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Fundamental View
AS OF 11 Dec 2024Petron’s 9M24 results worsened modestly, but we expect Petron’s credit metrics to improve modestly for FY24 as higher capex is offset by low single digit % EBITDA growth amid lower crude oil input costs.
About two-third of its total revenues are derived from the Philippines and are indexed to Dubai crude prices, which allows for smooth cost pass-throughs and good insulation from crude price volatility.
Free cash flows are typically negative due to inventory fluctuations that outweigh low capex.
Business Description
AS OF 11 Dec 2024- Petron is the largest oil refining and retailing company in the Philippines, and the third largest player in Malaysia. It maintains a 24% market share in the Philippines (followed by Shell and Caltex) and a 20% market share in Malaysia (largest being Petronas), based on total fuel sales volumes.
- Petron has a total refining capacity of 268k barrels/day (bpd) and accounts for about 30% of the Philippines' fuel needs. Its petroleum refining facilities include the Limay Refinery in Bataan, Philippines (capacity of 180k bpd; 67% of total) and the Port Dickson Refinery in Negeri Sembilan, Malaysia (capacity of 88k bpd; remaining 33% of total).
- Petron's refineries process crude oil into a full range of petroleum products including gasoline, diesel, LPG, jet fuel, kerosene and petrochemicals.
- It further markets and retails these fuel products through its fuel service stations located across the Philippines (2,400 outlets) and Malaysia (700 outlets).
- Petron sources its crude oil supplies from third-party suppliers, namely Saudi Aramco, Kuwait Petroleum Corporation and Exxon Mobil, which are bought on the basis of term contracts and in the spot market.
- Petron mainly supplies its petroleum and fuel products to customers in Malaysia and the Philippines (~95% of annual revenue).
- Petron is 68% owned by San Miguel Corporation (SMC), one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets. SMC's CEO, Mr. Ramon Ang, is also Petron's CEO.
Risk & Catalysts
AS OF 11 Dec 2024Petron cannot fully pass on higher crude oil input costs to customers in Malaysia.
Petron operates in low-margin business (EBITDA margins ~5%) and maintains elevated credit metrics.
Petron is highly dependent on its Limay petroleum refining complex that makes up two-thirds of its total refining capacity (67%). Any events that disrupt the refinery’s operations could adversely affect Petron’s total revenues.
Key Metric
AS OF 11 Dec 2024| PHP bn | FY21 | FY22 | FY23 | LTM 9M23 | LTM 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 72.3% | 74.0% | 75.1% | 74.3% | 70.8% |
| Net Debt to Book Cap | 63.3% | 65.5% | 68.2% | 67.0% | 59.7% |
| Debt/Total Equity | 261.6% | 284.2% | 301.4% | 288.7% | 242.0% |
| Debt/Total Assets | 71.2% | 70.2% | 67.6% | 64.4% | 63.6% |
| Gross Leverage | 11.2x | 10.9x | 7.1x | 7.2x | 8.0x |
| Net Leverage | 9.8x | 9.7x | 6.5x | 6.5x | 6.8x |
| Interest Coverage | 2.5x | 2.2x | 2.2x | 2.2x | 1.7x |
| EBITDA Margin | 5.9% | 3.4% | 5.3% | 5.0% | 4.3% |
CreditSight View Comment
AS OF 11 Dec 2024We maintain our Market perform recommendation on Petron. Petron’s c.Apr-2026 perp trades rightfully tighter than SMC c.Jul-2025 perp, which we see as fair given its Opco structure vs. SMC’s Holdco, its cost pass-through mechanisms, and low capex which more than offset SMC’s larger diversified businesses. Overall, we continue to take comfort in Petron’s resilient credit profile, supported by a good cost-passthrough contractual mix that provides good insulation from crude price volatility. While we expect Petron to incur higher capex YoY, we expect credit metrics to improve modestly in FY24 from slightly higher EBITDA, supported by robust domestic demand and lower oil prices, as well as a further ~PHP 15 bn of preference share issuances.
Recommendation Reviewed: December 11, 2024
Recommendation Changed: January 26, 2022
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KB Financial Group
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Fundamental View
AS OF 10 Dec 2024WFC is a leading domestic bank with strong positioning across consumer and commercial lending asset classes and a top 3 deposit market share in the U.S.
The core credit risk profile remains solid; the company has actively shed non-core assets and business lines (including WFAM), both as a means of managing under the Fed’s asset cap and part of new-ish CEO Scharf’s streamline strategy.
The balance sheet is strong, but WFC continues to suffer from internal deficiencies across a range of compliance and risk mgmt. functions unearthed after the fake account scandal. Positively, the Fed reportedly approved WFC’s overhaul plans, a crucial step in the remediation process; WFC also continues to close outstanding consent orders, though some remain outstanding.
Business Description
AS OF 10 Dec 2024- Wells Fargo ranks as the U.S.'s 4th largest bank by total assets ($1.92 tn at 3Q24) and 3rd largest by total deposits ($1.35 tn).
- Wells Fargo ranks 3rd in terms of U.S. deposits with approximately $1.37 tn in deposits at YE23 and 4,379 branches across the U.S. (S&P Capital IQ). The company has leading market shares across its geographically diverse footprint, including in California (#3), South Dakota (#2), Florida (#2), Texas (#3), Minnesota (#2), and Georgia (#3).
- Wells Fargo's major business lines include U.S. retail banking, mortgage banking, consumer finance, corporate and middle market banking, and wealth management.
Risk & Catalysts
AS OF 10 Dec 2024The asset cap and associated regulatory remediation remains a millstone with an unknown timeframe, though recent reporting has the cap being lifted in 2025. There was some risk that Wells could bleed share and franchise value in an economic recovery if the company cannot fully capture the business opportunity due to the asset cap, though so far that has not been the case given freed up balance sheet capacity earlier in 2020-22 and the sharp slowdown in loan growth since.
Wells Fargo faces reputational risk tied to those misconduct and business practices scandals, though likely fading with time and remediation progress; at 3Q24, WFC high-end estimable loss above legal accruals was $2 bn.
Wells has less fee income diversification as peers, largely due to the much smaller scale of the capital markets businesses and smaller presence in credit cards, both points of emphasis under Scharf as Wells embarked on aggressive card product refreshes and trading buildout.
Key Metric
AS OF 10 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 1.8% | 11.4% | 7.3% | 10.5% | 9.9% |
| ROAA (annual) | 0.17% | 1.11% | 0.70% | 1.00% | 0.94% |
| PPNR / Avg. Assets | 0.72% | 1.26% | 0.91% | 5.14% | 1.35% |
| Efficiency Ratio | 81% | 70% | 78% | 281% | 68% |
| Net Interest Margin (Annual) | 2.27% | 2.05% | 2.63% | 3.05% | 2.79% |
| Net charge-offs (LTM) / Loans | 0.34% | 0.18% | 0.17% | 0.37% | 0.52% |
| Common Dividend Payout | 152% | 11% | 32% | 108% | 28% |
| CET1 Ratio | 11.6% | 11.4% | 10.6% | 11.4% | 11.3% |
| Supplementary Leverage Ratio (SLR) | 8.1% | 6.9% | 6.9% | 7.1% | 6.9% |
| Liquidity Coverage Ratio (LCR) | 133% | 118% | 122% | 125% | 125% |
CreditSight View Comment
AS OF 16 Jan 2025Our move to an Outperform view in 3Q24 is predicated on spread value among Big 6 peers, with WFC anchored at the wide end since SVB despite trading firmly through bellwether JPM for most of the past decade. Though unlikely to move spreads, when WFC is finally released from the asset cap (rumored for 2025) it will have credible claim to the best-in-class risk management and compliance framework, which has real value for bondholders and should reduce headline/noise risk going forward. Regulatory-driven supply risk has abated with BISIII delay and softening, but could still be a headwind as WFC will look to grow capital markets post-asset cap. The strong fundamental risk profile is highlighted by 11%+ CET1, improved/improving profitability, and the right strategic moves under CEO Scharf.
Recommendation Reviewed: January 16, 2025
Recommendation Changed: October 14, 2024
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Fundamental View
AS OF 10 Dec 2024JPMorgan is one of the strongest and best positioned banks to navigate the current environment, with a well-diversified business model and good competitive positioning across a variety of lending and capital markets areas.
The company continues to deploy its considerable earnings power into reinvestment, specifically around technology where we are bullish on its ability to drive competitive advantages through strategic enhancements and efficiency gains.
Business Description
AS OF 10 Dec 2024- JPMorgan ranks as the largest U.S. bank by total assets ($3.87 tn at 3Q24) and deposits ($2.40 tn at 3Q24).
- JPMorgan ranks 1st in terms of U.S. deposits with approximately $2.07 tn in deposits at YE23 across 4,891 branches (S&P Capital IQ). JPMorgan's footprint includes New York (#1), Texas (#1), California (#2), Illinois (#1), Michigan (#1), Arizona (#1), Ohio (#5), and Florida (#4), among others.
- JPMorgan's major business lines include investment banking, retail banking, card services, treasury & securities services, commercial banking, and asset & wealth management.
Risk & Catalysts
AS OF 10 Dec 2024Succession planning at JPMorgan has a higher profile than many peers, with CEO Dimon (68 year-old) having held the top spot for over 15 years. Another recent round of shuffling top management did not yield much clarity, with presumed frontrunners Marianne Lake becoming sole CEO of the Consumer Bank and Jennifer Piepszak moving over to co-CEO of the new Commercial & Investment Bank segment, alongside Troy Rohrbaugh who has been running Markets & Securities Services.
The sector remains exposed to reputational, legislative/administrative risk, and cyber threats, although the significant tech spend over the past few years should (theoretically) result in a stronger position for JPM to manage the security threats.
Although not likely a credit risk, JPMorgan may continue to be acquisitive around non-bank financial and ancillary services; but we would expect any deal to be conservatively funded and looking to further technology and fee income strategies (e.g. payments or asset management).
Key Metric
AS OF 10 Dec 2024| $ mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| ROAE (annual) | 10.9% | 17.0% | 13.2% | 16.0% | 16.2% |
| ROAA (annual) | 0.9% | 1.3% | 1.0% | 1.3% | 1.3% |
| PPNR / Avg. Assets | 1.52% | 1.32% | 1.39% | 7.06% | 1.91% |
| Efficiency Ratio | 57% | 59% | 58% | 214% | 56% |
| Net Interest Margin (Annual) | 1.98% | 1.63% | 2.00% | 2.70% | 2.68% |
| Net charge-offs (LTM) / Loans | 0.52% | 0.26% | 0.25% | 0.48% | 0.62% |
| Common Dividend Payout | 38% | 24% | 32% | 101% | 25% |
| CET1 Ratio | 13.1% | 13.1% | 13.2% | 15.0% | 15.3% |
| Supplementary Leverage Ratio (SLR) | 6.9% | 5.4% | 5.6% | 6.1% | 6.0% |
| Liquidity Coverage Ratio (LCR) | 110% | 110% | 110% | 112% | 112% |
CreditSight View Comment
AS OF 16 Jan 2025Our upgrade to an Outperform view on JPM is all about defensive value: rightfully perceived as the industry bellwether, spread differentials among Big 6 peers have collapsed with investors now able to rotate into highest quality with only a nominal spread sacrifice. Bank spreads also still look fairly cheap against corporates, especially the more defensive A-tier given record tight quality spreads in IG, further underpinning our bullish view. Technicals may be mildly supportive, with larger JPM facing ~$25 bn in maturities/calls in FY25, below BAC with peer banks in the $21-22 bn range. Core credit strengths including capitalization may slide with the BISIII softening and delay, but from an extremely strong starting point.
Recommendation Reviewed: January 16, 2025
Recommendation Changed: December 05, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
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 06 Jan 2025We maintain our Outperform recommendation on Alibaba post its F2Q25 results; the improving topline growth and take rate of its domestic eCommerce segment was a highlight though the widening losses at its international eCommerce and logistics arm, Cainiao, which are still at a ramp-up stage weighed on overall EBITDA margin and cash flow; shareholder rewards continued burning cash, but was expected and manageable. We expect Alibaba’s debt metrics to be stable over the next 6-12 month, on an acceleration of topline growth, stabilizing EBITDA margin, and healthy FOCF, which can cover its shareholder rewards. We continue viewing Alibaba as a core holding in China and Asia IG credits; and for investors looking to add duration in Asia credits, we recommend Alibaba’s 31 and its new 30.
Business Description
AS OF 10 Dec 2024- 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 (38% of F2Q25 revenue; China e-commerce incl. Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com), International Digital Commerce (12%; incl. Lazada, AliExpress, Trendyol and Daraz), Cloud Intelligence Group (11%; incl. AliCloud, AI), logistic provider Cainiao (10%), Local Consumer Services (7%; incl. Ele.me, Amap), and Digital Media and Entertainment (3%, incl. Youku & Alibaba Pictures) and Others (20%; 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 1.6 tn as of 10 December 2024.
Risk & Catalysts
AS OF 10 Dec 2024While 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 Dec 2024| CNY BN | FY21 | FY22 | FY23 | FY24 | LTM F2Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.1% | 11.6% | 12.6% | 13.3% | 16.1% |
| Debt/Total Equity | 13.8% | 13.1% | 14.4% | 15.3% | 19.1% |
| Debt/Total Assets | 8.8% | 8.3% | 9.2% | 9.7% | 11.5% |
| Gross Leverage | 0.8x | 0.9x | 0.9x | 0.9x | 1.1x |
| Interest Coverage | 39.9x | 32.2x | 29.6x | 24.0x | 20.8x |
| EBITDA Margin | 24.9% | 18.5% | 20.2% | 20.3% | 19.3% |
CreditSight View Comment
AS OF 02 Jan 2025We maintain our Outperform recommendation on Alibaba (A1/A+/A+) post its F2Q25 results; the improving topline growth and take rate of its domestic eCommerce segment was a highlight though the widening losses at its international eCommerce and logistics arm, Cainiao, which are still at a ramp-up stage weighed on overall EBITDA margin and cash flow; shareholder rewards continued burning cash, but was expected and manageable. We expect Alibaba’s debt metrics to be stable over the next 6-12 month, on an acceleration of topline growth, stabilizing EBITDA margin, and healthy FOCF, which can cover its shareholder rewards. We continue viewing Alibaba as a core holding in China and Asia IG credits; and for investors looking to add duration in Asia credits, we recommend Alibaba’s 31 and its new 30.
Recommendation Reviewed: January 02, 2025
Recommendation Changed: August 05, 2022
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
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 06 Jan 2025We maintain M/P on Baidu post its 3Q24 results; revenues contracted as expected, with adverting and iQiyi revenues continuing to decline; EBITDA margin trended up on disciplined R&D expenses, and FOCF weakened on higher working capital investments; Baidu’s net cash contracted due to higher investments, but gross debt metrics improved. We expect Baidu’s credit metrics to marginally improve over the next 12 months; we expect topline growth to pick up as advertising revenues gradually recover and AI cloud revenues remains strong, and EBITDA margin to trend up; we expect FOCF to narrow due to higher working capital investments, but debt metrics to improve. The better credit outlook is likely priced in as Baidu trades inside Asia A and A- corporates. We prefer Alibaba and Tencent.
Business Description
AS OF 10 Dec 2024- 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 (79% of 3Q24 revenues) which provides search-based, feed-based and other online marketing services (total: 56% of 3Q24 revenues), as well as products and services from new AI initiatives (23% 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 236.3 bn as of 10 December 2024.
Risk & Catalysts
AS OF 10 Dec 2024Any 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 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | LTM 3Q24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 30.4% | 29.7% | 28.5% | 25.0% | 22.3% |
| Debt/Total Equity | 43.8% | 42.2% | 39.8% | 33.4% | 28.7% |
| Debt/Total Assets | 24.8% | 24.1% | 23.4% | 20.8% | 18.5% |
| Gross Leverage | 2.7x | 3.3x | 2.8x | 2.2x | 1.9x |
| Interest Coverage | 9.8x | 8.2x | 11.4x | 12.1x | 13.4x |
| EBITDA Margin | 28.5% | 22.6% | 26.8% | 29.2% | 29.7% |
CreditSight View Comment
AS OF 22 Nov 2024We maintain M/P on Baidu (A3/NR/A) post its 3Q24 results; revenues contracted as expected, with adverting and iQiyi revenues continuing to decline; EBITDA margin trended up on disciplined R&D expenses, and FOCF weakened on higher working capital investments; Baidu’s net cash contracted due to higher investments, but gross debt metrics improved. We expect Baidu’s credit metrics to marginally improve over the next 12 months; we expect topline growth to pick up as advertising revenues gradually recover and AI cloud revenues remains strong, and EBITDA margin to trend up; we expect FOCF to narrow due to higher working capital investments, but debt metrics to improve. The better credit outlook is likely priced in as Baidu trades in Asia A and A- corporates. We prefer Alibaba and Tencent.
Recommendation Reviewed: November 22, 2024
Recommendation Changed: August 31, 2022
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 09 Dec 2024Pfizer’s has ample financial resources, strong ability to de-lever, and sizeable deal capacity at current ratings.
Pfizer faces meaningful losses of exclusivity come the middle part of the decade. Management previously guided to a ~$17 bn negative revenue impact from patent losses in 2025-30, including for drugs such as Xeljanz (2025), Eliquis (2026), Ibrance (2027), and Xtandi (2027).
Management expects to offset this impact with growth from pipeline development (+$20 bn of revenues by 2030) and business development (+$25 bn of revenues by 2030).
Business Description
AS OF 09 Dec 2024- Pfizer is a research-based, global biopharma company with focuses in immunology, metabolic disease, oncology, vaccines, neuroscience, and rare disease.
- PFE has completed a number of major acquisitions and divestitures in recent years. In 2009, the company acquired Wyeth for $68 bn, increasing its size by approximately 50%. Subsequently, PFE completed the $17 bn acquisition of Hospira, ~$12 bn acquisition of Biohaven, ~$6 bn acquisition of Arena, ~$5 bn acquisition of GBT, ~$14 bn takeover of Medivation and ~$43 bn acquisition of Seagen.
- The company has also completed the sale of its Nutrition business to Nestle for $11.9 bn and the disposition of its animal health business, Zoetis. More recently, the company executed the separation of its Consumer and Upjohn businesses through distinct transactions.
Risk & Catalysts
AS OF 09 Dec 2024Pfizer has been active with portfolio repositioning, executing the separations of its Consumer Healthcare and Established Brands (Upjohn) businesses in recent years. These transactions have resulted in weaker diversification and greater exposure to patent expirations.
Due to upcoming patent losses, Pfizer has been extremely active with M&A. The company recently completed the $43 bn acquisition of Seagen, which resulted in well over a turn of leverage deterioration.
Pfizer is also exploring the sale of its hospital drugs unit. The unit was formed through the $17 bn acquisition of Hospira in 2015. We suspect that divestiture proceeds would be used primarily for business development.
Pfizer remains exposed to activist pressure from Starboard as it took a $1 bn stake in PFE in 4Q24.
Key Metric
AS OF 09 Dec 2024| $ mn | Y19 | Y20 | Y21 | Y22 | Y23 | LTM 3Q24 |
|---|---|---|---|---|---|---|
| Revenue | 41,172 | 41,651 | 81,288 | 100,330 | 58,496 | 60,113 |
| Gross Profit | 32,921 | 33,167 | 50,467 | 65,986 | 33,542 | 40,609 |
| R&D | (8,394) | (8,709) | (10,360) | (11,428) | (10,679) | (10,602) |
| SG&A | (12,750) | (11,597) | (12,703) | (13,677) | (14,771) | (15,031) |
| Adj. EBITDA | 22,447 | 18,027 | 33,354 | 46,153 | 22,904 | 24,799 |
| Total Debt | 52,150 | 39,836 | 38,436 | 35,829 | 71,888 | 67,701 |
| Gross Leverage | 2.3x | 2.2x | 1.2x | 0.8x | 3.1x | 2.7x |
| Interest Coverage | 16.7x | 13.1x | 26.6x | 46.8x | 39.2x | 12.1x |
CreditSight View Comment
AS OF 09 Jan 2025We reiterate our Outperform recommendation on Pfizer. We believe PFE has the financial flexibility to effectively manage through its portfolio transition. The company provides sizeable spread pickup versus Merck and Eli Lilly, which we see as attractive despite higher leverage and lower near-term growth potential versus these peers.
Recommendation Reviewed: January 09, 2025
Recommendation Changed: January 05, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 09 Dec 2024BNP’s financial strength is based on its strong franchises across retail, commercial and investment banking, and its wide business and geographic diversification. Profitability is sound and fairly resilient, while asset quality has held up well.
Uncertainty around the financial health of the French sovereign and its ratings have the capacity to weigh on BNP’s stock price and its credit spreads.
Capital ratios are run tightly considering BNP’s balance sheet size, although this is in the context of its liquid and well-managed risk profile.
Business Description
AS OF 09 Dec 2024- BNP is one of the most diversified banking groups in Europe, having been created from a merger of the retail/commercial bank BNP and the corporate/investment bank Paribas in 2000.
- Domestic Markets (DM) comprises the Group's four retail banking networks in the eurozone and its three specialised business lines (including leasing and digital banking). The retail banks are French Retail Banking (FRB), BNL in Italy, BNP Paribas Fortis in Belgium and BGL BNP Paribas in Luxembourg.
- International Financial Services (IFS) includes consumer finance, asset management and private banking, and subsidiaries in non-eurozone countries, including TEB in Turkey and BNP Paribas Bank Polska.
- Corporate & Institutional Banking (CIB) is a global provider of financial solutions to corporate and institutional clients and includes BNP's extensive trading and investment banking businesses.
Risk & Catalysts
AS OF 10 Dec 2024Pressure on margins is high in Personal Finance, and despite the change in product mix – reducing the concentration in Personal loans and credit cards and moving to Auto loans, it was still a difficult FY23.
BNP Paribas remains the subject of various claims concerning the Madoff matter; amongst other claims. Litigation provisions on the balance sheet stood at €841 mn at 30 June 2024. BNP says the latest claims against it stand at $1.1 bn as of June 2024.
If there was a negative rating action on the sovereign via an outlook change or notch downgrade, it is possible that BNP’s ratings will be impacted but it is difficult to say with any uncertainty. France represents around 30% of revenues and gross commitments on balance sheet and sovereign bond holdings are moderate; we discuss more below.
BNP is increasingly using significant risk transfers, mainly synthetic securitisations of loan portfolios, to gain regulatory capital relief and manage credit risk.
Key Metric
AS OF 09 Dec 2024| mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 9.3% | 9.0% | 8.2% | 8.2% | 6.4% |
| Total Revenues Margin | 1.8% | 1.7% | 1.7% | 1.8% | 1.9% |
| Cost/Income | 60.4% | 62.6% | 60.7% | 67.3% | 68.2% |
| CET1 Ratio (Transitional) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| CET1 Ratio (Fully-Loaded) | 12.7% | 13.2% | 12.3% | 12.9% | 12.8% |
| Leverage Ratio (Fully-Loaded) | 4.4% | 4.6% | 4.4% | 4.1% | 4.9% |
| Liquidity Coverage Ratio | 124.0% | 148.0% | 129.0% | 143.0% | 154.0% |
| Impaired Loans (Gross)/Total Loans | n/a | 2.9% | 2.9% | 3.3% | 3.6% |
CreditSight View Comment
AS OF 09 Jan 2025BNP remains one of the more diversified bank names in Europe. Its strong business and geographic diversification has helped it maintain good profitability and asset quality. It has extensive operations in Italy via its subsidiary BNL. Earnings have been resilient, with CIB a stand-out performer. Liquidity and funding metrics look sound. Asset quality has held up well, although an outlier is the group’s personal finance business. The latter is being restructured, to focus more on auto finance rather than personal lending. BNP’s capital position strengthened in 2024 but it will weaken in 2025/6. It is looking to expand now in insurance and asset management, likely to grow fee income. A catalyst remains potential negative rating changes. We upgraded its AT1 from Fair to Cheap in January 2025.
Recommendation Reviewed: January 09, 2025
Recommendation Changed: October 30, 2018
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Fundamental View
AS OF 06 Jan 2025Our credit view on China Construction Bank (CCB) is based on a strong likelihood of state support in the event of distress, given its large size, systemic importance and majority government ownership.
Its systemic importance is enhanced by the key role it plays in financing China’s economic development and its close government links (and large government shareholding).
The Big 4 banks are generally more prudently managed than the non-Merchants joint stock banks, but they are also subject to greater directed lending at low/no margins.
Business Description
AS OF 02 Dec 2024- CCB is one of the Big 4 Chinese banks and is classified as a G-SIB requiring an additional capital surcharge of 1.5%.
- CCB was originally formed in 1954 as a subsidiary of China's MOF to disburse funds intended for fixed asset investment. In the early 1980s, it started taking deposits and making loans outside of direct MOF control. In 1998, its NPLs were transferred to Cinda AMC in exchange for RMB 247 bn of Cinda bonds.
- The bank was re-capitalised again in 2003 with an injection of $23 bn by the PBOC. It was listed in 2005 but the Chinese government remains its controlling shareholder with a 57.14% stake held through state-owned Central Huijin.
- The bank owns CCB Asia and CCB International in Hong Kong, as well as operations in a number of countries.
Risk & Catalysts
AS OF 07 Jan 2025China’s sovereign ratings underpin CCB’s credit standing; any deterioration in the sovereign ratings will negatively affect CCB’s ratings.
CCB may be asked by the government to perform “national service” that overrides profitability considerations, e.g. supporting troubled property developers and the real economy by extending loans at lower rates. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
As a G-SIB, CCB has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable on the back of its domestic TLAC issue plan, and the planned equity injection by the government.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPOP ROA | 1.96% | 1.87% | 1.66% | 1.44% | 1.37% |
| Reported ROA | 1.02% | 1.04% | 1.00% | 0.91% | 0.87% |
| Reported ROE | 12.1% | 12.6% | 12.3% | 11.6% | 11.0% |
| Equity/Assets | 8.4% | 8.6% | 8.3% | 8.2% | 8.1% |
| CET1 Ratio | 13.6% | 13.6% | 13.7% | 13.1% | 14.1% |
| NPL Ratio | 1.56% | 1.42% | 1.38% | 1.37% | 1.35% |
| Provisions/Average Loans | 1.19% | 0.95% | 0.77% | 0.61% | 0.59% |
| Loan-Deposit Ratio | 81% | 84% | 85% | 86% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024CCB is the 3rd-largest of the Chinese state-owned commercial banks and benefits from a strong franchise and close state links. Its capital ratios are the strongest in the sector. Its profitability and asset quality has recently been impacted by its social duties to support the real economy including stepping up lending towards the property sector, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing. We have moved CCB from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Country: China
- Region: China
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Fundamental View
AS OF 06 Jan 2025Bank of China is one of the Big 4 banks in China. Its subsidiary, BOC Hong Kong, is one of the major banks in HK.
BCHINA’s systemic importance is enhanced by the leading role it plays in China’s international trade and investment and strong government links.
BCHINA’s capital standing and reserve cover are a little weaker than ICBCAS and CCB, but the Big 4 banks have generally been managed more prudently compared to the non-Merchants joint stock banks.
Business Description
AS OF 02 Dec 2024- While its origins date back to China's last imperial dynasty, BCHINA was formally established in 1912 and has played the role of China's international bank for more than a century. Its operations outside mainland China include its 66.06%-owned subsidiary Bank of China (HK).
- After 1949, BCHINA became a state entity but was focused on FX and financing of foreign trade. It was set on a path of commercialisation in 1994 but only became a corporate entity in 2003 prior to its listings in HK and Shanghai in 2006. BCHINA is controlled by the government via a 64.13% stake held by Central Huijin.
- BCHINA was effectively insolvent in the late 1990s and the removal of NPLs to an AMC in 1999 did not fully deal with its legacy bad loans. In 2003, the bank received another $22.5 bn capital injection, paving the way for BOC's HK listing in 2006.
- BCHINA is a G-SIB with a capital surcharge of 1.5%. BOCHK is a D-SIB in HK, and is also the holding company for all of BCHINA's Southeast Asian operations excluding Singapore.
Risk & Catalysts
AS OF 07 Jan 2025China’s sovereign ratings are a key factor behind BCHINA’s credit standing.
BCHINA is managed on commercial terms, but fulfilling the government’s socioeconomic objectives may at times override profitability considerations and require the bank to perform “national service”. We would not regard such actions as credit-negative as they reflect close government links that also underpin the bank’s credit standing.
BCHINA’s overseas footprint has to some extent offset the onshore NIM pressure and led to a stabler NIM compared to peers in FY23. However, its NIM has also been under pressure in FY24 due to higher non-CNY funding costs.
As a G-SIB, BCHINA has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, on the back of its domestic TLAC issue plan and the upcoming government equity injection.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.55% | 1.48% | 1.39% | 1.31% | 1.23% |
| Credit Costs | 0.87% | 0.70% | 0.63% | 0.57% | 0.55% |
| Reported ROA | 0.87% | 0.89% | 0.85% | 0.80% | 0.75% |
| Reported ROE | 10.6% | 11.3% | 10.8% | 10.1% | 9.6% |
| Total Equity/Total Assets | 8.4% | 8.3% | 8.4% | 8.1% | 8.0% |
| CET1 Ratio | 11.3% | 11.3% | 11.8% | 11.6% | 12.2% |
| NPL Ratio | 1.46% | 1.33% | 1.32% | 1.27% | 1.26% |
| Loan-Deposit Ratio | 84% | 87% | 87% | 87% | 90% |
CreditSight View Comment
AS OF 01 Nov 2024BCHINA is one of the Big 4 banks (4th largest by assets) with a reasonable capital stack and sufficient liquidity. Its majority government ownership and systemic importance assures it of strong state support. Its NIM and profitability has trailed its more domestically-focused peers due to higher cost-income ratios of its overseas operations, but its credit costs are also the lowest among the Big 5. It had a larger QoQ NIM contraction than peers in 3Q24 as its overseas businesses are also faced with rate cuts. We have moved BCHINA from Underperform to Market perform on the back of fair $ FRN notes trading levels and the upcoming state capital injection.
Recommendation Reviewed: November 01, 2024
Recommendation Changed: September 26, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 27 Dec 2024Bangkok Bank 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 ~16% range and management aims to keep the CET1 ratio at ~16% in prepartion for Basel III final reforms.
Profitability (ROA and ROE) has historically been 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 in the current sluggish macroeconomic environment.
Business Description
AS OF 02 Dec 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 46% corporate, 18% SME, 12% retail, and 24% international as at end-September 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 02 Dec 2024Returns have caught up well with peers 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 sluggish growth momentum. However, we see greater NIM pressure on BBL than most peers henceforth as rate cuts flow through, due to its larger domestic and international corporate loan book (which tend to be floating rate).
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 Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.50% | 1.65% | 1.60% | 1.92% | 2.08% |
| ROA | 0.49% | 0.65% | 0.67% | 0.93% | 1.03% |
| ROE | 3.9% | 5.6% | 5.9% | 8.1% | 8.5% |
| Equity / Assets | 11.8% | 11.4% | 11.5% | 11.8% | 12.3% |
| CET1 Ratio | 14.9% | 15.2% | 14.9% | 15.4% | 16.6% |
| Calculated NPL ratio | 3.90% | 3.20% | 3.10% | 2.70% | 3.40% |
| Provisions / Loans | 1.41% | 1.38% | 1.24% | 1.26% | 1.35% |
| Gross LDR | 84% | 82% | 84% | 84% | 85% |
| Liquidity Coverage Ratio | 291% | 270% | 271% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Bangkok Bank’s strength has been its large corporate book and strong capital. Returns though have been lower due to thinner corporate margins, and we see greater NIM pressure on BBL than most peers from the turn in base rates. 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 >16%. 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. We keep BBL on M/P but think its seniors should trade around 5 bp inside its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group