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PLDT
- Sector: Media and TelecommunicationsTechnologyTechnology Media and Telecommunications
- Sub Sector: Telecommunications
- Country: Philippines
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Fundamental View
AS OF 13 Nov 2024PLDT’s FY23 and 1H24 results were stable as expected; we see a modestly improving FY24 credit outlook aided by resilient EBITDA growth and residual PHP 14 bn of tower sales, which could offset persisting high capex and dividends.
A potential stake sale of the data center business could drive further deleveraging.
While the spillover of a PHP 33 bn capex overrun to FY24-FY25 could weigh on free cash flows, we draw mild comfort that it was likely not due to fraud but rather a management misstep.
Business Description
AS OF 13 Nov 2024- PLDT is a leading telecom operator in the Philippines, competing alongside its main rival Globe Telecom in a predominant duopoly.
- PLDT provides 2G/3G/4G mobile, fixed-line, broadband, enterprise data, and other digital services to retail and corporate customers.
- PLDT operates through 2 main business segments – “Wireless Services” and “Fixed Line Services”.
- Its “Wireless” segment offers mobile voice, mobile SMS, mobile data and mobile broadband services to retail customers in the Philippines. These services are marketed under the “Smart Postpaid”, “Smart Prepaid”, "Sun Postpaid" and “TNT Prepaid” brands.
- Its “Fixed Line Services” segment provides fixed line voice, corporate data and home broadband services to retail and corporate customers in the Philippines.
- PLDT commercially launched 5G services on a small-scale basis in Jul-2020. It currently has over 3,000 5G sites nationwide.
- PLDT maintains dominant market shares in the mobile data, voice and SMS space (FY21 revenue market share [RMS] of 47% vs Globe 52%), the fixed line voice space (FY21 RMS of 90% vs Globe 10%), and the home broadband space (FY21 RMS of 45% vs Globe 31%).
- PLDT is backed by three established corporate groups, namely First Pacific (~15% stake), NTT Corporation (~12% stake) and JG Summit Holdings (~7% stake).
Risk & Catalysts
AS OF 13 Nov 2024Aggressive expansion by new entrant DITO over the next 2-4 years could chew away at PLDT’s market share and restrain recoveries in average revenues per user (ARPU).
PLDT incurs significant capex that has restrained improvements in its leverage metrics and free cash flows. This is worsened by a recent capex overrun that has induced mild corporate governance uncertainties (though these have eased in recent months).
Consistently high dividend payouts could worsen PLDT’s already negative free cash flows.
PLDT is exposed to $/PHP depreciation risks ($300 mn 2050 bond is fully unhedged).
Key Metric
AS OF 13 Nov 2024| PHP bn | FY21 | FY22 | FY23 | 9M23 | 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 68.3% | 71.9% | 73.3% | 72.9% | 74.1% |
| Net Debt to Book Cap | 62.3% | 65.7% | 69.3% | 68.0% | 71.3% |
| Debt/Total Equity | 215.2% | 256.2% | 273.9% | 269.6% | 286.2% |
| Debt/Total Assets | 43.8% | 46.8% | 49.6% | 50.0% | 52.1% |
| Gross Leverage | 2.8x | 2.9x | 2.9x | 3.0x | 3.0x |
| Net Leverage | 2.6x | 2.7x | 2.8x | 2.8x | 2.9x |
| Interest Coverage | 8.1x | 7.4x | 6.5x | 6.9x | 6.2x |
| EBITDA Margin | 50.7% | 48.7% | 49.1% | 52.2% | 51.8% |
CreditSight View Comment
AS OF 13 Nov 2024We have a Market perform recommendation on PLDT. PLDT 2031 trades fairly to Globe 2030, Axiata 2030, and Bharti 2031. We do not like the PLDT 2050 that provides a low spread pickup of just 13 bp wider versus the PLDT 2030. We are comfortable with PLDT’s sturdy credit profile aided by a resilient broadband business and tower sales (PHP 15.3 bn to close in FY24), cushioning high capex and dividends. A minority stake sale of its data center business is also credit positive. Corporate governance fears have also eased post its capex overrun in end-2022. We are watchful of strong competition in the mobile space due to DITO’s ramp up.
Recommendation Reviewed: November 13, 2024
Recommendation Changed: May 31, 2022
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Mizuho Financial Group
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Search topics about wealth insights and investments.Bank of Philippine Islands
- Sector: Financial Services
- Sub Sector: Banks
- Country: Philippines
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Fundamental View
AS OF 27 Dec 2024Bank of the Philippine Islands (BPI) is the 3rd largest bank in the Philippines by assets.
We view the bank as too big to fail given its systemic importance in the country. There is also a strong probability of support from the government in addition to its main shareholder, the Ayala Corporation if needed.
BPI has a long history, and we view it as a fundamentally sound bank with prudent capitalization, strong and improved profitability, and comfortable liquidity. Asset quality remains relatively well managed but we are keeping an eye on strong growth in the non-wholesale book.
Business Description
AS OF 08 Nov 2024- The history of the Bank of the Philippine Islands traces back to 1851. It is the oldest bank in the Philippines and South East Asia. It was first listed on the Philippine Stock Exchange in 1971, and became a universal bank in 1982.
- Ayala Corporation, one of the biggest conglomerates in the country, became BPI's dominant shareholder in 1969. Ayala Corp still holds a 49% stake in the bank.
- BPI has been acquisitive across the years. It merged with Far East Bank and Trust Company and acquired Ayala Insurance Holdings Corp in 2000. It acquired DBS Bank Philippines in 2001 and Prudential Bank Philippines in 2005. DBS was a shareholder of BPI but exited its position in 2013. More recently in January 2024, it completed the acquisition of the Gokongwei conglomerate's Robinsons Bank.
- The bank is predominantly a corporate bank with 73% of its loan book outstanding to corporates, 2% to MSMEs and 25% to retail as of 3Q24. The longer term target is to grow the retail and SME segment to a 30% share of loans.
Risk & Catalysts
AS OF 27 Dec 2024Any rating downgrade of the Philippine sovereign would have a negative impact on BPI.
Sustaining returns is a challenge without the rates tailwind, so BPI has focused on unsecured retail and MSME growth, which has put pressure on asset quality, and paring down provision reserves. We see risks to asset quality from the strategy, but BPI’s large corporates-focused book (73% of total loans) provide comfort and provisioning capacity has improved meaningfully. Provision reserves however have limited room to be further reduced, unlike BDO and MBT.
The acquisition of Robinsons Bank was completed on 1 January 2024, and it opens BPI up to new customer segments such as teachers and motorcycle loans. The current footprint is small but we are wary of the brisk intended growth.
Key Metric
AS OF 08 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| PPP ROA | 2.42% | 2.01% | 2.41% | 2.52% | 2.92% |
| Reported ROA (Cumulative) | 0.98% | 1.10% | 1.59% | 1.93% | 2.07% |
| Reported ROE (Cumulative) | 7.7% | 8.4% | 13.1% | 15.4% | 15.9% |
| Net Interest Margin | 3.49% | 3.30% | 3.59% | 4.09% | 4.29% |
| CET1 Ratio | 16.2% | 15.8% | 15.1% | 15.3% | 14.8% |
| Total Equity/Total Assets | 12.5% | 12.1% | 12.2% | 12.4% | 13.6% |
| NPL Ratio | 2.68% | 2.49% | 1.76% | 1.84% | 2.30% |
| Provisions/Loans | 1.94% | 0.91% | 0.58% | 0.22% | 0.32% |
| Liquidity Coverage Ratio | 232% | 221% | 195% | 207% | n/m |
| Net Stable Funding Ratio | 154% | 155% | 149% | 154% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BPI is a fundamentally sound bank. Its traditionally conservative approach has led to a loss of loan market share in the past, as well as a lower NIM than BDO and MBT. It took a well-balanced approach towards growth during the pandemic, but is now growing briskly in higher yielding retail and MSME loans and paring down provision reserves to sustain returns in absence of rate tailwinds. Asset quality slipped in 9M24, and we see further risks from the strong focus on higher yielding segments. Still, we remain comfortable with BPI given the large corporate book (73% of loans) and underwriting record, and strongly improved profitability. The target CET1 ratio level has been lowered but to a still acceptable 14% level. Its ongoing digital investments have driven growth and efficiency.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: August 19, 2022
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 27 Dec 2024BDO Unibank (BDO) is the largest bank in the Philippines in terms of assets & market share.
Given its size and systemic importance, BDO is considered too big to fail and is strongly likely to be supported by its controlling shareholder SM Investments, as well as the Philippine government in times of stress.
BDO is widely viewed as the soundest bank in the country given its strong fundamentals, well-diversified businesses, and good management. Its CET1 ratio is maintained at a lower level than its first-tier peers, BPI and Metrobank.
Business Description
AS OF 06 Nov 2024- BDO Unibank was established as Acme Savings Bank in 1968, and was then acquired by SM Investments in 1976. It became a commercial bank in 1994 and a universal bank in 1996.
- BDO was listed in May 2002. SM Investments remains the bank's largest shareholder with a 41% stake.
- BDO has expanded through a series of M&As. Among its key transactions, it merged with Dao Heng Bank Philippines in 2001, Banco Santander Philippines in 2003, UOB Philippines in 2005, Equitable PCI Bank in 2007, GE Money Bank in 2009, Citibank Savings, DB Trust and Real Bank in 2014, One Network Bank in 2015 (the largest rural bank in the Philippines), and RB Pandi's banking business in 2019. It also acquired the insurance business of Generali in the Philippines in 2016.
- BDO has the largest distribution network in the country and is ranked the largest bank in terms of consolidated resources, total assets, loans, deposits and trust funds under management.
- Its loan book is split 51% large corporates, 25% middle market, and 24% consumer at 3Q24. 44% of the consumer book comprises mortgages, 25% are credit cards, 13% are auto loans and the remaining are personal loans (13%) and others (5%).
Risk & Catalysts
AS OF 27 Dec 2024Sustaining returns will be a challenge without the rates tailwind. Management is thus focused on volume growth in loans as well as CASA, pivoting the loan mix towards higher yielding segments, and releasing provisions, similar to its first tier peers (BPI and MBT).
We view this as acceptable for BDO given its relatively higher NPL cover (178% at 3Q24) than peers. We would prefer a higher CET1 ratio, but BDO’s large corporates-focused book (52% of total loans) and underwriting track record give comfort around potential asset quality deterioration as a result prolonged high interest rates and inflation.
NIM compression in 3Q24 has been guided by management to revert in Q4 on the back of the BSP’s 250 bp reduction in the reserve requirement ratio (RRR) effective 25 October. Still, NIM reduction is likely in FY25 should the market’s expectations of more BSP rate cuts come through.
Any rating downgrade of the Philippine sovereign would negatively impact BDO.
Key Metric
AS OF 06 Nov 2024| PHP mn | FY20 | FY21 | FY22 | FY23 | 9M24 |
|---|---|---|---|---|---|
| NIM | 4.36% | 4.05% | 4.14% | 4.37% | 4.32% |
| Reported ROA (Cumulative) | 0.9% | 1.2% | 1.5% | 1.7% | 1.8% |
| Reported ROE (Cumulative) | 7.6% | 10.4% | 13.0% | 15.2% | 15.0% |
| Equity/Assets | 11.6% | 11.7% | 11.3% | 11.5% | 11.8% |
| CET1 Ratio | 13.2% | 13.6% | 13.4% | 13.8% | 14.1% |
| NPL ratio | 2.7% | 2.8% | 2.0% | 1.9% | 1.8% |
| Provisions/Loans | 1.34% | 0.72% | 0.64% | 0.59% | 0.44% |
| PPP ROA | 2.3% | 2.1% | 2.3% | 2.7% | 2.5% |
| Liquidity Coverage Ratio | 127% | 145% | 141% | 123% | 136% |
| Net Stable Funding Ratio | 122% | 124% | 124% | 124% | n/m |
CreditSight View Comment
AS OF 20 Nov 2024BDO is the largest bank in the Philippines. Management is well-regarded, the business is well-diversified and it is the market leader in many business lines. The NIM has peaked, but non-interest income is a third of operating income given good fee generation and overall core profitability is strong. Management aims to sustain returns, supported by growth in higher yielding loans and paring down provision reserves. Still, we remain comfortable with BDO given the large corporate book and high NPL cover, as well as underwriting track record, which provide comfort around weaker asset quality from prolonged high rates and inflation. Capital could be higher but remains acceptable with the CET1 ratio at 14.1%.
Recommendation Reviewed: November 20, 2024
Recommendation Changed: November 28, 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.International Container Terminal Services Inc
- Sector: Transportation
- Sub Sector: Shipping and Infrastructure
- Country: Philippines
- Bond: ICTPM 3.5 31
- Indicative Yield-to-Maturity (YTM): 4.96%
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Fundamental View
AS OF 06 Nov 2024- We expect ICTSI to remain resilient amid global growth slowdown fears owing to inorganic contributions, yield improvements, and strong cost control.
- ICTSI has steadily deleveraged over the past 5 years which we see as prudent financial management. Yet management’s recent lean towards growth at the expense of deleveraging could restrain improvements in credit metrics.
- While ICTSI is exposed to material EM-related geopolitical risks, we think its geographically diversified revenue base across 20 countries limits country-specific risks.
- While sizable capex and high dividend payouts could strain ICTSI’s credit profile, we take comfort in ICTSI’s robust OCF generation that should keep FCFs positive.
Business Description
AS OF 06 Nov 2024- ICTSI develops and operates common user container terminals, with a focus on those within Origin and Destination (O&D) ports based in emerging markets.
- ICTSI provides integrated ports services that facilitate the receiving, handling and storage of cargo. These are broadly split into four streams: vessel charges (i.e. services relating to moving cargo on and off ships), yard charges (i.e. services relating to moving cargo in the container and storage yards), storage fees (i.e. services relating to cargo and container storage), and other ancillary fees.
- ICTSI currently operates across 32 port concessions in 19 countries. As of end-FY23, ICTSI's revenues are well diversified across the Philippines (27% of total), Other Asia (14%), EMEA (20%) and the Americas (39%).
- ICTSI operates its container terminals under long-dated concession agreements (typically ~25 years) with the relevant local port authorities or governments. For some concessions, fees charged to customers are regulated by the authorities that prescribe maximum price limits and, in some cases, allow for CPI-linked tariff hikes. For other concessions, fees charged are unregulated and allow for greater price-setting flexibility and volatility too.
- ICTSI is required to make periodic fee payments to the respective authorities for the right to operate the concessions. These payments are typically a combination of fixed charges and variable charges based on cargo traffic volume or gross revenues.
Risk & Catalysts
AS OF 06 Nov 2024- ICTSI is exposed to material EM-related geopolitical, regulatory and operating risks. That said, we think the impact is mitigated by its geographically diversified revenue base across 20 countries that limits country-specific risks.
- Being an EM-focused port container terminal operator, ICTSI’s bonds tend to experience greater volatility from exogenous events.
- Growing capex tendencies and high dividend payouts could strain ICTSI’s free cash flows and credit metrics, though we think the impact is mitigated by ICTSI’s robust operating cash flow generation.
- While ICTSI is exposed to FX depreciation risks as most of its revenues and cash expenses are in EM currencies, natural hedging has been fairly effective thus far.
Key Metric
AS OF 06 Nov 2024| $ mn | FY21 | FY22 | FY23 | LTM 9M23 | LTM 9M24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 73.7% | 71.9% | 73.0% | 73.3% | 72.3% |
| Net Debt to Book Cap | 62.2% | 58.2% | 61.0% | 63.0% | 55.7% |
| Debt/Total Equity | 279.7% | 255.3% | 269.9% | 273.8% | 261.6% |
| Debt/Total Assets | 67.5% | 62.5% | 60.3% | 60.6% | 59.8% |
| Gross Leverage | 3.7x | 3.1x | 2.9x | 2.9x | 2.6x |
| Net Leverage | 3.1x | 2.5x | 2.4x | 2.5x | 2.0x |
| Interest Coverage | 3.9x | 4.6x | 4.4x | 4.4x | 4.8x |
| EBITDA Margin | 61.1% | 62.8% | 63.0% | 62.5% | 64.9% |
CreditSight View Comment
AS OF 06 Nov 2024We have a Market perform recommendation on ICTSI. We see room for ICTSI 2030 and 2031 to tighten ~10 bp versus PLDT and Globe Telecom. We expect ICTSI’s credit metrics could remain stable at ~2.0x by end-FY24 as steady yield improvements and sturdy domestic trade activity could outweigh high capex and M&A appetite. While ICTSI is exposed to EM-related geopolitical and operating risks (notably in the Mid East and Russia-Ukraine), we believe these are mitigated by its highly geographically diversified revenues. We also expect ICTSI’s robust cash-generative business to drive positive free cash flows, even amid higher organic capex, higher M&A appetite, and persistent dividends.
Recommendation Reviewed: November 06, 2024
Recommendation Changed: August 16, 2023
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 01 Nov 2024ING displays robust and consistent asset quality, good earnings, solid capital ratios and a well-balanced funding profile.
These attributes are supported by its strong franchise in retail and wholesale banking in the Benelux region, its good geographic diversification, and its focus on low risk residential mortgage lending.
At the same time, it has sizeable exposures to cyclical industry sectors in its Wholesale Banking division, although these have been reduced in recent years.
Business Description
AS OF 01 Nov 2024- ING was founded in 1991 by a merger between Nationale-Nederlanden and NMB Postbank Group. It is now the largest Dutch financial institution by total assets.
- ING Bank is focused on retail and commercial banking in the Benelux countries, with direct banking franchises in Germany, Spain, Italy, Australia, as well as Poland, Romania, Turkey and the Philippines.
- In April 2016, it completed the process of divesting all of its insurance business (in Europe, the US and Asia), under the Restructuring Plan conditions imposed by the European Commission after it received state aid in 2008-2009.
- In November 2016, ING announced that its resolution entity would be its holding company, ING Groep NV. ING Groep is now the issuing entity for all TLAC/MREL-eligible debt (AT1, Tier 2 and senior unsecured), and its sole operating entity is ING Bank N.V.
Risk & Catalysts
AS OF 01 Nov 2024Exposure to Russia has been coming down meaningfully, and the book is well covered (€1.0 bn offshore exposure with >€0.5 bn cover from guarantees). It also has €400 mn of equity in its Russian subsidiary. We highlight this as Russian exposure is continuing to attract interest and led to some additions to Stage 3 exposures year to date. To put these figures in context, the figures for Russian offshore exposure and equity in Russia at the beginning of the war in February 2022 were €5.3 bn (€2.2 bn covered by risk transfers to third parties) and €0.2 bn.
ING’s CET1 ratio will trend down towards its 12.5% target in the coming years, bringing it more in line with other major peers.
Customer deposits fund over 60% of ING’s balance sheet. 85% of deposits are insured.
Key Metric
AS OF 01 Nov 2024| € mn | Y20 | Y21 | Y22 | Y23 | 3Q24 |
|---|---|---|---|---|---|
| Return On Equity | 4.6% | 8.8% | 7.1% | 14.4% | 14.8% |
| Total Revenues Margin | 1.9% | 2.0% | 1.9% | 2.3% | 2.3% |
| Cost/Income | 63.2% | 60.5% | 60.3% | 51.2% | 49.1% |
| CET1 Ratio (Transitional) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| CET1 Ratio (Fully-Loaded) | 15.5% | 15.9% | 14.5% | 14.7% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.8% | 5.9% | 5.1% | 5.0% | 4.7% |
| Liquidity Coverage Ratio | 137.0% | 139.0% | 134.0% | 143.0% | 146.0% |
| Impaired Loans (Gross)/Total Loans | 2.1% | 1.8% | 1.7% | 1.8% | 1.9% |
CreditSight View Comment
AS OF 09 Jan 2025After divesting its insurance operations, the remaining business, ING Bank, has stayed a solid Benelux-based bank with a strong direct banking arm in several countries. Profitability growth has been supported by a gradual recovery in the Dutch economy, but since 2018 heavily affected by higher compliance costs after ING was hit by a money-laundering charge. In this rate environment, ING’s balance sheet looks less sensitive than some other peers. Net interest revenues are declining but fundamentally, the bank looks in good shape versus several other core European banks and fee income is increasing. Capital ratios are trending downwards given distributions on offer to shareholders. We moved to Outperform on its HoldCo bonds on 2 May 2024, from Market perform.
Recommendation Reviewed: January 09, 2025
Recommendation Changed: May 02, 2024
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Fundamental View
AS OF 30 Oct 2024Standard Chartered has been making good progress in the past few years, improving its asset quality and profitability and dealing with legacy litigation issues. Capital, funding and liquidity look solid.
However, tension between China and the West, and global economic headwinds continue to cloud the near term outlook.
Its unusual business mix – headquartered and regulated in the UK but operating primarily in Asia, Africa and the Middle East – means it is well diversified but sensitive to geopolitical developments and emerging market volatility.
Business Description
AS OF 30 Oct 2024- Standard Chartered PLC is the holding company and listed entity of the group, in which Standard Chartered Bank is the main operating company.
- Although Standard Chartered is headquartered in London and therefore subject to UK banking regulation, its operations are mainly in Asia (Hong Kong is its biggest single market, as part of its Greater China & North Asia region), Africa and the Middle East. It is present in over 60 markets.
- It has the usual variety of businesses across these regions, including corporate and institutional banking, retail banking, commercial banking and private banking. It specialises in trade finance and cross-border cash management.
- The group announced a revised strategy in 2019 aimed at improving profitability after several years of de-risking, with a targeted return on tangible equity of 10%.
- It is classified as a G-SIB, with a regulatory capital buffer of 1%.
Risk & Catalysts
AS OF 30 Oct 2024Anti-government protests in Hong Kong, a slowing economy in China and a weak commercial real estate sector, and US/China trade tensions have threatened the growth and stability of some of Standard Chartered’s key markets.
A number of Standard Chartered’s markets have underperformed in the past and have therefore been seen as turnaround stories, including India, Korea, Indonesia and the UAE.
The group has had to improve its AML and sanctions controls. In April 2019, it paid a $947 mn fine to US authorities over breaches of US sanctions and a £102 mn fine to the UK FCA for AML weaknesses.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return on Equity | 8.8% | 7.0% | 5.7% | 4.5% | 1.4% |
| Total Revenues Margin | 2.3% | 2.2% | 2.0% | 1.8% | 2.0% |
| Cost/Income | 60.0% | 64.1% | 66.9% | 74.3% | 70.4% |
| CET1 Ratio (Transitional) | 14.2% | 14.1% | 14.0% | 14.1% | 14.4% |
| CET1 Ratio (Fully-Loaded) | 14.2% | 14.1% | 13.9% | 14.1% | 14.3% |
| Leverage Ratio (Fully-Loaded) | 4.7% | 4.7% | 4.8% | 4.9% | 5.2% |
| Loan Impairment Charge | 0.2% | 0.2% | 0.3% | 0.1% | 0.8% |
| Impaired Loans (Gross)/Total Loans | 2.2% | 2.5% | 2.5% | 2.7% | 3.2% |
CreditSight View Comment
AS OF 09 Jan 2025We revised our recommendation on Standard Chartered HoldCo senior from Underperform to Market perform on 26 April 2023, but we changed our recommendations on Tier 2 and AT1 from Fair to Rich on 10 January 2024. The changes reflect StanChart’s recent resilient performance, with no impact on its deposit base from recent stresses in the banking system, while taking into account that the Chinese real estate market, a source of credit impairments in recent periods, remains weak (but has stabilised). Capital and liquidity ratios are robust, and profitability has improved significantly, but the bank continues to face geopolitical tensions inherent in its extensive operations in Hong Kong, China and the rest of Asia.
Recommendation Reviewed: January 09, 2025
Recommendation Changed: April 26, 2023
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Fundamental View
AS OF 30 Oct 2024UBS agreed to acquire Credit Suisse in March 2023 after the latter collapsed following a severe liquidity crisis.
CS was a large and complex organisation, so the integration, and the inevitable associated losses and costs, will dominate UBS’s strategic outlook and financial performance for several years.
However, UBS was able to negotiate substantial downside protection which should shield it from losses at CS.
Away from CS, UBS has reshaped its business model, with a greater emphasis on wealth management and less focus on investment banking, particularly fixed income.
Its earnings remain somewhat dependent on capital market conditions, but its capital, asset quality and profitability ratios have been among the best for European banks.
Business Description
AS OF 30 Oct 2024- Headquartered in Zurich, Switzerland, UBS has private, corporate and institutional clients worldwide and retail clients in Switzerland. It is one of the world's largest wealth managers.
- It completed the acquisition of CS on 12 June 2023. It has merged CS’s domestic Swiss bank (Credit Suisse Schweiz AG) with its own domestic bank (UBS Switzerland AG) in 2024, keeping the CS brand “for the time being”.
- CS’s holding company (Credit Suisse Group AG) has been merged into UBS Group AG, so that the group has a single holding company, and the operating subsidiaries, including UBS AG and Credit Suisse AG, were merged on 31 May 2024.
- UBS operates through its Corporate Center and four business divisions: Global Wealth Management, Personal & Corporate Banking, Asset Management, and the Investment Bank, plus a new Non-core and Legacy division following the acquisition of CS.
- The Investment Bank has been restructured in recent years to scale back fixed income trading and focus on equities trading and origination & advisory business.
Risk & Catalysts
AS OF 30 Oct 2024The acquisition of CS will be a long and complex process, and the necessary restructuring is likely to result in heavy losses and costs, although UBS has substantial protection, not least in the large negative goodwill.
Litigation costs have been a feature of UBS’s results in recent years, although it has agreed settlements in various cases recently.
A French court imposed fines and civil damages of €4.5 bn ($5.1 bn) in February 2019, which UBS appealed. The Court of Appeal retried the case de novo in March 2021 and reduced the fine to €3.75 mn plus civil damages of €800 mn and confiscation of €1 bn. UBS has appealed again and has set aside reserves of €1.1 bn ($1.2 bn) so far.
Key Metric
AS OF 30 Oct 2024| $ mn | 3Q24 | Y23 | Y22 | Y21 | Y20 |
|---|---|---|---|---|---|
| Return On Equity | 6.7% | 40.3% | 13.0% | 12.4% | 11.6% |
| Total Revenues Margin | 3.1% | 2.9% | 3.1% | 3.2% | 3.2% |
| Cost/Income | 83.4% | 95.0% | 72.1% | 73.6% | 73.0% |
| CET1 Ratio (Transitional) | 14.3% | 14.3% | 14.2% | 15.0% | 13.8% |
| CET1 Ratio (Fully-Loaded) | 14.3% | 14.4% | 14.2% | 15.0% | 13.8% |
| Leverage Ratio (Fully-Loaded) | 5.7% | 5.4% | 5.7% | 5.7% | 5.4% |
| Liquidity Coverage Ratio | 199% | 216% | 164% | 155% | 152% |
| Impaired Loans (Gross)/Total Loans | 0.6% | 0.4% | 0.4% | 0.4% | 0.6% |
CreditSight View Comment
AS OF 08 Nov 2024We have Market perform recommendations on UBS AG (operating bank) and UBS Group (holding company) having revised the HoldCo recommendation from Underperform on 14 August 2024. Its rescue and takeover of Credit Suisse in March 2023 was a seminal event that has had major consequences for UBS’s strategy and financial performance, as well as carrying substantial execution risk. However, the integration is on track, and UBS’s performance has been steadily improving. Capital, asset quality and liquidity all look strong, although Swiss regulatory capital requirements will continue to increase in coming years.
Recommendation Reviewed: November 08, 2024
Recommendation Changed: August 14, 2024
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
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Fundamental View
AS OF 15 Oct 2024- We are comfortable with Reliance’s large diversified scale of operations and dominant presence in various key sectors (refining, petrochemicals, retail and telecom), which allows for earnings resilience.
- We believe a lackluster oils-to-chemicals outlook is well mitigated by strong outlooks for telecom, retail, and upstream oil & gas.
- Plans to ramp up its renewable energy business could provide the next leg of growth and improve ESG perception.
- Reliance incurs significant capex that has weighed on free cash flow generation, though we acknowledge its historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 15 Oct 2024- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 20 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 18.8k stores (as of March 2024) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (482 mn as of March 2024) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 15 Oct 2024- Reliance’s O2C (oil-to chemicals) margins remain under pressure from high crude oil input costs and global growth slowdown concerns, though China’s recent stimulus measures could spur improvements.
- Reliance incurs significant capex at historically high levels, particularly from continued investments into its O2C, retail, and nascent renewables businesses. This has weighed on its free cash flow generation, though we take comfort in Reliance’s historically prudent financial management and robust credit metrics.
- Reliance faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of the company’s different business divisions to his children.
Key Metric
AS OF 15 Oct 2024| INR bn | FY22 | FY23 | FY24 | 1H24 | 1H25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 26.4% | 35.3% | 33.1% | 32.8% | 32.7% |
| Net Debt to Book Cap | 23.4% | 29.9% | 26.1% | 27.5% | 26.4% |
| Debt/Total Equity | 35.9% | 54.5% | 49.6% | 48.7% | 48.6% |
| Debt/Total Assets | 21.3% | 28.1% | 26.1% | 25.4% | 25.6% |
| Gross Leverage | 2.9x | 3.2x | 2.8x | 2.8x | 2.9x |
| Net Leverage | 2.6x | 2.7x | 2.2x | 2.4x | 2.3x |
| Interest Coverage | 5.7x | 7.3x | 7.0x | 6.7x | 6.9x |
| EBITDA Margin | 15.3% | 15.9% | 17.7% | 17.7% | 16.5% |
CreditSight View Comment
AS OF 15 Oct 2024We have a Market perform recommendation on Reliance (RIL), prefer its 2032, and dislike its 2045 and 2062. RIL’s shorter-dated bonds trade fairly to closely-rated Indian peers Bharti Airtel and BPCL. We like RIL’s large diversified operations and dominant market shares in key sectors (refining, retail and telecom) that boosts earnings resilience. Its growing renewable business could aid ESG investor sentiment too. While we remain aware of RIL’s elevated capex needs could persist over the next 5+ years, we think the impact is mitigated by RIL’s prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration. While key man risk remains a concern, we take comfort in gradually progressing succession plans.
Recommendation Reviewed: October 15, 2024
Recommendation Changed: June 30, 2021
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Search topics about wealth insights and investments.China CITIC Financial Asset Management (Huarong)
- Sector: Financial Services
- Sub Sector: Banks
- Region: China
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Fundamental View
AS OF 02 Oct 2024A large impairment loss in FY20 brought HRINTH to the brink of insolvency, but a state-led rescue plan provided HRINTH with liquidity support and brought its capital back above minimum requirements. CITIC has replaced the MoF as HRINTH’s largest shareholder. HRINTH remains as one of the Big 5 state-owned AMCs in China and will continue to perform national services.
On the guidance of the authorities, HRINTH has divested almost all of its non-core subsidiaries.
We expect HRINTH’s operational performance to remain weak until China’s economy is back on the upswing, residents regain confidence in the property market, and improved capital markets lead to better valuations on their securities books.
Business Description
AS OF 02 Oct 2024- China CITIC Financial Asset Management (formerly Huarong) is one of the five major state-owned asset management companies in China. It was first set up in 1999 to take over the bad debts of ICBC.
- The AMCs were originally due to be wound up after dealing with these "policy loans" that had come onto the books of the banks under government direction before their commercialisation, but the AMCs found a new role as commercial bad debt managers.
- HRINTH was commercialised in 2012 and completed its IPO on the HK stock exchange in 2015. Since then, HRINTH expanded its financial services to banking, financial leasing, securities & futures, trust, as well as consumer finance. However, after heavy losses in FY20, HRINTH divested much of its non-core business as directed by the authorities.
- Following the CITIC-led rescue plan of HRINTH and the planned equity transfer from the Ministry of Finance (MOF) to CITIC, CITIC has become HRINTH's largest shareholder (26.46%). Other significant shareholders include MOF (24.76%), Zhongbaorongxin (18.08%), Cinda AMC (4.89%), China Life Insurance (4.50%), National Social Security Fund (3.08%), Warburg Pincus (2.57%), and ICBC Financial AM (2.44%). HRINTH was renamed to share the "CITIC" brand in Nov-23.
Risk & Catalysts
AS OF 02 Oct 2024CITIC’s support is strong (name change, investment in CEB and CITIC Ltd, subsidiary disposal, new management team, etc.) and more meaningful to the company compared to direct ownership by the government.
Derisking continues with lower property exposure, non-core businesses have largely been disposed of and the company is able to focus on its main DDA business per the guidance of the authorities.
While HRINTH was able to deliver profit growth on the back of CITIC support and its associate interest holdings in CEB and Citic Ltd, core performance remains weak, and there could be continued volatility in the name.
AMCs may find it harder to dispose DDAs at good valuations amid a deceleration economic cycle. Longer holding periods and lower fair values of acquired DDAs could dampen return yields and increase the NPL ratio of restructuring-type DDAs.
Key Metric
AS OF 02 Oct 2024| CNY mn | FY20 | FY21 | FY22 | FY23 | 1H24 |
|---|---|---|---|---|---|
| ROA | (6.40%) | 0.10% | (2.20%) | 0.02% | 1.00% |
| ROE | (147.6%) | 1.0% | (49.8%) | 3.6% | 21.2% |
| Total Capital Ratio | 4.2% | 13.0% | 15.1% | 15.1% | 16.1% |
| Leverage Ratio | 1,330.0x | 14.2x | 16.1x | 11.5x | 10.1x |
| Equity/Assets | 1.1% | 3.8% | 5.2% | 5.0% | 5.0% |
CreditSight View Comment
AS OF 16 Jan 2025CITIC AMC continued to post profits in 1H24, on the back large fair value gains from volatile other financial assets as well as on DDAs, reduced impairment losses and shared profits from its investments in CEB and CITIC Ltd. CITIC’s support is strong and more meaningful to the company compared to direct ownership by the government, derisking continues with substantially lower property exposures, non-core businesses have almost all been cleared, and the company is able to focus on main DDA business per the authorities’ guidance. However, we expect to continue to see high earnings volatility and poor disclosure is turning poorer still. We maintain our Market perform recommendation.
Recommendation Reviewed: January 16, 2025
Recommendation Changed: August 31, 2021
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Mizuho Financial Group
KB Financial Group
Woori Financial Group
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Business Description
AS OF 24 Sep 2024Who We Recommend
Mizuho Financial Group
KB Financial Group
Woori Financial Group