DOWNLOAD
Archives: CreditSights Issuer List
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 07 Jan 2025- Our credit view on AGRBK is based on a strong likelihood of state support, given its large size, systemic importance and majority state ownership. This is enhanced by AGRBK’s extensive presence in rural areas.
- AGRBK’s capital standing is weaker than those of peer-group leaders ICBCAS and CCB; however it has peer-leading reserve coverage ratio. The Big 4 have been managed more prudently in recent years than the non-Merchants joint stock banks.
- We view it as a strong credit taking into account its structural profitability, robust balance sheet metrics, large size, and systemic importance that assure it of state support if needed.
Business Description
AS OF 02 Dec 2024- AGRBK has surpassed CCB to become the second-largest bank in China in terms of total assets and has been moved from bucket 1 to bucket 2 in the G-SIB list with a capital surcharge of 1.5%.
- It was founded in 1951 as the Agricultural Cooperative Bank, merged with the central bank and spun out as AGRBK in 1979, charged with financing the rural and agricultural sectors. It was recapitalised in 1999 and again in 2007 by special MOF bonds. It also received $19 bn in equity capital from Huijin, funded by China's FX reserves.
- Due to its poorer asset quality and weaker profitability, AGRBK was the last of the Big 4 banks to be listed in 2010.
- The Chinese government is a majority shareholder of AGRBK via Central Huijin (40.14%), MOF (35.29%) and the Social Security Fund (6.72%).
- AGRBK has the second largest branch network in China after Postal Bank, with a strong presence in rural areas.
Risk & Catalysts
AS OF 07 Jan 2025- China’s sovereign ratings are a key factor behind AGRBK’s credit standing.
- AGRBK’s loan growth has been the strongest among the Big 5 banks since FY22, but the impact on net interest income growth was largely offset by a significant contraction in NIM. Rapid loan growth has led to a widened capital ratio differential between AGRBK and other Big 4 banks. It was promoted to a Bucket 2 G-SIB in Nov-23 and currently 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.
- AGRBK is managed on commercial terms but the government may call on it to perform “national service” that overrides profitability considerations. However, we do not see it as a clear credit negative, as these actions reflect close state links that underpin AGRBK’s credit standing.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.65% | 1.64% | 1.43% | 1.20% | 1.19% |
| Reported ROA | 0.83% | 0.86% | 0.82% | 0.73% | 0.69% |
| Reported ROE | 11.4% | 11.6% | 11.3% | 10.9% | 10.8% |
| Total Equity/Total Assets | 8.1% | 8.3% | 7.9% | 7.2% | 6.9% |
| CET1 Ratio | 11.0% | 11.4% | 11.2% | 10.7% | 11.4% |
| NPL Ratio | 1.56% | 1.43% | 1.37% | 1.33% | 1.32% |
| Credit Costs | 1.16% | 1.03% | 0.79% | 0.64% | 0.74% |
| Loan-Deposit Ratio | 74% | 78% | 79% | 78% | 83% |
CreditSight View Comment
AS OF 01 Nov 2024AGRBK is the 2nd-largest Chinese banks by assets and has a strong presence in rural areas, which gives it access to a large pool of low-cost deposits. We view it as a strong credit due to its structural profitability, robust balance sheet metrics, large size and systemic importance that assure it of state support. Its loan growth has led peers for many years, which has put its capital ratios under pressure, with some distance vs. the other Big 4 banks. Reserve cover is a strength at ~300%. AGRBK managed to report pre-provision profit growth in 9M24, due to stronger loan growth. But its capital ratios were behind the other Big 4 banks. We have moved AGRBK 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
How may we help you?
Search topics about wealth insights and investments.Industrial and Commercial Bank of China
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 07 Jan 2025Our credit view on ICBCAS is based on the 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 its status as China’s largest lender; it plays a key role in financing the country’s economic development.
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- With total assets in excess of RMB 48 tn, ICBCAS is the world's largest bank by assets and is classified as a G-SIB with a capital surcharge of 1.5%.
- ICBCAS was originally set up in 1984 to provide loans to China's large state-owned industrial corporations.
- ICBCAS was recapitalised in 2005 with an injection of $15 bn, following which it was listed in Hong Kong and Shanghai in 2006.
- The government owns a majority of ICBCAS's shares through Central Huijin and the Ministry of Finance, which own stakes of 34.79% and 31.14% respectively.
- In addition to a strong onshore presence, ICBC also has an extensive international network.
Risk & Catalysts
AS OF 07 Jan 2025China’s sovereign ratings underpin ICBCAS’s credit standing; any deterioration will negatively affect ICBCAS’s ratings.
Asset quality risk remains as China’s economic recovery is slow and the property sector has yet to see a meaningful recovery. Transparency is limited and credit risks are hard to assess in China as these often depend on the government’s willingness to socialise losses.
ICBCAS is managed on commercial terms, but the government may call on it to perform “national service” that overrides profitability considerations. Its profitability has recently been impacted by its social duties to support the real economy including stepping up lending at lower rates, but we do not regard such actions as credit-negative as they reflect the close government links that also underpin the bank’s credit standing.
As a G-SIB, ICBCAS has a substantial TLAC shortfall to meet by 1 January 2028, whereas meeting the 1 January 2025 requirement appears manageable, given its domestic TLAC issuance plan as well as the government’s plan to inject a total of RMB 1 tn of equity into the Big 6 banks.
Key Metric
AS OF 02 Dec 2024| RMB bn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 1.87% | 1.82% | 1.61% | 1.35% | 1.25% |
| Reported ROA | 1.00% | 1.02% | 0.97% | 0.87% | 0.78% |
| Reported ROE | 12.0% | 12.2% | 11.5% | 10.7% | 9.8% |
| Total Equity/Total Assets | 8.7% | 9.3% | 8.8% | 8.4% | 8.1% |
| CET1 Ratio | 13.2% | 13.3% | 14.0% | 13.7% | 14.0% |
| NPL Ratio | 1.58% | 1.42% | 1.38% | 1.36% | 1.35% |
| Provisions/Average Loans | 1.15% | 1.03% | 0.83% | 0.61% | 0.64% |
| Loan Deposit Ratio | 74% | 78% | 78% | 78% | 81% |
CreditSight View Comment
AS OF 01 Nov 2024ICBCAS is the largest bank by assets in the world and has a very strong franchise in China. Its majority government ownership adds to its systemically important status. It has peer-leading capital ratios but was overtaken by CCB at 1Q24. Its profitability and asset quality has 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. Its operating performance was weaker than most of its peers in 9M24, due to a larger NIM compression. We have moved ICBCAS 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
How may we help you?
Search topics about wealth insights and investments.Kasikornbank
- Sector: Financial Services
- Sub Sector: Banks
- Region: Thailand
- Bond: KBANK 5.458 28
- Indicative Yield-to-Maturity (YTM): 4.77%
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024Kasikornbank (KBANK) 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 high 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 and recent growth focus on the safer but lower yielding segments to diversify its exposure.
Business Description
AS OF 02 Dec 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-September 2024, the bank's loan mix by segment consists of 39% corporate, 27% SME, 28% retail and 6% 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 02 Dec 2024- Sluggish economic momentum and challenged SMEs have resulted in still elevated credit costs at KBANK, given its larger SME and Blue scheme book. KBANK’s higher NIM and low-40%s cost-income ratio however 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 (post which credit costs are expected to fall to 140-160 bp in FY25).
- KBANK’s NIM remains high compared to its peers. Its switch to focus on safer segments however is weighing on the NIM, though it has helped to stabilize credit costs.
Key Metric
AS OF 02 Dec 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.44% | 2.38% | 2.36% | 2.52% | 2.63% |
| ROA | 0.85% | 0.98% | 0.86% | 0.99% | 1.18% |
| ROAE | 7.0% | 8.3% | 7.3% | 8.2% | 9.3% |
| Equity / Assets | 13.4% | 13.1% | 13.4% | 13.9% | 14.2% |
| CET1 Ratio | 15.5% | 15.5% | 15.9% | 16.5% | 17.6% |
| Gross NPL ratio | 3.93% | 3.76% | 3.19% | 3.19% | 3.20% |
| Provisions / Loans | 2.05% | 1.73% | 2.11% | 2.08% | 1.90% |
| Gross LDR | 96% | 93% | 91% | 92% | 88% |
| Liquidity Coverage Ratio | 161% | 174% | 164% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 2024Kasikornbank is the 2nd largest bank in Thailand. We are cautious about its one third loan book exposure to SMEs given their challenges, but have liked the bank’s high NIM and strong capital. Credit costs spiked in 4Q22 mainly from the SME book and high yield small ticket lending, and remain elevated in FY24 given the larger SME and Blue scheme book. The bank however has switched to focus on safer segments, which has weighed on the NIM but helped to stabilize credit costs. It has been cleaning up its balance sheet, which should complete by YE24, post which credit costs are expected to fall to 140-160 bp in FY25. Credit costs have been comfortably absorbed thus far. We keep KBANK on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: June 09, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024Krung Thai Bank 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 the bank up 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 29 Nov 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 46% retail, 27% private corporates, 11% SME, and 16% Government & SOEs at end-September 2024.
Risk & Catalysts
AS OF 27 Dec 2024KTB’s conservative focus on the government agencies/SOEs segment is supporting asset quality well amid the challenging macro environment and sluggish growth momentum.
We see KTB’s margin coming under greater pressure than peers as rate cuts come through 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.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.17% | 1.83% | 1.98% | 2.40% | 2.51% |
| ROA | 0.53% | 0.63% | 0.94% | 1.01% | 1.21% |
| ROE | 4.9% | 6.1% | 9.2% | 9.4% | 10.7% |
| Equity/Assets | 10.7% | 10.5% | 10.9% | 11.4% | 12.3% |
| CET1 Ratio | 15.4% | 15.6% | 15.6% | 16.5% | 18.0% |
| Calculated NPL ratio | 3.81% | 3.50% | 3.26% | 3.08% | 3.14% |
| Provisions/Loans | 2.03% | 1.31% | 0.93% | 1.43% | 1.26% |
| Gross LDR | 99% | 99% | 98% | 104% | 97% |
| Liquidity Coverage Ratio | 188% | 196% | 201% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 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 (~16% of total loan book). 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, and credit costs have remained in the normal 120-130 bp range this year. We see greater NIM pressure on KTB than most peers from the turn in base rates, given its larger corporate book and higher CASA mix (~80%). The CET1 ratio is solid at 18.0%. We have it on M/P as the $ AT1 is trading in line with its Thai peers.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: July 22, 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.Siam Commercial Bank
- Sector: Financial Services
- Sub Sector: Banks
- Country: Thailand
- Region: Thailand
- Bond: SCBTB 3.9 24
- Indicative Yield-to-Maturity (YTM): 5.573% (Indicative as of March 2)
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024Siam Commercial Bank (SCBTB) is seen as a sound and profitable bank. It has a 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 17.8% at the Holdco (SCB X) level and 17.3% at the Bank level at Sep-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 29 Nov 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 35% corporate, 17% SME, and 48% retail as of end-September 2024.
Risk & Catalysts
AS OF 29 Nov 2024- The 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.
- Credit costs are elevated due to SCBX’s greater retail exposure and the macro backdrop of sluggish growth and high household debt. However, 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’s NIM has been on a stronger trajectory than peers, supported by a strong deposit franchise and a growth focus on higher yielding retail loans.
Key Metric
AS OF 29 Nov 2024| THB mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.58% | 2.63% | 2.50% | 2.88% | 2.88% |
| ROA | 0.9% | 1.1% | 1.1% | 1.3% | 1.3% |
| ROE | 6.7% | 8.4% | 8.3% | 9.3% | 9.0% |
| Equity/Assets | 12.6% | 13.4% | 13.5% | 14.1% | 14.2% |
| CET1 Ratio | 17.2% | 17.6% | 17.7% | 17.6% | 17.8% |
| Reported NPL ratio | 3.68% | 3.79% | 3.34% | 3.44% | 3.38% |
| Provisions/Loans | 2.14% | 1.84% | 1.45% | 1.82% | 1.79% |
| Gross LDR | 93% | 93% | 93% | 99% | 100% |
| Liquidity Coverage Ratio | 188% | 202% | 216% | n/m | n/m |
CreditSight View Comment
AS OF 22 Oct 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. The NIM has been strong vs. peers in 9M24 as expected, and we see this continuing as rates come down. COVID Blue scheme loans though still sit within SCB and is the highest % of loans among peers (12% at 4Q23). Weaker asset quality from this book and general retail exposure given high household debt have resulted in credit costs staying elevated, but these have been comfortably absorbed. We keep SCBTB on M/P and see ~5 bp outside BBL as fair.
Recommendation Reviewed: October 22, 2024
Recommendation Changed: January 25, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 25 Nov 2024While the company maintained its FY25 operating income forecast, it nearly doubled the magnitude of its projected equity income loss compared to last quarter related to its deteriorating business in China. In North America, the company’s profitability was impacted in the second quarter by higher incentive spending and an increase in warranty expense, tarnishing its steady HEV sales and nascent but growing EV sales momentum. Overall, we remain constructive on Honda’s strong global motorcycle business and its healthy HEV business, even as it succumbs to the intense competitive environment of the Chinese automotive industry.
Business Description
AS OF 25 Nov 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 Products 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 25 Nov 2024Management raised its FY25 motorcycle wholesales forecast by 2% but lowered its automobile wholesales forecast for the second consecutive quarter, this time by 3% after a 5% decrease last quarter. Motorcycle wholesales are now projected to increase 7% YoY. The company’s lower automobile wholesale forecast, lower by 8% YoY, is driven by a further downward revision in Asia wholesales.
The company raised its FY25 revenue guidance but maintained its guidance for operating profit. Management expects automobile pricing to remain resilient owing to strong demand for its HEVs, which account for about 30% of its retail sales, partially offset by expectations for continued elevated North America incentive spending in 2H25. The company may also face further elevated warranty costs in 2H25 related to a recall on ~2 mn vehicles in North America over steering issues.
Consolidated operating profit margins are expected to be flat YoY at 6.8% in FY25 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, currency headwinds. The company also expects lower profit from its business in China.
Key Metric
AS OF 25 Nov 2024| ¥ bn | FY21 | FY22 | FY23 | FY24 | LTM 3Q24 |
|---|---|---|---|---|---|
| Revenue | 10,908 | 11,967 | 14,167 | 17,434 | 18,444 |
| EBIT | 576 | 741 | 612 | 1,219 | 1,152 |
| EBIT Margin | 5.3% | 6.2% | 4.3% | 7.0% | 3.4% |
| EBITDA | 1,175 | 1,334 | 1,294 | 1,964 | 1,889 |
| EBITDA Margin | 10.8% | 11.1% | 9.1% | 11.3% | 7.3% |
| Total Liquidity | 3,717 | 4,612 | 4,926 | 6,150 | 5,821 |
| Net Debt | (2,048) | (2,481) | (2,751) | (3,762) | (3,492) |
| Total Debt | 480 | 837 | 803 | 863 | 803 |
| Gross Leverage | 0.4x | 0.6x | 0.6x | 0.4x | 0.4x |
| Net Leverage | -1.7x | -1.9x | -2.1x | -1.9x | -1.8x |
CreditSight View Comment
AS OF 17 Jan 2025We are maintaining our Underperform recommendations on Honda Motor Co. and American Honda Finance Corporation notes based on relative value, the company’s dominant position and resilient performance within the Motorcycle segment, solid Automobile wholesale trends temporarily marred by higher warranty and incentive expenses, its strong hybrid automobile lineup, and its excellent liquidity and stable credit rating.
Recommendation Reviewed: January 17, 2025
Recommendation Changed: January 13, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 25 Nov 2024Toyota resolved its vehicle certification issue in Japan that led to temporary production halts for certain vehicles and lower YoY vehicle production in 1H25. Management expects to return its vehicle production to a 10 mn unit annualized pace in 2H25. HEV sales growth in North America was constrained by production disruption at its Indiana plant and dealer inventories that are half the level of conventional vehicles. The improved production volumes and its focus on lower sales incentive spending is expected to improve profitability in 2H25, which enabled the company to affirm its FY25 consolidated operating profit guidance for the full year. Although profit is expected to decline 20% YoY, the company’s consolidated operating margin is projected to come in at a respectable 9.3%.
Business Description
AS OF 25 Nov 2024- Toyota Motor Corp. (TMC) engages in the manufacture and sale of motor vehicles and parts. It operates through the following segments: Automotive, Financial Services, and All Other. The Automotive segment designs, manufactures, assembles and sells passenger cars, minivans, trucks, and related vehicle parts and accessories. Toyota is also involved in the development of intelligent transport systems. The Financial Services segment offers purchase or lease financing to Toyota vehicle dealers and customers. It also provides retail leasing through lease contracts purchased by dealers. The company was founded by Kiichiro Toyoda on August 28, 1937, and is headquartered in Toyota, Japan.
- Toyota Financial Services Corporation (TFSC), a wholly owned subsidiary of TMC, oversees the management of Toyota's finance companies worldwide. Toyota Motor Credit Corporation (TMCC) is the company’s principal financial services subsidiary in the United States. Under terms of the credit support agreement between TFSC and TMCC, TFSC agrees to: (1) maintain 100% ownership of TMCC; (2) cause TMCC and its subsidiaries to have a tangible net worth of at least $100,000; (3) make sufficient funds available to TMCC so that it will be able to service the obligations arising out of its own bonds, debentures, notes and other investment securities and commercial paper. The terms of the credit support agreement between TMC and TFSC are very similar to the terms of the TFSC and TMCC credit support agreement.
Risk & Catalysts
AS OF 25 Nov 2024Toyota affirmed its FY25 financial guidance despite the H125 vehicle production disruption stemming from its certification issues in Japan. FY25 financial guidance that contemplates lower wholesales, higher consolidated revenue, and a 20% decline in consolidated operating income.
Consolidated vehicle sales are now expected to decline by less than 1% YoY, a change from its previous expectation for sales to increase by less than 1%. The new forecast includes expected vehicle sales growth in Japan (+2%) and Asia (+3%), partially offset by lower sales in North America (-3%) and Europe (-4%).
Toyota maintained its FY25 consolidated operating income forecast of ¥4.3 tn, which represents a 20% decline from ¥5.3 tn in FY24. The lower operating income was originally driven by a more challenging automotive industry environment, increased investments in its employees and suppliers, and an acceleration of investments in growth technologies, each of which was expected to account for roughly one-third of the decline.
Key Metric
AS OF 25 Nov 2024| ¥ bn | FY21 | FY22 | FY23 | FY24 | LTM 3Q24 |
|---|---|---|---|---|---|
| Automotive Revenue | 24,652 | 28,606 | 33,777 | 41,081 | 41,902 |
| EBIT | 1,778 | 2,519 | 2,486 | 4,890 | 4,625 |
| EBIT Margin | 6.5% | 8.0% | 6.7% | 10.8% | 8.5% |
| EBITDA | 2,654 | 3,526 | 3,671 | 6,139 | 5,960 |
| EBITDA Margin | 9.8% | 11.2% | 9.9% | 13.6% | 11.4% |
| Total Liquidity | 11,557 | 15,864 | 10,090 | 12,401 | n/m |
| Net Debt | 597 | (1,719) | (2,825) | (4,025) | (4,025) |
| Total Debt | 3,872 | 2,580 | 2,724 | 2,868 | 2,868 |
| Gross Leverage | 1.5x | 0.7x | 0.7x | 0.5x | 0.5x |
| Net Leverage | 0.2x | -0.5x | -0.8x | -0.7x | -0.7x |
CreditSight View Comment
AS OF 17 Jan 2025We reiterate our Underperform recommendations on notes of Toyota Motor Co. and Toyota Motor Credit Corporation based primarily on relative value, the resolution of its vehicle certification challenges in Japan, and expected improving vehicle production and profit trends in 2H25. The Toyota bond complex trades tight to the broader market and the A-rated index primarily based on its high-A credit rating and short duration.
Recommendation Reviewed: January 17, 2025
Recommendation Changed: January 13, 2023
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.UnionBank of the Philippines
- Sector: Financial Services
- Sub Sector: Banks
- Region: Philippines
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 27 Dec 2024The bank has historically generated higher returns than peers, but it geared its focus significantly towards the retail segment by acquiring Citi’s Philippine retail portfolio in 2022 and through organic growth, which brought retail loans to more than half the total book.
Returns have suffered despite the good boost to core revenues, as asset quality has been poorly managed resulting in high credit costs which we have forewarned. Continued rounds of capital infusions from shareholders have thus been required. The reserve cover is maintained relatively thin.
Business Description
AS OF 18 Nov 2024- UnionBank of the Philippines was incorporated in 1968, and listed on the Philippine Stock Exchange in June 1992. Principal shareholders are Aboitiz Equity Ventures (49.66%), Insular Life (16%), & Social Security System (18%).
- UBP undertook mergers with International Corporate Bank in 1994 and International Exchange Bank in 2006. City Savings Bank (a thrift bank) was purchased in Jan 2013. City Savings received merger approval with PR Savings (a bank engaged in motorcycle, agri-machinery, & teachers' salary loans) in Dec 2018 from the BSP. It acquired the Citi Philippines retail franchise in 2022.
- The loan book is broadly split 40% wholesale loans and 60% retail loans (comprising 33% credit cards, 22% mortgages, 33% salary loans and 12% others including teachers loans, salary loans and motorcycle loans by the thrift bank subsidiary, City Savings Bank, and 3% UnionDigital) at 3Q24.
Risk & Catalysts
AS OF 27 Dec 2024Any rating downgrade of the Philippine sovereign or reduction of shareholding by Aboitiz Equity Ventures would negatively impact UBP.
The bank’s aggressive retail expansion has improved the NIM, but negatively impacted overall profitability because of high credit costs (particularly since 2H23) which we have forewarned. We continue to disfavor its focus on riskier retail given the brisk growth pace and current macro backdrop. It is now focusing on lower risk, shorter term loans at UnionDigital, as well as payroll and credit card loans, but the improvement in credit costs have been slow to come through.
The bank however benefits from good shareholder support; it successfully completed a third stock rights offering of PHP 10 bn in 2Q24 (2023: PHP 12 bn; 2022: PHP 40 bn) to shore up capital. Lower opex from 2Q24 onwards will also aid the bottomline.
Key Metric
AS OF 18 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 3Q24 |
|---|---|---|---|---|---|
| Net Interest Margin | 4.50% | 4.60% | 4.80% | 5.50% | 5.90% |
| Reported ROA (Cumulative) | 1.5% | 1.6% | 1.3% | 0.8% | 1.0% |
| Reported ROE (Cumulative) | 11.5% | 11.5% | 9.7% | 5.6% | 6.1% |
| PPP ROA | 2.68% | 2.59% | 2.17% | 2.31% | 2.87% |
| CET1 Ratio | 15.0% | 16.3% | 11.3% | 13.9% | 14.8% |
| Total Equity/Total Assets | 13.6% | 13.5% | 13.6% | 15.3% | 16.8% |
| Gross NPL Ratio | 5.10% | 5.00% | 4.80% | 6.27% | 7.20% |
| Net LDR | 64.3% | 63.1% | 67.4% | 73.8% | 80.2% |
| Liquidity Coverage Ratio | 207% | 272% | 148% | 163% | n/m |
| Net Stable Funding Ratio | 133% | 149% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024UBP’s NIM and core revenue generation have remained strong despite the challenging funding environment thanks to its pivot towards higher yielding retail via organic growth and acquiring Citi’s local retail portfolio. However, the asset quality repercussions which we have forewarned from its aggressive growth pace and riskier retail focus amid the current macro backdrop have come through, with elevated credit costs since 2H23 taking a toll on profitability. The reserve cover is maintained relatively thin. Continued shareholder support with yet another stock rights offering in 2Q24 has ensured sufficient capital for now, and AQ should see a slight improvement from here. Still, we maintain U/P as it trades tight for its size and risk, given its asset quality issues and weak fundamentals.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: April 17, 2020
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group
How may we help you?
Search topics about wealth insights and investments.Globe Telecom
- Sector: TechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 14 Nov 2024Globe’s FY23 earnings and 9M24 earnings grew modestly, but leverage metrics have not yet improved due to a weak broadband business, sticky dividends, and still-historically high capex (even if lower YoY).
We believe credit metrics may improve only slightly in FY24 as modest EBITDA growth, lower YoY capex, and PHP 11 bn of residual tower sales closures through 2H24 are negated by potentially higher dividend payouts.
While we acknowledge the competitive pressures by new entrant DITO, we think the impact is mitigated by Globe’s still-dominant mobile market position and DITO’s slowing expansion (given its weak financials and the costly capex involved).
Weakness in the broadband business could decelerate and improve from 3Q24 onwards.
Business Description
AS OF 14 Nov 2024- Globe is a leading telecom operator in the Philippines, competing alongside its main rival PLDT in a duopoly setting.
- Globe provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- Globe operates through 2 main business segments – “Mobile Services” and “Fixed Line and Home Broadband Services”.
- Its “Mobile Services” segment offers mobile voice, mobile SMS and mobile data services to retail customers in the Philippines. These services are marketed under the “Globe Postpaid”, “Globe Prepaid” and “TM” brands.
- Its “Fixed Line and Home Broadband Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- Globe commercially launched 5G services on a small-scale basis in Jun-2019. It currently maintains 5G coverage of 96% of the National Capital Region, with over 2,000 5G sites nationwide.
- Globe maintains dominant market shares in the mobile data, voice and SMS space (FY22 revenue market share [RMS] of 52% vs PLDT 40%), but loses out to PLDT in the home broadband space (FY22 RMS of 28%-30% vs PLDT 48%-50%).
- Globe is largely owned by two established corporate groups – Ayala Corporation (~47 stake) and Singtel (~43% stake).
Risk & Catalysts
AS OF 14 Nov 2024Globe faces mounting competitive pressures from new mobile entrant DITO and incumbent broadband competitor PLDT.
Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at Globe’s market share and restrain recoveries in average revenues per user (ARPU).
Globe incurs significant capex that has pressurized its leverage metrics and free cash flows. That said, capex should meaningfully decline ahead in line with management guidance (FY24E capex ~22% YoY lower than FY23A capex).
Consistent dividend payouts could worsen Globe’s already negative free cash flows; Globe recently raised the upper end of its dividend policy from 75% to 90% of net income, suggesting an increased skew to shareholder-friendly actions.
Key Metric
AS OF 14 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 69.4% | 67.5% | 69.7% | 69.1% | 69.5% |
| Net Debt to Book Cap | 63.0% | 63.7% | 66.6% | 66.0% | 65.4% |
| Debt/Total Equity | 227.2% | 208.1% | 230.5% | 223.2% | 227.4% |
| Debt/Total Assets | 56.7% | 57.1% | 60.3% | 58.1% | 61.1% |
| Gross Leverage | 3.3x | 3.9x | 4.3x | 4.3x | 4.3x |
| Net Leverage | 3.0x | 3.7x | 4.1x | 4.1x | 4.1x |
| Interest Coverage | 7.6x | 5.9x | 4.6x | 4.6x | 4.3x |
| EBITDA Margin | 46.7% | 46.7% | 47.7% | 48.2% | 49.0% |
CreditSight View Comment
AS OF 14 Nov 2024We have a Market perform recommendation on Globe. Globe 2030 trades slightly tight to PLDT 2031 and ICTSI 2031, while Globe 2035 and c.2026 trade more fairly. We expect Globe to improve its net leverage by only slightly in FY24 as lower capex and residual ~PHP 11 bn of tower sales closures are offset by a continued weak broadband business and sticky dividends. Stiff competition in both the mobile and broadband spaces is a key concern too. Globe also recently revised its dividend policy to 60%-90% of PAT from 60%-75% previously, suggesting an increased skew towards shareholder-friendly actions.
Recommendation Reviewed: November 14, 2024
Recommendation Changed: June 18, 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.SMC Global Power
- Sector: Energy
- Sub Sector: Independent Power Producers
- Country: Philippines
Read this content. Log in or sign up.
If you are an investor with us, log in first to your Metrobank Wealth Manager account.
If you are not yet a client, we can help you by clicking the SIGN UP button.
Fundamental View
AS OF 14 Nov 2024We see lower non-call risk for SMC GP’s c.2025 and c.2026 perps owing to strong near-term parental funding support, its recent c.2024 perp refinancing, and recent bond exchange/tender with a new $900 mn c.2029 perp issuance.
We see an improving credit outlook for SMC GP aided by lower thermal coal input costs, new contracts, and capacity additions, but are wary of net cash flow uncertainties from a planned $3.3 bn LNG project.
While SMC GP improved its cost passthrough contractual mix from end-FY23 onwards, the company still remains exposed to high thermal coal input costs (~45-50% of contracts).
SMC GP incurs sizable capex that has led to additional debt incurrence and elevated credit metrics.
Business Description
AS OF 14 Nov 2024- SMC GP is a leading power generation and distribution company in the Philippines. As at 31 December 2021, its total generation capacity stood at 4.7 GW, accounting for ~20% of the national grid.
- The bulk of its revenues is derived from power generation (~82%), with the remainder from electricity distribution and retailing (~18%).
- It operates 7 power generating plants across diversified energy sources, comprising coal (~62%), natural gas (~25%), hydro (~12%) and battery energy storage (~1%).
- Through long-term power supply agreements and retail supply contracts, SMC GP either sells electricity directly to customers (including large Philippines power distribution company Manila Electric Company, distribution utilities and other industrial customers), or through the Philippine Wholesale Electricity Spot Market.
- SMC GP acts as the Independent Power Producer Administrator (IPPA) for three power plants (~54% of total capacity), where it has the right to sell electricity generated by the IPPs without having to bear large upfront capital expenditures for plant construction and maintenance.
- SMC GP also distributes and retails electricity services through its wholly-owned subsidiary Albay Power and Energy, which distributes power in the province of Albay, Luzon.
- SMC GP is a wholly-owned unlisted subsidiary of San Miguel Corporation, one of the largest and most diversified conglomerates in the Philippines based on total revenues and assets.
Risk & Catalysts
AS OF 14 Nov 2024SMC GP still has $527 mn/$1.3 bn of c.2025 and c.2026 perps outstanding to be addressed, though we see low non-call risks.
A moderate portion of SMC GP’s off-take contracts (~45-50%) do not contain cost pass-through mechanisms. This exposes the company to a rise in thermal coal input costs that could squeeze its EBITDA margins.
SMC GP incurs sizable capex that has spurred additional debt incurrence. Consequently, its credit metrics remain elevated.
Over 88% of SMC GP’s installed capacity is thermal coal or gas-fired, which may be viewed unfavorably from an ESG perspective.
Key Metric
AS OF 14 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 66.7% | 69.2% | 62.8% | 62.5% | 62.4% |
| Net Debt to Book Cap | 57.7% | 66.4% | 59.4% | 59.4% | 58.8% |
| Debt/Total Equity | 199.9% | 224.6% | 168.7% | 166.6% | 165.6% |
| Debt/Total Assets | 79.2% | 79.0% | 73.8% | 75.8% | 71.3% |
| Gross Leverage | 10.5x | 19.4x | 13.0x | 15.2x | 10.5x |
| Net Leverage | 9.1x | 18.6x | 12.2x | 14.4x | 9.9x |
| Interest Coverage | 2.5x | 1.4x | 2.2x | 1.9x | 2.4x |
| EBITDA Margin | 35.9% | 13.2% | 26.4% | 28.8% | 25.7% |
CreditSight View Comment
AS OF 19 Nov 2024We have an Outperform recommendation on SMC GP. We think refinancing risk on the c.2025–2026 perps has meaningfully decreased with the completion of its bond exchange and tender offer. Coupled with an improving credit outlook, potential for near-term parental support, and management’s willingness and ability to repay the perps, we view the perps’ 7%-9% yields as attractive in the S&SEA corporate space. We continue to see low non-call risk for the c.2025 perps, and grow more comfortable with the c.2026 perps that could be refi-ed with new $ perps. Key risks we are still watchful of include constrained parental funding support (due to SMC’s own sizable infra capex) and an unclear net cash flow impact of its proposed $3.3 bn LNG project.
Recommendation Reviewed: November 19, 2024
Recommendation Changed: September 09, 2024
Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group