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UBS Investment Research
Asia Financials
Alpha Preferences
Most preferred: Add HSBC to Bangkok Bank, OCBC and CQRCB
HSBC shows good banking volume growth momentum in Asia which lays the foundation
for several years’ double-digit revenue growth. It is at 1.4x ’10E P/B with ’11E ROE of
13%. Bangkok Bank is a primary beneficiary of Thailand corporate re-leveraging cycle. The
stock is trading at an attractive 1.3x ‘10E P/B with 11.7% ‘11E ROE. We view OCBC’s
acquisition of ING Asia Private Bank last year as a significant milestone in its strategy to
build up its wealth management business. The stock is currently trading at 1.8x ‘10E P/B,
with ‘11E ROE of 12.6%. CQRCB is one of the most liquid (LDR at 62%), well provided
(LLR/loans 4.4%; NPL ratio 2.6%) and best capitalized (YE10e Tier 1 at 15%) Chinese
banks, allowing it to achieve loan growth target at +30% in next 2-3 years. It is trading at
1.8x ‘10E P/B with ‘11E ROE of 14% (and rising).
Least Preferred: Add BOCHK and Standard Char.; remove Minsheng-H
Least: LIC, BOCHK, First and Standard Chartered. We are ‘bullish’ on the long-term
benefits of wider Rmb use for Hong Kong. But we think unrealistic expectations have led to
certain stocks being overvalued. We have a Sell rating on BOCHK. The stock currently
trades at 2.4x FY10E P/B with FY11E ROE of 14.7%. Standard Charter’s recent trading
statement suggests a lull in trading activity thus trading income, which the Standard
Chartered is cyclically dependent on when there flattened yield curve occurs. It’s trading on
2.1x ’10E P/B with 15.7% ‘11E ROE. We believe LIC is negatively impacted by tight
liquidity and rising wholesale rates (100% of its funding is wholesale), intense competition
in mortgages and hike in standard provisions which can hurt pre-tax earnings by 5-10%. It’s
at 2.1x FY11E P/B with FY12E ROE of 24%. We think First FHC will encounter the largest
provision shortfall among TW financials thus is exposed to the highest earnings risk. It is at
1.7x ‘10E P/B with ‘11E ROE of 6.5%.
Least Preferred
LIC Housing Finance (LICH.BO)
Sell
India
Diversified Financial
LIC Housing Finance is one of our least preferred stocks in India financial sector. We believe
there are fundamental headwinds for the stock in terms of 1) tight liquidity and rising
wholesale rates 2) intense competition in mortgages 3) hike in standard provisions can
impact pre tax earnings by 5-10%. Nearly 100% of LIC’s funding is wholesale (2% retail
deposits), 80% of funding comes directly/indirectly from banks and insurance companies.
40% of liabilities are floating while 70% of assets are floating. In Nov. 2010, Central Bureau
of Investigation (CBI) has arrested 8 officials including CEO of LIC Housing Finance on
charges of corruption and bribery which a private finance company offered in lieu of
sanctioning of loans for corporate. However, we expect LIC HF stock to underperform
further post these bribery charges given the management disruption and fresh questions on
quality of the loans. The stock is currently trades at 2.1x FY11 P/B with FY12 ROE of 24%
(with risk to this given the pressure on wholesale funding rates).
— Valuation: Our price target of Rs 160 is based on 1.5x FY12E book (at premium to 5
year average PBR due to improved RoE).
— Risk: We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Asia Financials
Alpha Preferences
Most preferred: Add HSBC to Bangkok Bank, OCBC and CQRCB
HSBC shows good banking volume growth momentum in Asia which lays the foundation
for several years’ double-digit revenue growth. It is at 1.4x ’10E P/B with ’11E ROE of
13%. Bangkok Bank is a primary beneficiary of Thailand corporate re-leveraging cycle. The
stock is trading at an attractive 1.3x ‘10E P/B with 11.7% ‘11E ROE. We view OCBC’s
acquisition of ING Asia Private Bank last year as a significant milestone in its strategy to
build up its wealth management business. The stock is currently trading at 1.8x ‘10E P/B,
with ‘11E ROE of 12.6%. CQRCB is one of the most liquid (LDR at 62%), well provided
(LLR/loans 4.4%; NPL ratio 2.6%) and best capitalized (YE10e Tier 1 at 15%) Chinese
banks, allowing it to achieve loan growth target at +30% in next 2-3 years. It is trading at
1.8x ‘10E P/B with ‘11E ROE of 14% (and rising).
Least Preferred: Add BOCHK and Standard Char.; remove Minsheng-H
Least: LIC, BOCHK, First and Standard Chartered. We are ‘bullish’ on the long-term
benefits of wider Rmb use for Hong Kong. But we think unrealistic expectations have led to
certain stocks being overvalued. We have a Sell rating on BOCHK. The stock currently
trades at 2.4x FY10E P/B with FY11E ROE of 14.7%. Standard Charter’s recent trading
statement suggests a lull in trading activity thus trading income, which the Standard
Chartered is cyclically dependent on when there flattened yield curve occurs. It’s trading on
2.1x ’10E P/B with 15.7% ‘11E ROE. We believe LIC is negatively impacted by tight
liquidity and rising wholesale rates (100% of its funding is wholesale), intense competition
in mortgages and hike in standard provisions which can hurt pre-tax earnings by 5-10%. It’s
at 2.1x FY11E P/B with FY12E ROE of 24%. We think First FHC will encounter the largest
provision shortfall among TW financials thus is exposed to the highest earnings risk. It is at
1.7x ‘10E P/B with ‘11E ROE of 6.5%.
Least Preferred
LIC Housing Finance (LICH.BO)
Sell
India
Diversified Financial
LIC Housing Finance is one of our least preferred stocks in India financial sector. We believe
there are fundamental headwinds for the stock in terms of 1) tight liquidity and rising
wholesale rates 2) intense competition in mortgages 3) hike in standard provisions can
impact pre tax earnings by 5-10%. Nearly 100% of LIC’s funding is wholesale (2% retail
deposits), 80% of funding comes directly/indirectly from banks and insurance companies.
40% of liabilities are floating while 70% of assets are floating. In Nov. 2010, Central Bureau
of Investigation (CBI) has arrested 8 officials including CEO of LIC Housing Finance on
charges of corruption and bribery which a private finance company offered in lieu of
sanctioning of loans for corporate. However, we expect LIC HF stock to underperform
further post these bribery charges given the management disruption and fresh questions on
quality of the loans. The stock is currently trades at 2.1x FY11 P/B with FY12 ROE of 24%
(with risk to this given the pressure on wholesale funding rates).
— Valuation: Our price target of Rs 160 is based on 1.5x FY12E book (at premium to 5
year average PBR due to improved RoE).
— Risk: We believe a sustained economic slowdown could impact the banking and
finance sector on several fronts: lead to a slowdown in credit, increase NPL risk,
impact fee income, and exert pressure on NIM.
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