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Fundamental View
AS OF 17 Jun 2025Rural Electrification Corp Ltd (REC) is an important public sector enterprise as it is the government’s key strategic partner for driving reforms and developments in the power sector, and providing financing to weaker players (particularly distribution companies or “discoms”) to prevent liquidity disruptions to the sector, similar to its parent Power Finance Corp’s (PFC) mandate.
We view REC’s credit profile as underpinned by strong state support due to its majority 52.63% ownership by PFC, which is in turn 55.99% owned by the government of India (GoI), as well as the key role that it plays in an essential sector of the country.
REC is rated in line with both its parent, PFC, and the Indian sovereign at the international credit rating agencies.
Business Description
AS OF 17 Jun 2025- Established in 1969, Rural Electrification Corp Ltd (REC) is an important public sector enterprise of the Government of India (GoI) due to its mandate of helping to support the country's power sector initiatives. It has been designated as a systematically important NBFC by the Reserve Bank of India (RBI).
- REC went public on the Indian stock exchanges in 2008 but continued to be majority owned by the GoI until March 2019, where the GoI sold its 52.63% shareholding in REC to Power Finance Corp (PFC) for INR 145 bn as part of the GoI's efforts to monetise its shareholding in different public sector enterprises; PFC is in turn 56% owned by the GoI. REC’s non-PFC shareholding is broadly similar to that of its parent, with a 20% share of foreign portfolio investors, 12% individuals, 9% mutual funds, and 6% others.
- REC has continued to be run as a standalone institution despite PFC's majority ownership in the entity.
- Similar to its parent, REC primarily provides funding to the public sector (~88% of its loan book) while the private sector is ~12%. By segment, Transmission & Distribution (T&D) is the largest part of the loan asset mix at 47%, followed by conventional and renewable energy generation at 28% and 10% respectively, while Infrastructure (12%) and Others (3%) round up the rest.
Risk & Catalysts
AS OF 17 Jun 2025Given its mandate, REC has concentrated loan exposure to the power sector which is also chunky in nature; power generation projects typically involve large upfront borrowing and have long gestation periods before the projects become operational. Resolutions of stressed exposures have been with delays due to India’s slow moving Insolvency & Bankruptcy Code (IBC) regime despite the ongoing NCLT reforms. REC has a conservative reserving policy; lumpy provisioning and reversals is the result.
Asset quality risk is also mitigated by a majority public sector exposure; while many state government discoms are in poor health, REC can get funds meant for the states through the GoI/RBI if payments are overdue.
Like most NBFCs, REC is reliant on the confidence sensitive wholesale market for funding. However, its quasi-government status enables it to have diversified funding sources (onshore and offshore) at costs that are close to the sovereign.
Key Metric
AS OF 17 Jun 2025| INR mn | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| NIM | 3.72% | 4.07% | 3.38% | 3.57% | 3.63% |
| PPP ROAA | 3.27% | 3.91% | 3.17% | 3.24% | 3.60% |
| ROAA | 2.08% | 2.47% | 2.53% | 2.77% | 2.71% |
| ROE (Reported) | 21.3% | 21.3% | 20.4% | 22.2% | 21.5% |
| Total Equity/Total Assets | 10.78% | 12.42% | 12.41% | 12.56% | 12.65% |
| Tier 1 Ratio | 16.3% | 19.6% | 22.8% | 23.3% | 23.8% |
| Total Capital Ratio | 19.7% | 23.6% | 25.8% | 25.8% | 26.0% |
| Gross NPA Ratio | 4.84% | 4.45% | 3.42% | 2.71% | 1.35% |
| Provisions/Avg Loans | 0.64% | 0.91% | 0.03% | (0.29%) | 0.19% |
CreditSight View Comment
AS OF 17 Jun 2025REC is 52.63% owned by PFC and along with its parent is one of two policy NBFIs that provides funding for power generation and T&D projects, lending largely to state government utilities (88% of loans) vs. the private sector (12%). After a few years of improving profitability and margins, FY23 saw a reversal, with net income increasing YoY only due to a substantial decline in credit costs; FY24 was better on higher NIMs and provision releases, and FY25 has gone well. Asset quality has improved materially over the years. The CAR ratio is ~26%. Although a number of state government utilities are in poor health, the NBFIs can get funds meant for the states through the GoI/RBI if they don’t get paid in time. Spreads have widened back to fair levels so have RECLIN on Market perform.
Recommendation Reviewed: June 17, 2025
Recommendation Changed: May 22, 2025
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Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
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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%
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Fundamental View
AS OF 16 Jun 2025State 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 16 Jun 2025- 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, 34% corporates, ~14% SMEs and ~10% to the agri segment as of end-March 2025.
- 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 16 Jun 2025SBI 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.
Rate cuts will feed through to the NIM in FY26, but improved system liquidity will provide some support for the NIM and loan growth.
Asset quality is trending well despite a stretched urban middle and lower-middle class consumer class, as SBI’s personal unsecured loans book is ~95% to salaried employees of top tier corporates and the government.
Management announced plans for an INR 250 bn equity fundraise in FY26, which would provide an around 0.6 ppt boost to capital ratios at the consolidated level on a pro-forma basis.
Key Metric
AS OF 16 Jun 2025| INR mn | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| NIM | 3.04% | 3.12% | 3.37% | 3.28% | 3.09% |
| ROAA | 0.48% | 0.67% | 0.96% | 1.04% | 1.10% |
| ROAE | 8.4% | 11.9% | 16.5% | 17.3% | 17.3% |
| Equity to Assets | 5.6% | 5.6% | 5.9% | 6.1% | 6.6% |
| CET1 Ratio | 10.3% | 10.3% | 10.6% | 10.6% | 11.1% |
| Gross NPA Ratio | 4.98% | 3.97% | 2.78% | 2.24% | 1.82% |
| Provisions/Loans | 1.77% | 0.91% | 0.54% | 0.14% | 0.38% |
| PPP ROA | 1.65% | 1.58% | 1.59% | 1.60% | 1.72% |
CreditSight View Comment
AS OF 06 May 2025SBI is India’s largest bank and a well-run franchise. Government support underpins SBI’s relative positioning, while fundamentally, it has good operating metrics and business plans, a sufficient (though could be higher) CET1 ratio, and the best management among the public sector banks. SBI’s less tight LDR position than its private sector peers has allowed it to have continued higher loan growth than deposit growth in in F9M25. India’s macro backdrop remains relatively robust and SBI’s lower risk personal unsecured loans clientele is supporting asset quality well. Rate cuts will feed through to the NIM in FY26. Improved system liquidity however will provide some support for the NIM and loan growth. We like the name, but move it back to M/P as it now trades a few bp inside HDFCB.
Recommendation Reviewed: May 06, 2025
Recommendation Changed: April 25, 2025
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Korea Gas Corp.
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Siam Commercial Bank
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Fundamental View
AS OF 16 Jun 2025ICICI 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 16 Jun 2025- 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 52% of its loan book, corporates are at 20%, while rural and business banking & SMEs are at 6% and 19% respectively, and overseas (which is being de-emphasised) consists of just 2% at F4Q25.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 16 Jun 2025ICICI has been delivering both relatively strong loan and deposit growth momentum, while maintaining its leading LDR and profitability, in testament to its strong franchise.
Rate cuts will feed through to the NIM in FY26, but improved system liquidity will provide some support for the NIM and loan growth.
We are cautious about Indian unsecured retail and microfinance given a stretched urban middle and lower-middle class consumer with high inflation and interest costs, and economic activity in India has slowed as we had anticipated. ICICI’s earlier prudence towards the segment than peers however is keeping asset quality well controlled. We are watchful though 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 16 Jun 2025| INR bn | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| NIM | 3.69% | 3.96% | 4.48% | 4.53% | 4.32% |
| ROAA | 1.39% | 1.77% | 2.13% | 2.37% | 2.37% |
| ROAE | 12.3% | 14.7% | 17.2% | 18.7% | 17.9% |
| Equity/Assets | 12.0% | 12.1% | 12.6% | 12.7% | 13.7% |
| CET1 Ratio | 16.7% | 17.3% | 16.9% | 15.4% | 15.8% |
| Gross NPA Ratio | 4.96% | 3.60% | 2.81% | 2.16% | 1.67% |
| Provisions/Loans | 2.05% | 0.97% | 0.65% | 0.30% | 0.34% |
| PPP ROA | 3.13% | 2.97% | 3.28% | 3.36% | 3.37% |
CreditSight View Comment
AS OF 16 Jun 2025ICICI 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: June 16, 2025
Recommendation Changed: December 07, 2020
Who We Recommend
Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
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Search topics about wealth insights and investments.Sumitomo Mitsui Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 12 Jun 2025After reorganising and building up capital for the full impact of Basel 3, SMFG has in the past few years been acquisitive to build its next phase of growth, and now has a lower capital buffer than Mizuho.
It has a strong retail, mid and large corporate franchise in Japan, but its securities arm SMBC Nikko punches below weight.
Given its size and systemic importance, SMFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 12 Jun 2025- The core unit of SMFG is Sumitomo-Mitsui Banking Corp (SMBC), whose main predecessors were Sumitomo Bank and Mitsui Bank.
- SMFG does not have a large trust business as Sumitomo Trust and Chuo Mitsui Trust chose not to join SMFG, but merged with each other to form the separate Sumitomo Mitsui Trust Holdings.
- SMFG's group companies include the securities firm SMBC Nikko, SMBC Trust Bank, SMBC Card Company, SMBC Consumer Finance, Sumitomo Mitsui Finance and Leasing, SMFG India Credit Company (SMICC), Sumitomo Mitsui DS Asset Management, and SMBC Aviation Capital.
- It has been acquisitive over the years, particularly in emerging Asia and leasing assets. In 2021, the group took a 49% stake in Vietnam's FE Credit, 74.9% of Indian NBFI Fullerton Capital (now called SMICC), 4.99% of Philippines' RCBC, and 4.5% of US investment bank Jefferies. In 2022, it increased its stake in RCBC to 20%. In 2023, it acquired a 15% stake in Vietnam's VP Bank, and said it would increase its stake in Jefferies from 4.5% to 15%, and in 2024 took its stake in SMICC to 100%. In 2025 it announced it would take a 20% stake in India's Yes Bank.
Risk & Catalysts
AS OF 12 Jun 2025Similar to the other megabanks, SMFG aims to focus more on the US, and reduce low return RWAs in Europe and Asia ex-Japan.
SMFG has taken stakes in FE Credit (49%) and VP Bank (15%) in Vietnam, Fullerton in India (100%, now renamed SMICC), RCBC in the Philippines (20%), and is acquiring 20% of India’s Yes Bank, to increase its exposure to emerging growth areas. It had previously acquired a bank (Danamon) and auto NBFIs in Indonesia. However, FE Credit faced losses in 2022/23 as a result of the Vietnam slowdown in 2022, leading to JPY 135 bn of goodwill impairments in FY24. RoE on these investments has been poor.
It increased its 4.5% stake in Jefferies to 15%, to develop revenue opportunities for SMBC Nikko. Further investments in SMBC Nikko will be required.
Credit costs have seen volatility, but it has the lowest NPL ratio amongst the megabanks.
Its CET1 ratio is the lowest amongst peers, and it has been tapped by the rating agencies to increase its CET1 ratio buffer.
Key Metric
AS OF 12 Jun 2025| JPY bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.60% | 0.64% | 0.68% | 0.70% | 0.80% |
| Operating Income/Average Assets | 1.27% | 1.23% | 1.26% | 1.39% | 1.41% |
| Operating Expense/Operating Income | 62% | 62% | 61% | 60% | 58% |
| Pre-Impairment Operating Profit / Average Assets | 0.49% | 0.48% | 0.51% | 0.58% | 0.59% |
| Impairment charge/Average Loans | (0.43%) | (0.31%) | (0.22%) | (0.27%) | (0.32%) |
| ROAA | 0.23% | 0.30% | 0.32% | 0.36% | 0.40% |
| ROAE | 4.5% | 5.9% | 6.5% | 7.0% | 8.0% |
CreditSight View Comment
AS OF 16 May 2025SMFG’s banking business had performed well, while its non-bank subsidiaries had underperformed over FY21-22. The group had a better 2H vs a poor 1H23, with improved trading and fee revenues, partially offset by higher credit costs at the non-bank businesses. The group became acquisitive from 2021, taking a 49% stake in a leading Vietnamese NBFI and 15% of its parent (VP Bank), 20% of RCBC of the Philippines, 74.9% of NBFI Fullerton India (now 100%), 4.5% in US IB Jefferies (increasing to 15%), and 20% of India’s Yes Bank for the next stage of growth. Its high CET1 ratio has been whittled down by acquisitions. FY24 results were boosted by share sales and structured investment trusts. Govt. support is assured. We see 20 bp of upside from current levels.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: January 27, 2025
Who We Recommend
Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
How may we help you?
Search topics about wealth insights and investments.Mitsubishi UFJ Financial Group
- Sector: Financial Services
- Sub Sector: Banks
- Region: Japan
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Fundamental View
AS OF 12 Jun 2025MUFG is the largest of Japan’s three megabanks, and has the most diversified operations by business line and geography. It has also been the most acquisitive until recently.
Core profitability had been weak due to Japan’s ultra-low interest rates and growth; that improved post an efficiency drive and a CEO change in April 2020; the bank has improved international margins and benefits from rising domestic interest rates.
Given its size and systemic importance, MUFG is considered too big to fail, and will be supported by the Japanese government if needed.
Business Description
AS OF 12 Jun 2025- The 2 main banks of MUFG are MUFG Bank (earlier Bank of Tokyo-Mitsubishi UFJ or BTMU) & Mitsubishi UFJ Trust & Banking. In the early stages of Japan's long banking crisis, Bank of Tokyo merged with Mitsubishi Bank, and in the late stages they absorbed UFJ (former Sanwa Bank & Tokai Bank) while Mitsubishi Trust absorbed Toyo Trust & Nippon Trust.
- The group includes consumer lenders Mitsubishi-UFJ NICOS & ACOM, and securities/IB joint ventures with Morgan Stanley. MUFG invested in Morgan Stanley in 2008 and now has a ~20% stake. In Dec-22, it completed the sale of its US retail and commercial bank, MUFG Union Bank, to US Bancorp.
- It has a majority stake in Thailand's Bank of Ayudhya (now Krungsri), 20% stakes in Vietnam's Vietinbank and Philippines' Security Bank, and 100% of Indonesia's Bank Danamon.
- In August 2019, it acquired Colonial First State from Commonwealth Bank of Australia to strengthen its global asset management business, in 2020 it invested $700 mn in SE Asia's Grab, and more recently has bought Home Credit's Philippine and Indonesian subsidiaries, Link (an Australian pension fund administrator), auto loan companies in Indonesia, Albacore Capital, StanChart's Indonesian retail operations, and an Indian NBFI.
Risk & Catalysts
AS OF 12 Jun 2025Its recent divisional performance has been strong, with the domestic businesses benefiting from higher BOJ rates, and robust growth in fee income.
Credit costs have been rising because of increased exposure to personal unsecured loans in Japan and Southeast Asia, as well as higher-risk lending in Southeast Asia.
Its close relationship with Morgan Stanley has led it to take large positions in US corporate finance loans, which could have proven problematic.
We see limited risk from rising JGB and USD yields as the large equity unrealised gains dwarf the unrealised losses on the bond portfolio.
Key Metric
AS OF 12 Jun 2025| JPY bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Net Interest Revenue/Average Assets | 0.56% | 0.57% | 0.79% | 0.64% | 0.73% |
| Operating Income/Average Assets | 1.16% | 1.11% | 1.22% | 1.23% | 1.22% |
| Operating Expense/Operating Income | 68% | 69% | 65% | 61% | 67% |
| Pre-Impairment Operating Profit / Average Assets | 0.37% | 0.34% | 0.43% | 0.48% | 0.40% |
| Impairment charge/Average Loans | (0.48%) | (0.30%) | (0.61%) | (0.44%) | (0.09%) |
| ROAA | 0.23% | 0.32% | 0.30% | 0.39% | 0.47% |
| ROAE | 4.7% | 6.7% | 6.5% | 8.1% | 9.3% |
| CET1 post Basel 3 reforms excl. secs gains | 9.7% | 10.4% | 10.3% | 10.1% | 10.8% |
CreditSight View Comment
AS OF 16 May 2025MUFG is the largest of the megabanks with more diversified business lines. Digitalisation and operational efficiency improvements, in addition to higher rates in Japan and the US, has led to much better results in FY24. Lending discipline has lifted international margins, which are now well higher than the other two. Its ~20% shareholding in Morgan Stanley has been a boon. Acquisitions have become more targeted. Its $ liquidity is also the best amongst its peers, and government support is assured. Accelerated sales of its shareholdings accompanied by buybacks may pressure its CET1 ratio buffer, which is in line with its peers at ~230 bp. We see 20 bp of upside from current levels for its TLAC senior paper.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: January 27, 2025
Who We Recommend
Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
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Fundamental View
AS OF 11 Jun 2025We expect PT Mineral Industri Indonesia’s (MIND ID) strategic importance and policy role to the Government of Indonesia (GoI) to strengthen in line with the GoI’s downstream push and green energy transition efforts.
We expect MIND ID’s credit metrics to improve modestly in FY26 as healthy commodity prices (barring coal and nickel), capacity additions, and healthy dividend income from key joint venture PT Freeport Indonesia (PTFI) could offset high capex.
Mining regulatory risk remains a concern, though MIND ID’s large diversified scale of operations could partly limit such risks.
We are watchful of dividend upstreaming risks to Indonesia’s new sovereign wealth fund Danantara.
Business Description
AS OF 11 Jun 2025- MIND ID is an unlisted Indonesian state-owned holding company of various Indonesian mining operators.
- Key subsidiaries include: 1) Bukit Asam: Coal mining, processing, and sale of coal; 2) Timah: Tin mining, processing, and sale of downstream products; 3) Aneka Tambang (Antam): Mining, processing, and sale of gold products, nickel, ferronickel, bauxite and chemical grade alumina; 4) Inalum: Production of aluminium.
- Key unconsolidated joint ventures and associates include: 1) PT Freeport Indonesia (PTFI): Mining, processing and sale of copper, gold and silver. MIND ID aims to raise its stake in PTFI to 71% from a current 51% in the medium-to-long term; 2) PT Vale Indonesia (PTVI): Mining and processing of nickel. MIND ID has a current 34% stake in PTVI.
Risk & Catalysts
AS OF 11 Jun 2025MIND ID is subjected to unanticipated changes in mining policies that raise operational and regulatory uncertainties.
MIND ID is exposed to commodity price fluctuations that could hurt sales price realizations and profitability.
Capex typically remains elevated, pressurizing its free cash flow generation and leverage.
MIND ID faces material asset concentration risk for its coal, gold and tin segments.
We are watchful of dividend upstreaming risks to Indonesia’s new sovereign wealth fund Danantara.
Key Metric
AS OF 11 Jun 2025| IDR bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 55.9% | 52.0% | 44.6% | 41.6% | 35.7% |
| Net Debt to Book Cap | 39.0% | 29.6% | 27.1% | 24.5% | 21.8% |
| Debt/Total Equity | 127.0% | 108.3% | 80.5% | 71.2% | 55.5% |
| Debt/Total Assets | 51.0% | 46.1% | 38.7% | 35.6% | 30.4% |
| Gross Leverage | 10.8x | 4.7x | 3.5x | 7.0x | 5.7x |
| Net Leverage | 7.5x | 2.7x | 2.1x | 4.1x | 3.5x |
| Interest Coverage | 1.1x | 3.2x | 3.9x | 2.2x | 2.3x |
| EBITDA Margin | 12.9% | 21.5% | 19.9% | 12.3% | 10.8% |
CreditSight View Comment
AS OF 11 Jun 2025We have an Underperform recommendation on MIND ID. We think valuations are uncompelling versus its SOE peers, at ~15 bp wider than Pertamina and slightly wider to PLN. We think the differentials should be wider and see room for MIND ID to widen ~5-10 bp ahead, considering MIND ID’s materially weaker credit profile, less crucial policy role, and greater exposure to Indonesia’s mining policy changes. We also expect free cash flows to remain negative over the next 2 years from heavy downstream capex. That said, key mitigants include MIND ID’s gradually strengthening strategic importance, resilient commodity prices (especially gold), persisting large dividend income from Freeport Indonesia (PTFI), and our expectation for a modestly improving FY25 credit outlook.
Recommendation Reviewed: June 11, 2025
Recommendation Changed: March 19, 2025
Who We Recommend
Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
How may we help you?
Search topics about wealth insights and investments.JD.com
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 11 Jun 2025We maintain our Market perform on JD post its decent 1Q25 results; topline growth accelerated, EBITDA margin expanded and gross debt metrics improved, but free operating cash flow turned more negative on increased working capital investments which led to a contraction in net cash. We expect JD’s debt metrics to marginally improve over the next 12 months, with topline growth supported by the domestic stimulus policies, lower EBITDA margin on wider losses for its food delivery expansion, healthy FOCF which should cover its shareholder rewards, flat net cash to YE24, and steady gross leverage. We think its $ bonds trades fair compared to its Asia A/A- corporate and China tech peers, and has likely priced in its stable credit outlook and potential rating upgrade by S&P.
Business Description
AS OF 11 Jun 2025- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,600 warehouses operated by the company, and 2,000 cloud warehouses operated by third-party warehouse owner-operators under JD Logistics Open Warehouse Platform. Its warehouse network had an aggregate gross floor area of approximately over 32 mn square meters, as of 31 December 2024.
- JD has 3 operating segments, namely (1) JD Retail (83% of 1Q25 revenues), which includes JD Health and JD Industrials, and the segment mainly engages in online retail, online marketplace and marketing services in China; (2) JD Logistics (15%) which includes both internal and external logistic businesses; and (3) New businesses (2%) which consist of Dada, JD Property, Jingxi and overseas businesses.
- JD had a market capitalization of RMB 353.0 bn as of 10 June 2025.
Risk & Catalysts
AS OF 11 Jun 2025While Chinese regulators have adopted a friendlier stance towards tech companies, any regulatory clampdowns may still adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).
Intensifying competition amongst Chinese eCommerce platforms with the entrance of new live-streaming/short-form video platforms and group buying discount platforms may result in slower topline growth and weaker EBITDA margin for JD as its increase its user/merchant incentives and promotional activities to defend its market share.
There are regulatory risks involving the use of variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs). Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
Key Metric
AS OF 11 Jun 2025| RMB mn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.2% | 19.2% | 18.8% | 22.3% | 22.1% |
| Debt/Total Equity | 13.8% | 23.7% | 23.1% | 28.7% | 28.3% |
| Debt/Total Assets | 6.9% | 10.9% | 10.9% | 12.9% | 12.9% |
| Gross Leverage | 1.8x | 1.9x | 1.5x | 1.7x | 1.6x |
| Interest Coverage | 16.1x | 16.3x | 15.5x | 18.5x | 19.5x |
| EBITDA Margin | 2.0% | 3.3% | 4.1% | 4.6% | 4.7% |
CreditSight View Comment
AS OF 14 May 2025We maintain our Market perform on JD post its decent 1Q25 results; topline growth accelerated, EBITDA margin expanded and gross debt metrics improved, but free operating cash flow turned more negative on increased working capital investments which led to a contraction in net cash. We expect JD’s debt metrics to marginally improve over the next 12 months, with topline growth supported by the domestic stimulus policies, lower EBITDA margin on wider losses for its food delivery expansion, healthy FOCF which should cover its shareholder rewards, flat net cash to YE24, and steady gross leverage. We think its $ bonds trades fair compared to its Asia A/A- corporate and China tech peers, and has likely priced in its stable credit outlook and potential rating upgrade by S&P.
Recommendation Reviewed: May 14, 2025
Recommendation Changed: November 21, 2022
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Korea Gas Corp.
Macquarie Bank
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Search topics about wealth insights and investments.Tencent
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our Outperform recommendation on Tencent post its decent 1Q25 results; topline accelerated, EBITDA margin expanded, free operating cash flow remained robust, and debt metrics remained modest. We expect Tencent’s topline growth to marginally accelerate in FY25, supported by its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to marginally improve as its better revenue mix offset the increased R&D spending for AI development; we expect FOCF to expand, and debt metrics to improve from 1Q25. We continue viewing Tencent as a core holding in China and Asia IG credits. We prefer its 2029/2041 notes for spread pick up against Chinese SOEs. We think Tencent is more attractive compared to BIDU/JD and more defensive that BBB China tech.
Business Description
AS OF 10 Jun 2025- Founded in November 1998, Tencent is a leading provider of Internet value added services in China. Since its establishment, Tencent has ventured into instant messaging, social networking, online payments, digital entertainment, and PC and smartphone gaming. Most recently, it has also forayed into high-tech areas such as artificial intelligence, and cloud computing.
- Tencent's leading Internet platforms in China include Weixin/WeChat (online messaging), QQ Instant Messenger (online messaging), Tencent Games (gaming), Tencent Video/Weixin Video Accounts (video platforms), WeChat Pay (payments), and Tencent Cloud. The combined monthly average users (MAU) of Weixin and Wechat reached 1.40 bn as of 31 March 2025.
- In 4Q24, 46% of revenues came from Value Added Services (which consist of Domestic Games, International Games, and Social Networks), 33% came from FinTech and Business Services (e.g. commercial payments and cloud), 19% from Online Advertising and 2% from Others.
- Tencent is currently primarily listed on the Hong Kong Stock Exchange, with a market capitalization of HKD 4.7 tn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025While Chinese regulators have adopted a more friendly stance towards tech companies, any regulatory clampdowns abroad and domestically (e.g. antitrust rules, data security, personal information protection laws) may affect Tencent’s business. Tencent’s gaming, music streaming, and online payment units are among those that have come under regulatory scrutiny in the past.
Tencent uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers, which poses regulatory risks. Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 10 Jun 2025| RMB bn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 27.0% | 31.4% | 29.8% | 25.4% | 26.5% |
| Net Debt to Book Cap | 6.0% | 8.5% | 1.0% | 2.3% | 4.4% |
| Debt/Total Equity | 36.9% | 45.9% | 42.5% | 34.0% | 36.0% |
| Debt/Total Assets | 20.1% | 22.8% | 23.5% | 20.1% | 21.1% |
| Gross Leverage | 1.7x | 1.9x | 1.6x | 1.3x | 1.4x |
| Net Leverage | 0.4x | 0.5x | 0.1x | 0.1x | 0.2x |
| Interest Coverage | 24.7x | 19.0x | 19.9x | 22.5x | 23.0x |
| EBITDA Margin | 34.9% | 34.3% | 38.9% | 42.4% | 43.2% |
CreditSight View Comment
AS OF 15 May 2025We maintain our Outperform recommendation on Tencent post its decent 1Q25 results; topline accelerated, EBITDA margin expanded, free operating cash flow remained robust, and debt metrics remained modest. We expect Tencent’s topline growth to marginally accelerate in FY25, supported by its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to marginally improve as its better revenue mix offset the increased R&D spending for AI development; we expect FOCF to expand, and debt metrics to improve from 1Q25. We continue viewing Tencent as a core holding in China and Asia IG credits. We prefer its 2030/2031/2041 notes for spread pick up against Chinese SOEs. We think Tencent is more attractive compared to BIDU/JD and more defensive that BBB China tech.
Recommendation Reviewed: May 15, 2025
Recommendation Changed: August 18, 2022
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Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
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Search topics about wealth insights and investments.Baidu
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our M/P on Baidu post its uninspiring 1Q25 results; topline growth was ahead of expectation on strong AI cloud demand, but EBITDA margin fell on a weaker revenue mix, FOCF turned negative on higher AI investments, debt metrics weakened, and net cash contracted. We expect a modest deterioration in Baidu’s debt metrics compared to YE24. We continue preferring Alibaba and Tencent over Baidu among A-rated China tech credits. We like the stronger balance sheet, larger scale, stronger business positions, and better credit outlook of Alibaba and Tencent. Baidu trades only 3-8 bp wider than Alibaba and Tencent which we view as rich given the limited improvement in its debt metrics over the next 12 months. For investors looking for exposure in Baidu, we prefer its Apr-2030.
Business Description
AS OF 10 Jun 2025- Founded in 2000, Baidu started out as a search engine business and began its development into artificial intelligent (AI) since 2010.
- Baidu Core is the main revenue driver of the company (78% of 1q25 revenues) which provides search-based, feed-based and other online marketing services (total: 53% of 3Q24 revenues), as well as products and services from new AI initiatives (29% of revenues); Baidu's AI initiatives include AI cloud (enterprise & public sector cloud, and personal cloud), Intelligent Group Driving (Apollo Go, Apollo auto solutions, and intelligent EVs under Jidu Auto), Mobile Ecosystem (Baidu App, ERNIE Bot, Haokan and Baidu Post), and other growth initiatives (ie. Xiaodu smart devices powered by DuerOS smart assistant and AI chips).
- iQiyi accounts for the remaining revenues of Baidu; iQIYI is an online video platform with a content library that includes licensed movies, television series, cartoons, and other programs.
- Baidu launched ERNIE bot in Mar-23, a generative AI chatbot powered by ERNIE, Baidu's in-house foundation model.
- Baidu has a market capitalization of RMB 223.4 bn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025Any regulatory clampdowns abroad and domestically (e.g. potential US investment ban, antitrust rules, data security and personal information protection laws) may adversely affect the business of Baidu. The interpretation of Chinese laws and regulations involves some degree of uncertainty.
There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Baidu has made significant investments into long-term AI-related projects, which may take time to turn profitable. A potential escalation of the US chip restriction could have a material negative impact its AI related business (ie. cloud, ernie bot, autonomous driving).
Key Metric
AS OF 10 Jun 2025| RMB bn | FY21 | FY22 | FY23 | FY24 | LTM 1Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 29.7% | 28.5% | 25.0% | 22.5% | 26.7% |
| Debt/Total Equity | 42.2% | 39.8% | 33.4% | 29.0% | 36.4% |
| Debt/Total Assets | 24.1% | 23.4% | 20.8% | 18.5% | 22.5% |
| Gross Leverage | 3.3x | 2.8x | 2.2x | 2.0x | 2.6x |
| Interest Coverage | 8.2x | 11.4x | 12.1x | 13.8x | 13.5x |
| EBITDA Margin | 22.6% | 26.8% | 29.2% | 29.3% | 28.9% |
CreditSight View Comment
AS OF 22 May 2025We maintain our M/P on Baidu post its uninspiring 1Q25 results; topline growth was ahead of expectation on strong AI cloud demand, but EBITDA margin fell on a weaker revenue mix, FOCF turned negative on higher AI investments, debt metrics weakened, and net cash contracted. We expect a modest deterioration in Baidu’s debt metrics compared to YE24. We continue preferring Alibaba and Tencent over Baidu among A-rated China tech credits. We like the stronger balance sheet, larger scale, stronger business positions, and better credit outlook of Alibaba and Tencent. Baidu trades only 3-8 bp wider than Alibaba and Tencent which we view as rich given the limited improvement in its debt metrics over the next 12 months. For investors looking for exposure in Baidu, we prefer its Apr-2030.
Recommendation Reviewed: May 22, 2025
Recommendation Changed: August 31, 2022
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Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank
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Search topics about wealth insights and investments.Alibaba
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 10 Jun 2025We maintain our Outperform recommendation on Alibaba post its decent 1Q25 results; topline growth marginally slowed, EBITDA margin improved,FOCF fell on higher capex, net cash remained robust and debt metrics were stable. We expect Alibaba’s topline growth to accelerate over FY26, driven by better domestic eCommerce monetization, resilient international eCommerce, and robust cloud demand; we expect EBITDA margin to remain flat at 20%, but FOCF to trend lower on a material increase in capex for cloud; that said, we expect Alibaba’s Total debt/EBITDA to improve over the next 12 months, and maintain its healthy net cash position. We continue to view Alibaba as a core holding in Asia IG credits. We prefer its 30/35/41 bonds for spread pick up against Chinese SOEs.
Business Description
AS OF 10 Jun 2025- Founded in 1999, Alibaba is the largest retail commerce company in the world based on gross merchandise volume (GMV) as of 31 March 2023.
- The company's business segments comprise Taobao & Tmall Group (39% of F4Q25 revenue; China e-commerce incl. Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com), International Digital Commerce (13%; incl. Lazada, AliExpress, Trendyol and Daraz), Cloud Intelligence Group (11%; incl. AliCloud, AI), logistic provider Cainiao (8%), Local Consumer Services (6%; incl. Ele.me, Amap), and Digital Media and Entertainment (2%, incl. Youku & Alibaba Pictures) and Others (21%; incl. Freshippo, Fliggy, Alibaba Health, Intelligent Information Platform, SunArt, DingTalk).
- Taobao/Tmall is Alibaba's core business and the main EBITA & cash generation unit of the group. Alibaba's annual active consumer exceeded 1 bn in June-2022.
- Alibaba had a market capitalization of RMB 2.3 tn as of 10 June 2025.
Risk & Catalysts
AS OF 10 Jun 2025While Chinese policymakers have adopted an increasingly friendly stance towards tech platforms, regulatory clampdown (e.g. anti-monopoly guidelines, data security laws, personal information protection laws) may still affect Alibaba as it increases compliance cost. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Intensifying competition amongst eCommerce platforms may result in slower topline growth and weaker EBITDA margins.
Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 10 Jun 2025| CNY BN | FY21 | FY22 | FY23 | FY24 | FY25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.1% | 11.6% | 12.6% | 13.3% | 17.5% |
| Debt/Total Equity | 13.8% | 13.1% | 14.4% | 15.3% | 21.2% |
| Debt/Total Assets | 8.8% | 8.3% | 9.2% | 9.7% | 12.8% |
| Gross Leverage | 0.8x | 0.9x | 0.9x | 0.9x | 1.2x |
| Interest Coverage | 39.9x | 32.2x | 29.6x | 24.0x | 20.7x |
| EBITDA Margin | 24.9% | 18.5% | 20.2% | 20.3% | 19.9% |
CreditSight View Comment
AS OF 16 May 2025We maintain our Outperform recommendation on Alibaba post its decent 1Q25 results; topline growth marginally slowed, EBITDA margin improved,FOCF fell on higher capex, net cash remained robust and debt metrics were stable. We expect Alibaba’s topline growth to accelerate over FY26, driven by better domestic eCommerce monetization, resilient international eCommerce, and robust cloud demand; we expect EBITDA margin to remain flat at 20%, but FOCF to trend lower on a material increase in capex for cloud; that said, we expect Alibaba’s Total debt/EBITDA to improve over the next 12 months, and maintain its healthy net cash position. We continue to view Alibaba as a core holding in Asia IG credits. We prefer its 30/31/35/41 bonds for spread pick up against Chinese SOEs.
Recommendation Reviewed: May 16, 2025
Recommendation Changed: August 05, 2022
Who We Recommend
Korea Gas Corp.
Macquarie Bank
Siam Commercial Bank