* China banks (Stress testing property risks)

China bank share prices tumbled today with CMB leading the fall (down 9%). The market is pricing-in an increasing probability of spill-over effects from developers into other parts of the economy. Indeed, should the property market correct notably as per the read-across to Wenzhou in 2011-2015, China’s banking sector is likely to suffer from both spiking NPLs and capital outflows. Under a scenario of developers and mortgage borrowers recording 22% and 5% NPL ratios, we calculate the banking sector’s CET-1 ratio to drop by 220bps to 8.3%. However, we expect policy makers to take necessary measures and to minimise the spill-over effects. Major listed banks, including CMB and the big four banks, can withstand such a property market downturn on higher mortgage exposure, stronger provisions and more solid capital adequacy.


* Ping An – BUY (Panic attack)

Ping An’s share price has declined by 13% over the past week, mainly reflecting concern over real estate exposure and potential systemic risk. We believe the market has over-reacted as Ping An has lost more market cap over the past month than its real estate exposure. Its implied life embedded value (EV) multiple is only 0.4x, comparable to SOE peers. We maintain our BUY rating on Ping An with an unchanged target price of HK$83.



* ASEAN Electric Vehicles New report: Is it too early to invest in the EV theme?

We evaluate electric vehicles (EV) as a potential investment theme in ASEAN. Though the EV market size in ASEAN is still small and constitutes a small part of companies’ exposure, we expect the news flows and capital investment to gain momentum ahead.


The region is likely to see more investment flows, especially from Chinese OEMs that have better advantages in the EV chain than the incumbents. The biggest challenge for EV adoption is lack of government incentives to bring down the EV price premium. Hence, the EV demand is likely to start from commercial fleets, which have a shorter payback period.

Thailand is readier than other ASEAN countries, with more preparedness in terms of charging infrastructure, consumers’ willingness, availability of EVs at attractive price-points, and top-down policy’s necessity to stay competitive in the auto supply chain. We expect more EV adoption in the upcoming replacement cycle in 2023-24.


We see electronic stocks as offering the best exposure, given the benefits from EV’s global growth, and tailwind benefits if ASEAN takes off. *The top picks in our pecking order are KCE Electronics, Pentamaster and Hana Microelectronics.*

* Malaysia Market Strategy New report: 37W21 — Foreigners turned more cautious

While foreigners remain net buyers overall in 37W21 (+RM126.1mn), they turned net sellers towards the end of the week, as market sentiment was dampened by the government’s plans to pressure banks to waive interest for B50 borrowers, and fears of possible windfall taxes resurfaced.


Key trends: (1) foreign inflows in Aug-Sep 2021 are the largest since GE14, but started to see foreign outflows towards end of last week; (2) local institutions have been net sellers of banks for the past seven weeks, while foreigners turned net sellers late last week; (3) short position of TOPG continue on an uptrend (+22% WoW) in 37W21.

Short selling activity -2% WoW to RM186.2 mn. Short selling was concentrated in the healthcare sector (49.9% of total short selling). *Investor sentiment on the market has been somewhat dampened by the government’s proposal to put pressure on banks to waive interest for the B 50 (bottom 50% income earners) and concerns about possible windfall tax. Developments on these two main issues will be closely watched and likely determine the direction of institutional investor flows.*



* CapitaLand Investment – Less is more – Initiate at Buy.

Post restructuring, CapitaLand Investment has sharpened its focus as a real estate investment manager (REIM) with S$119b AUM given the privatisation of its development segment. Earnings visibility is clearer without the more volatile development segment (30-50% of FY18-20 revenue). Other earnings, from management fees and real estate investment, are broadly recurring in nature. Coupled with operational improvements and recovery from Covid-19, we expect higher core Patmi margins of c.55% in FY22-23E (vs 12-20% 5Y avg). We initiate coverage of CLI at Buy with a 12m TP of S$3.64.


* Kingsoft Corp – Game delays weigh on profitability – Downgrade to Neutral.

Kingsoft Corp 2Q21 results were a mixed bag: i) Office software and services (WPS) revenue sustained solid growth of +47% yoy; ii) online games revenue dropped -22% yoy/-12% qoq to Rmb693mn due to a high base and delayed game release/banhao approvals; management lowered its 2021E game revenue guidance to -10% to -5% yoy, from +10% to 15% yoy. We lower our revenues by 6%/4% for 2021E/2022E as we trim online game revenue by -18%/-15%, partially offset by 9%/8% higher office software and services revenue. We downgrade the stock to Neutral from Buy, new 12m TP of HK$36.90.


* China Banks – Evergrande’s Default Crunch Is Unlikely to Be China’s Lehman Moment

Evergrande’s default crunch and its contagion impact present a potential systemic risk to China’s financial system, noting c.41% of the banking system assets was either directly or indirectly associated with the property sector as of end-2020. We do not see the Evergrande crisis as China’s Lehman moment given policymakers will likely uphold the bottom line of preventing systematic risk to buy time for resolving the debt risk, and push forward marginal easing for the overall credit environment. Our proprietary analysis on banks’ loan exposure to high-risk developers suggest developer credit risk is the highest for Minsheng Bank/Ping An Bank/Everbright Bank, while Bank of Nanjing/CRCB/PSBC are less vulnerable.We would see any dip as an enhanced opportunity to buy quality names.


* Hong Kong Real Estate/Property – Taking a Defensive Stance on HK Developers

Pecking order: Retail > Office > Residential — HK property stocks, especially developers, have declined sharply following a REUTERS news report quoting Chinese officials delivering a message to HK property tycoons to pour resources and influence into backing Beijing’s interests, and help solve the housing shortage. Although no policies have been announced, we suggest maintaining a defensive stance on HK developers. We view retail landlords as having minimal policy risks and see upside on potential border re-opening. Top Picks: Hang Lung, Wharf REIC. Among developers, we expect cheap landbank low gearing play, SHKP, will relatively outperform.


* Sembcorp Marine (SCMN.SI) – MGO by Temasek Imminent

SMM announced that its S$1.5bn rights issue had closed on 14 Sep 2021 with valid acceptances of 84.2% of the total number of rights shares available, while excess applications amounted to 33.5% of the total rights shares on offer. Meanwhile, in accordance to the Take-over Code, Temasek will incur an obligation to extend a Mandatory General Offer (MGO) for the remaining shares it does not already own, which is expected to be made upon allotment and issuance of the rights shares on 22 Sep 2021. The offer price of S$0.08/shr is equivalent to our TP, implying 0.5x pro forma ex-rights PBR – the significant discount to BVPS indicative of the magnitude of challenges faced by SMM, in our view.