from the Korean government.
Key Metrics
AS OF 18 Jun 2024KRW bn | FY19 | FY20 | FY21 | FY22 | FY23 |
---|---|---|---|---|---|
Debt to Book Cap | 76.6% | 75.7% | 75.8% | 81.3% | 80.7% |
Net Debt to Book Cap | 75.6% | 74.6% | 74.2% | 79.8% | 79.1% |
Debt/Equity | 327.2% | 312.4% | 313.3% | 434.4% | 418.0% |
Gross Leverage | 8.2x | 9.4x | 9.1x | 9.9x | 11.6x |
Net Leverage | 8.1x | 9.3x | 8.9x | 9.7x | 11.4x |
Interest Coverage | 3.9x | 3.4x | 4.8x | 5.1x | 2.2x |
EBITDA Margin | 13.0% | 12.3% | 11.4% | 8.8% | 8.0% |
CreditSights View
AS OF 04 Jul 2024We maintain our O/P recommendation KORGAS. We expect KORGAS’ credit profile to improve in 2H24 supported by higher tariffs and normalizing natural gas procurement costs. We expect KORGAS, which is the sole integrated natural gas utility company in South Korea to continue enjoying solid government support. We view its $ bonds as attractive compared to lower rated Chinese SOEs, BBB-rated low beta Korean corporates and other Korean quasi-sovereigns. In particular, we like its newly issued Jul-29 for the high on-market coupon; for investors looking for defensive short-dated carry, we also like its 27s.
Recommendation Reviewed: July 04, 2024
Recommendation Changed: June 27, 2023
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Fundamental View
AS OF 18 Jun 2024Siam Commercial Bank (SCBTB; Baa1(stb)/BBB(stb)/BBB(stb)) is seen as a sound and profitable bank. It has a slight focus on the retail segment and targets to increase margins by growing personal unsecured lending. Recent credit costs have been elevated due to the retail exposure.
The capital buffer is strong with a CET1 ratio of 17.4% at the Holdco (SCB X) level and 17.2% at the Bank level at Mar-24. It announced a major business overhaul in September 2021 to establish a new parent company called SCB X to segregate the group’s core banking services from its new fintech and digital businesses and to enable greater flexibility and independence.
Business Description
AS OF 18 Jun 2024- Siam Commercial Bank was founded as the "Book Club" in 1904. In 1907, it started operating as a commercial bank and was renamed as "The Siam Commercial Bank". It completed its IPO on the Stock Exchange of Thailand in 1976.
- The bank is 23.58% owned by the King of Thailand, and a further 23.32% is owned by the Vayupak Fund 1, which is controlled by the government.
- SCB is the fourth largest Thai bank by assets and is known for its robust retail franchise.
- Its loan profile was 36% corporate, 17% SME, and 48% retail as of end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024The bank’s new strategic direction is sensible given limited domestic growth opportunities, but it comes with execution risk since the fintech and platform space are new to SCB, as well as higher credit costs. However, we take comfort in the ringfencing of the bank unit (SCB) from the Group’s riskier business units, and capital support to the Gen 2/3 businesses is subject to a minimum 16% CET1 ratio being maintained at the bank.
High household debt and challenged SMEs remain as longstanding issues in Thailand, but SCB X’s higher NIM and low-to-mid 40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
SCB X has given a stronger FY24 NIM guidance than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans. Recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access however present some headwind.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.91% |
ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.3% |
Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.5% |
CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.4% |
Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.52% |
Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.67% |
Gross LDR | 93% | 93% | 93% | 99% | 102% |
Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024SCB is the 4th largest bank in Thailand and has a leading retail franchise. Asset quality during COVID was poor. It created a new HoldCo structure (SCBX) in 2022 to shift digital units and unsecured retail loans outside the bank, and pledged a >16% CET1 ratio at SCB. The BOT has also ringfenced SCB which further reduces the risk for the SCBTB bonds. However, the COVID Blue scheme book still sits within SCB and is the highest % of loans among peers (12% at 4Q23). We are slightly cautious about credit costs that may arise from this book. FY24 credit costs are guided to be slightly lower than FY23’s elevated levels, but they can be comfortably absorbed as we expect the NIM to be most resilient among peers this year, and FY23 returns led peers despite the high credit costs.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 18 Jun 2024Krung Thai Bank (KTB; Baa1(stb)/ BBB-(pos)/ BBB+(stb)) is the 3rd largest bank by assets in Thailand, with a 55.07% state ownership through the Financial Institutions Development Fund. Strong government support underpins KTB’s underlying credit profile.
The state influence opens up the bank to potentially government-directed lending; it has secured an increasingly meaningful portion of banking business from government agencies and State Owned Enterprises, which underscored its one-notch upgrade by Fitch in Dec-21.
KTB was faced with asset quality challenges in the past and had the highest NPL ratio and restructured loans among the major Thai banks. It has since de-risked its loan book, and asset quality has proven to be more resilient than its peers with lower COVID-19 restructured loans.
Business Description
AS OF 18 Jun 2024- KTB is the 3rd largest bank by assets in Thailand. The Thai Financial Institutions Development Fund owns 55.07% of the bank, and has a free float of 44.93%.
- Being the largest state-owned bank, it secures a meaningful portion of banking business from government agencies and State Owned Enterprises (SOEs) and per the bank, is the preferred bank for the government and SOE employees.
- Though state owned, the bank runs on a commercial basis and is not considered as a policy bank.
- KTB's loan profile comprised 45% retail, 28% private corporates, 11% SME, and 16% Government & SOEs at end-March 2024.
Risk & Catalysts
AS OF 18 Jun 2024High household debt and challenged SMEs remain as longstanding issues in Thailand while growth momentum has remained sluggish. KTB’s conservative focus on the government agencies/SOEs segment however is supporting its asset quality well.
Rising base rates have been good for the NIM, but margins could come under greater pressure than peers as rate cuts come through possibly from 2H24 onwards given the larger corporate/SOE loan book (which tend to be floating rate). Loan growth has also been middling across the Thai banks due to a focus on quality amid the current backdrop.
We see a two-notch differential between the standalone credit fundamentals of KTB vs. the other top Thai banks at Moody’s as wide and there is an upgrade potential for KTB’s standalone credit profile in the medium term.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.49% |
ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.20% |
ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.8% |
Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 11.7% |
CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 16.4% |
Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.24% |
Gross LDR | 99% | 99% | 98% | 104% | 101% |
Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024KTB is the 3rd largest bank in Thailand by assets and the largest state-owned bank. It is 55% indirectly owned by the Thai government and thus secures meaningful business from government agencies and SOEs. KTB was faced with asset quality challenges in the past and had the highest NPL ratio among the major Thai banks. Its fundamentals have improved as it de-risked its loan book, so asset quality was more resilient than peers during COVID. It has a >16% CET1 ratio and a high 80% CASA ratio, which should help to mitigate NIM pressure arising from its larger corporate/SOE book when rate cuts flow through. The government/SOE book increased again to ~16% of loans in 1Q24 and credit costs returned to the normal 120-130 bp range. We have an O/P rec as its $ AT1 trades wide relative to Thai peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: March 26, 2024
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Fundamental View
AS OF 18 Jun 2024Kasikornbank (KBANK; Baa1(stb)/BBB(stb)/BBB(stb)) is a historically sound and profitable bank.
Capitalisation is strong and the bank has among the highest CASA ratios in the banking sector. However, asset quality took a surprise turn for the worse in 4Q22 due to its larger SME exposure, and credit costs remain elevated.
Margins are leading among the Thai banks we cover as a result of its strong SME franchise, but the NIM has been falling steadily over the past 5 years as a result of strong competition. Rising base rates in 2023 have provided a boost, but the bank is now focusing growth on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 18 Jun 2024- KBank is currently the second largest bank in Thailand. It briefly was the largest from 2018 until mid-2020, upon which Bangkok Bank completed its acquisition of Indonesia's Bank Permata and took its place.
- KBank's history can be traced back to 1945 when it was first established as Thai Farmers Bank. It was listed on the Stock Exchange of Thailand in 1976 and changed its name to Kasikornbank in 2003.
- As of end-March 2024, the bank's loan mix by segment consists of 38% corporate, 28% SME, 27% retail and 7% others.
- KBank is known for its strong SME franchise. Its focus industries in SME are construction, construction materials, food & beverage, and hardware.
- It partially owns a life insurance company, Muang Thai Life.
Risk & Catalysts
AS OF 18 Jun 2024High household debt and challenged SMEs remain longstanding issues in Thailand, but KBANK’s higher NIM and low-40%s cost-income ratio provide comfortable room to absorb its higher credit costs and maintain a similar level of returns as peers.
Loan growth has been middling across the Thai banks due to a focus on quality given elevated household debt and challenged SMEs, and a larger and prolonged balance sheet cleanup at KBANK which is slated to be completed by YE24.
KBANK expects to be able to maintain a flat FY24 NIM even as peak NIMs have been hit in 4Q23, supported by its higher CASA funding mix, as well as larger retail and SME loan book should rate cuts come through this year. However, its continued pivot away from the higher yielding unsecured retail and SME segments and recent guidance from authorities to reduce borrowing rates for vulnerable pockets of SME and retail customers and improve their lending access present some headwind.
Key Metrics
AS OF 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.74% |
ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.25% |
ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 10.0% |
Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.3% |
CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 16.5% |
Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.19% |
Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.89% |
Gross LDR | 96% | 93% | 91% | 92% | 91% |
Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSights View
AS OF 23 Apr 2024Kasikornbank is the 2nd largest bank in Thailand. We were cautious about its one third loan book exposure to SMEs given their challenges which were exacerbated by COVID, but have liked the bank’s high NIM, strong capital, and ability to grow in tough times. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending. The bank is doing cleanups in FY23 and FY24, and has switched to focusing growth on the safer segments which will weigh on the NIM. FY24 credit costs will remain fairly elevated (guided at 175-195 bp) given the larger SME and Blue scheme book, but we expect the NIM to be more resilient than peers. Credit costs can thus be comfortably absorbed, but at the expense of losing its profitability lead over some of its Thai bank peers.
Recommendation Reviewed: April 23, 2024
Recommendation Changed: June 09, 2023
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Fundamental View
AS OF 18 Jun 2024Bangkok Bank (BBL: Baa1(stb)/BBB+(stb)/BBB(stb)) 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%. It is back to ~15% range and management aims to bring the CET1 ratio to 16% in prepartion for Basel III final reforms.
Its profitability (ROA and ROE) has historically below the industry average, due in part to higher exposure to the lower-yielding corporates segment that has resulted in a lower NIM. However, the returns gap has narrowed as this has supported its asset quality outperformance versus peers, and allowed the NIM to benefit better from the rising rate environment as debt servicing capabilities of households and SMEs remain fragile.
Business Description
AS OF 18 Jun 2024- 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 44% corporate (most including international loans), 19% SME, 12% retail, and 25% international as at end-March 2024. It is by far the most international amongst the Thai banks, with branches in 14 economies.
- 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 18 Jun 2024Returns have caught up well with peers in FY23 as the more resilient large corporate book has supported lower credit costs and better BOT rate hike pass through to the NIM, given the backdrop of high household debt, challenged SMEs and still sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers in FY24 due to its lower CASA ratio as deposit rates catch up, as well as larger domestic and international corporate loan book (which tend to be floating rate) as rate cuts come through possibly from 2H24 onwards.
Loan growth has been middling across the Thai banks due to a focus on quality amid the current backdrop.
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 18 Jun 2024THB mn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 1.95% |
ROA | 0.49% | 0.65% | 0.67% | 0.93% | 0.93% |
ROE | 3.9% | 5.6% | 5.9% | 8.1% | 7.8% |
Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.2% |
CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 15.6% |
Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.00% |
Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.27% |
Gross LDR | 84% | 82% | 84% | 84% | 86% |
Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSights View
AS OF 26 Jun 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins. BBL completed the acquisition of Indonesia’s Bank Permata (~12% of loans) in 2Q20 which reduced its CET1 ratio to 14%, but it has since rebuilt it 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 large corporate book which will aid stable asset quality and credit costs. Its lower CASA ratio and larger corporate book though makes it more susceptible to NIM pressure this year. We keep BBL on M/P but think its seniors should trade 5-10 bp inside its Thai peers.
Recommendation Reviewed: June 26, 2024
Recommendation Changed: January 25, 2023
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Fundamental View
AS OF 12 Jun 2024For many years, Shinhan FG was the best-managed of the large Korean financial groups. During the Asian Financial Crisis, it took advantage of the opportunity to acquire competitors and other businesses, increasing its scale and expanding its business lines.
It has a good track record, but its performance has been more variable in the past few years. After a bumpy 2020, it had a better 2021, and FY22 was better still, thanks to rising interest rates. However, operating performance has turned weak again in FY23. NIM is well controlled.
Credit costs have increased but are within our expectations. Recurring credit costs are expected to decrease in FY24, but additional provisions may still be needed. Capital is comfortable, but the distance vs. KBFG has increased.
Business Description
AS OF 12 Jun 2024- Shinhan Financial Group (Shinhan FG) is one of Korea's most diversified financial groups and the holding company of the second largest Korean bank - Shinhan Bank. It also has credit cards, securities, asset management and insurance subsidiaries.
- Shinhan Bank was set up in 1982 with seed capital from Korean residents in Japan. It was more professionally managed than the heavily politicised older banks and came through the 1997 Asian Financial Crisis in relatively good shape, taking the opportunity to acquire the larger and much longer-established Chohung Bank in 2003.
- In 2007, it made another timely acquisition, buying LG Card from its creditors after it failed during the 2003 Korean consumer lending crisis. Shinhan Card is the largest card issuer in Korea.
- Shinhan is also looking for overseas opportunities where growth is strong and Korean businesses have a presence, with a focus on Vietnam (where Shinhan Card also bought a consumer finance business in 2019) and Indonesia. ~30% of Shinhan Bank's overseas loan book is in Japan and China.
Risk & Catalysts
AS OF 12 Jun 2024As one of Korea’s “Big Four” financial groups, we believe Shinhan FG would likely receive governmental support if needed.
Asset quality pressure is rising from domestic real estate project financing and overseas real estate investments, with credit costs rising from very low levels. Management expects recurring credit costs to decrease in FY24, but additional provisions may still be needed due to regulators’ guidance for financial institutions to take a more conservative stance on provisioning.
Shinhan FG made some relatively recent missteps, including misselling asset management products to retail investors, which resulted in KRW 63 bn in fines in 1Q21. As a consequence, Shinhan Securities’ senior management was replaced.
Key Metrics
AS OF 12 Jun 2024KRW bn | FY20 | FY21 | FY22 | FY23 | 1Q24 |
---|---|---|---|---|---|
Pre-Provision Profit ROA | 1.09% | 1.11% | 1.10% | 3.89% | 1.40% |
ROA | 0.60% | 0.66% | 0.72% | 0.66% | 0.77% |
ROE | 8.4% | 9.2% | 10.0% | 8.6% | 10.4% |
Provisions/Average Loans | 0.43% | 0.28% | 0.34% | 0.78% | 0.38% |
NPL Ratio | 0.49% | 0.39% | 0.41% | 0.56% | 0.62% |
CET1 Ratio | 12.90% | 13.10% | 12.79% | 13.13% | 13.09% |
Equity/Assets | 7.3% | 7.3% | 7.6% | 7.8% | 7.7% |
Net Interest Margin | 1.80% | 1.81% | 1.96% | 5.91% | 2.00% |
CreditSights View
AS OF 30 Apr 2024Shinhan FG is one of the four nation-wide commercial banking groups in Korea, with credit card and insurance arms. It had over many years the best operating track record, but the gap has narrowed and we now view Shinhan as overtaken by KB and Hana. 2023 has been challenging, as topline revenue growth was more than offset by increasing operating expenses and provisions. Asset quality is under pressure with the high NPL ratio among the four FGs. In the recent quarter, its CET1 ratio has declined but remained slightly above its 13% target.
Recommendation Reviewed: April 30, 2024
Recommendation Changed: September 22, 2020
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