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Deutsche Bank Markets Research
Asia
China
Banking / Finance
Banks
Industry
China AMCs
Date
15 December 2017
Forecast Change
2018 Outlook: current cycle still favors earnings
Decent earnings growth and attractive yield; we prefer Cinda over Huarong
________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
Jacky Zuo
Research Analyst
(+852 ) 2203 6255
Hans Fan, CFA
Research Analyst
(+852 ) 2203 6353
Key Changes
Company Target Price Rating
1359.HK 3.50 to 3.75(HKD) -
2799.HK 3.50 to 3.90(CNY) -
Source: Deutsche Bank
Top picks
China Cinda (1359.HK),HKD2.79 Buy
Source: Deutsche Bank
Companies Featured
China Cinda (1359.HK),HKD2.79 Buy
2016A 2017E 2018E
P/E (x) 5.2 5.9 4.5
EV/EBITDA (x) 3.4 3.1 2.7
Price/book (x) 0.8 0.7 0.6
China Huarong (2799.HK),CNY3.57 Hold
2016A 2017E 2018E
P/E (x) 5.9 6.2 5.8
EV/EBITDA (x) 3.4 3.0 2.5
Price/book (x) 0.8 0.9 0.8
Source: Deutsche Bank
We think current macro/policy cycles still favor AMCs’ earnings and we remain constructive on AMCs’ longer-term growth, given abundant distressed asset supply. We expect Cinda and Huarong to deliver mid- to high-teen earnings growth with 6-7% dividend yields. In this outlook report, we discuss 1) key trends for AMC business lines; 2) distressed assets supply and demand; 3) the impact of the PBOC’s new asset management guidance; and 4) capital and IFRS 9 impact. Cinda remains our sector top pick with higher-quality earnings and less shadow banking exposure. The stock trades at 0.67x 2018E P/B and 4.8x P/E. We suggest investors accumulate Cinda before March 2018 results.
Key trends in distressed asset management We think the traditional NPL acquisition & disposal (TDA) and debt-to-equity swap (DES) business will continue to benefit from elevated asset prices. A neutral/tightening-biased monetary policy should also drive stable restructuring distressed asset (RDA) earnings growth. On the margin side, TDA disposal return has been rising and RDA may finally see yield recovery in 2018 – as we saw for trust product yield. On the new round of market-driven DES, AMCs are not as active as banks and we think AMCs may set up DES funds rather than use their own capital to invest. Also, IFRS 9, which starts in 2018, may potentially provide one-time revaluation gains for unlisted DES assets, leading to large capital boosts (2.4-4.7% CET-1 boost for Cinda, per our estimate).
Distressed assets supply and demand dynamics We think supply and demand dynamics for distressed assets in China are likely to maintain a tight balance as new NPL supply should be absorbed quickly by various distressed asset players. We forecast a 15% CAGR in distressed asset supply to Rmb1.9tr in 2019E, with more supply from shadow banking and corporate instead of traditional banks (i.e., more RDA acquisition opportunities). On the demand side, there are now 56 local AMCs with total registered capital of Rmb118bn (>Cinda’s TDA balance), and many distressed funds have been active in the secondary market, which should benefit AMCs’ NPL disposal.
Impact of PBOC’s new asset management rules As asset management is an essential part of the shadow banking system in China, the new rules are likely to squeeze shadow banking liquidity and increase asset quality pressure. This creates distressed asset business opportunities, but may also affect AMCs’ own shadow banking businesses, especially the on-balance sheet non-standardized credit assets (NSCA) investment. We think Huarong may be more impacted, given its large NSCA exposure (28% of group assets vs. 6% for Cinda).
Sector top pick – Cinda (raising target price to HK$3.75); valuation and risks Our sector top pick is Cinda. We see upside earnings potential, with 1) larger TDA assets to benefit from rising NPL prices; 2) larger (unlisted) DES portfolio to benefit from elevated commodity prices and IFRS 9; and 3) a turnaround story in life and bank subsidiaries. We lift our target prices for Cinda (+7%) and Huarong (+12%) by rolling over to 2018E. We adopt a sum-of-the-parts (SoTP) valuation methodology. Key sector risks include property prices, investment loss, and weaker-than-expected distressed asset supply (see page 18).
Distributed on: 14/12/2017 23:00:54 GMT
7T2se3r0Ot6kwoPa
15 December 2017
Banks
China AMCs
Page 2 Deutsche Bank AG/Hong Kong
Model updated: 12 Dec 2017 Fiscal year end 31-Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E
Fair value changes on DDA 3,878 4,618 4,077 4,420 5,716 8,596 10,940 12,617
Investment income 6,529 7,044 9,116 13,552 17,991 18,542 19,696 21,352
Net insurance premiums earned 5,325 5,772 7,443 12,912 16,636 21,668 10,427 11,470
Interest income 2,493 5,059 8,811 13,516 14,506 21,591 25,898 29,842
Revenue from sales of inventories 3,924 4,322 4,341 7,637 10,955 12,922 14,856 16,340
Fee & commission 2,226 2,520 3,008 4,330 3,848 4,983 5,566 6,220
Other revenue 1,456 2,195 2,057 1,259 2,812 1,622 2,292 2,528
Operating income 27,645 37,394 52,925 64,977 74,108 92,503 104,766 117,569
Operating expenses 18,510- 25,582- 35,168- 43,435- 50,809- 65,486- 74,294- 82,802-
Operating profit 9,135 11,812 17,756 21,543 23,300 27,017 30,472 34,767
Taxes 2,379- 2,671- 4,164- 4,594- 5,783- 6,349- 7,171- 8,203-
Minorities 89- 74 247 676 470 300 300 300
Net profit attributable to shareholders 7,306 9,027 11,896 14,027 15,512 17,799 20,265 23,362
Key Balance Sheet Items (CNYm) & Capital Ratios
TDA net balance 7,960 16,392 42,302 84,621 94,459 120,217 145,861 169,690
RDA net balance 48,068 97,971 162,109 163,145 184,447 213,260 245,178 276,363
DES book value 48,239 42,275 41,564 38,751 40,480 46,169 46,624 47,147
Loans and advances to customers - net 25,042 48,636 80,225 104,738 294,937 338,281 378,488 423,473
Total assets 254,614 383,785 544,427 713,975 1,174,481 1,396,783 1,598,755 1,799,505
Total liabilities 193,730 301,023 442,564 603,081 1,026,511 1,234,692 1,420,626 1,602,833
Total equity 60,885 82,762 101,863 110,894 147,970 162,091 178,130 196,672
CAR - company 20.96% 21.58% 18.08% 16.11% 19.38% 17.17% 16.09% 15.42%
Leverage ratio 39.94% 34.47% 28.96% 23.89% 17.01% 15.29% 14.53% 14.19%
Impaired ratio of RDA 1.20% 1.00% 1.20% 1.77% 1.78% 2.00% 2.00% 2.00%
Credit cost of RDA (bps) 497 200 203 95 67 129 56 63
Provision to impaired loan ratio - RDA 248% 291% 267% 210% 205% 200% 185% 180%
Provision to loan ratio - RDA 2.99% 2.92% 3.19% 3.72% 3.66% 4.00% 3.70% 3.60%
Impaired ratio of RDA + loans 1.17% 1.02% 1.51% 2.58% 1.65% 2.06% 2.12% 2.18%
Credit cost of RDA + loans (bps) 369 178 180 149 43 86 47 51
Provision to impaired loan ratio - RDA + loans 219% 253% 190% 144% 154% 138% 132% 129%
Provision to loan ratio - RDA + loans 2.56% 2.58% 2.86% 3.72% 2.55% 2.84% 2.80% 2.82%
Growth in income from DDA classified as receivables 0% n.a. 1845% 188% 79% 4% -18% 12%
Growth in revenue 0% -4% 45% 35% 42% 23% 14% 25%
Growth in cost 0% 3% 73% 38% 37% 24% 17% 29%
Growth in net profit 0% -9% 8% 24% 32% 18% 11% 15%
Growth in DDA 228% 104% 79% 21% 13% 20% 17% 14%
Growth in DES -5% -12% -2% -7% 4% 14% 1% 1%
Growth in total assets 47% 51% 42% 31% 64% 19% 14% 13%
Growth in impaired loans (RDA+loans) 0% 0% 1099% 75% 145% 91% 13% 44%
Cost income ratio 33% 32% 34% 33% 31% 29% 29% 30%
Revenue - DAM 14,392 21,850 31,495 32,552 32,069 36,024 42,546 47,493
Revenue - FIAM 7,911 8,977 12,167 19,274 27,303 33,348 36,635 41,657
Revenue - FS 10,553 12,134 17,534 28,972 34,165 47,868 38,466 42,399
PBT - DAM 6,234 8,314 11,496 12,126 14,425 13,734 18,013 19,372
PBT - FIAM 3,285 3,012 3,515 3,890 6,309 6,611 5,866 7,455
PBT - FS 164 515 1,857 4,265 2,106 6,123 5,877 7,059
Total assets -DAM 140,328 228,604 320,973 393,186 457,607 537,610 631,925 696,238
Total assets - FIAM 49,027 72,776 110,860 154,735 269,187 336,483 386,956 444,999
Total assets - FS 69,352 86,248 123,560 176,834 493,780 568,782 625,967 704,361
+852 2203-6255
Source: Company data, Deutsche Bank estimates
30%
P/E FD (DB adj.)
P/E (stated)
P/B (stated)
18,114
30%
0.82na
13%
China Cinda
Target price 4.46% 5.06%
ROAA (stated) (%)HK$2.74
HK$3.75
Jacky Zuo
BVPS (stated) (CNY)
Other Financial Services DPS (CNY)
Running the NumbersEPS (stated) (CNY)Asia
ChinaGrowth rate - EPS (stated) (%)
Data per share
Reuters: 1359.HK Bloomberg: 1359 HK
Buy
HK$100,284mMarket Cap
52-week Range: HK$2.62 - 3.47
Price (12 Dec 2017)
0.120.10
0.25 0.30 0.33 0.39
-6% 17% 11%
1.82
0.43
2.14 2.58 2.81 3.09
18% 11%
5.74
na
na
6.73
1.01 0.86 0.79
5.74
0.86
0.05 0.03
7.33
1.56%
5.93
5.937.33
6.73
0.12
13.81%
Growth Rates & Key Ratios
By Segment
Company Profile
Payout ratio (%)
Dividend yield (%) 4.97%
Cinda is a leading asset management company (AMC) in
China, focusing on distressed asset management with a
market share of 35.5% in terms of distressed assets
acquired. Established in 1999, Cinda has been dedicating to
provide customized financial solutions and differentiated
asset management services to its clients, leveraging on its
nationwide branch network and diversified financial service
subsidiaries. Cinda went listed in December 2013.
Profit & Loss (CNYm)
30%
0 97,157 99,343 99,343 104,571
P/B (DB adj.) na 0.82
30,140 35,459 36,257 36,257Share in Issue (m)
ROAE (stated) (%) 15.78% 14.05% 14.38% 14.12%
Credit Quality
Income from DDA classified as receivables 3,518 10,144
Valuation Ratios & Profitability Measures
3.42% 2.83%
1.01
22%
18,884 15,539
38,165
Market cap (HKDm)
2.56% 2.23% 1.64%
0.79
0.47
9%
3.44
0.14
104,571
38,165
5.74%
30%
17,460
5.23
6.02
0.71
0.71
14.29%
1.38%
0.53
14%
3.83
0.16
104,571
0.61
15%
4.29
0.18
104,571
38,165 38,165
4.73 4.27
4.73 4.27
0.66 0.61
0.66 0.61
14.61% 15.07%
21,336 24,240
1.35% 1.37%
6.35% 7.02%
30% 30%
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 3
Model updated: 12 Dec 2017 Fiscal year end 31-Dec 2012 2013 2014 2015 2016 2017E 2018E 2019E
Fair value changes on DDA 250 509 886 1,637 3,852 5,050 6,267 7,473
Investment income 5,328 8,179 9,804 19,167 24,678 42,254 53,373 63,859
Net insurance premiums earned na na na na na na na na
Interest income 9,687 10,076 12,048 14,067 16,444 18,192 21,672 25,199
Revenue from sales of inventories na na na na na na na na
Fee & commission 5,244 6,785 7,986 10,398 12,920 11,346 12,615 14,001
Other revenue 510 1,897 3,258 3,247 4,363 4,817 5,448 6,172
Operating income 26,063 37,319 51,061 75,386 95,208 118,093 143,947 168,278
Operating expenses 16,480- 23,126- 33,051- 50,939- 61,457- 78,546- 97,341- 111,942-
Operating profit 9,584 14,194 18,010 24,447 33,751 39,547 46,606 56,336
Taxes 2,123- 3,547- 3,744- 5,295- 7,401- 8,537- 10,046- 12,223-
Minorities 1,094- 1,434- 2,374- 2,295- 3,039- 3,544- 4,170- 5,073-
Net profit attributable to shareholders 5,892 8,660 10,656 14,482 19,613 22,612 26,322 31,374
Key Balance Sheet Items (CNYm) & Capital Ratios
TDA net balance 3,126 8,134 23,612 65,564 68,436 105,643 150,524 202,698
RDA net balance 51,322 84,886 157,239 202,051 270,072 334,924 389,486 428,614
DES book value 21,483 21,587 24,389 24,203 19,129 17,914 16,735 15,592
Loans and advances to customers - net 37,646 48,176 63,239 81,625 118,406 153,136 175,563 192,522
Total assets 315,034 408,367 600,521 866,546 1,411,969 1,783,712 2,063,133 2,357,111
Total liabilities 272,462 355,833 516,989 747,746 1,261,888 1,590,953 1,807,366 2,077,471
Total equity 42,571 52,534 83,532 118,801 150,081 192,760 255,767 279,641
CAR - company 13.70% 13.50% 13.60% 14.75% 12.86% 12.54% 15.64% 15.26%
Leverage ratio 17.4% 16.8% 18.2% 18.8% 15.0% 15.0% 17.6% 16.7%
Impaired ratio of RDA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Credit cost of RDA (bps) 708 787 680 873 880 720 792 912
Provision to impaired loan ratio - RDA 2% 5% 2% 2% 2% 0% 0% 0%
Provision to loan ratio - RDA 811.18% 290.83% 416.53% 587.15% 444.35% 360.00% 360.00% 380.00%
Impaired ratio of RDA + loans 0.75% 1.65% 1.31% 1.29% 1.61% 1.84% 2.05% 2.22%
Credit cost of RDA + loans (bps) 193 219 206 272 284 200 263 265
Provision to impaired loan ratio - RDA + loans 485% 272% 347% 461% 347% 286% 286% 301%
Provision to loan ratio - RDA + loans 3.66% 4.48% 4.56% 5.93% 5.58% 5.26% 5.86% 6.70%
Growth in income from DDA classified as receivables 1384819% 0% 92% 76% 47% 9% 13%
Growth in revenue 5728633% 0% 43% 37% 48% 26% 24%
Growth in cost -4331285% 0% 40% 43% 54% 21% 28%
Growth in net profit 902891% 0% 47% 23% 36% 35% 15%
Growth in DDA 71% 94% 48% 26% 30% 23% 17%
Growth in DES 0% 13% -1% -21% -6% -7% -7%
Growth in total assets 30% 47% 44% 63% 26% 16% 14%
Growth in impaired loans (RDA+loans) -485020% -622560% -1260380% -1671704% -1730392% -2274583% -2591567%
Cost income ratio 54% 49% 53% 51% 47% 52% 52%
Revenue - DAM 11,337 19,807 28,647 40,648 50,696 61,659 74,641 86,519
Revenue - FIAM 4,206 4,327 5,050 12,003 21,702 29,811 38,923 47,382
Revenue - FS 11,437 13,793 17,915 23,463 24,450 28,263 32,023 36,017
PBT - DAM 4,067 7,636 9,340 11,940 15,891 18,918 18,611 22,463
PBT - FIAM 2,118 1,940 1,910 3,089 7,679 9,242 15,383 20,016
PBT - FS 3,028 4,065 5,524 7,247 6,987 7,459 7,909 8,496
Total assets -DAM 103,001 155,964 283,339 370,131 628,713 831,398 935,581 1,052,346
Total assets - FIAM 22,559 22,189 42,101 138,764 302,716 408,666 510,833 612,999
Total assets - FS 191,805 232,692 280,307 370,651 515,151 587,559 660,629 735,676
+852-2203 6255
Source: Company data, Deutsche Bank estimates
20%
P/E FD (DB adj.)
P/E (stated)
P/B (stated)
15,662
10%
1.172.16
20%
China Huarong
Target price 2.3% 1.3%
ROAA (stated) (%)CNY3.51
CNY3.90
Jacky Zuo
BVPS (stated) (CNY)
Other Financial Services DPS (CNY)
Running the NumbersEPS (stated) (CNY)Asia
ChinaGrowth rate - EPS (stated) (%)
Data per share
Reuters: 2799.HK Bloomberg: 2799 HK
Hold
CNY87,904mMarket Cap
52-week Range: CNY2.56 - 3.87
Price (12 Dec 2017)
0.150.07
0.23 0.34 0.38 0.43
45% 14%
1.32
0.50
1.62 2.12 2.51 2.95
12% 17%
6.26
1.7%
12.33
12.33
7.42
1.71 1.33 1.07
6.26
1.33
0.05 0.07
8.31
2.4%
6.85
6.858.31
7.42
0.04
22.75%
Growth Rates & Key Ratios
By Segment
Company Profile
Payout ratio (%)
Dividend yield (%) 4.8%
China Huarong Asset Management (Huarong) is the largest
financial asset management company (AMC) in China in
terms of total assets as of 1H15. Huarong is one of the big
four state-owned AMCs in China and distressed asset
management (DDM) is its core business. In addition, the
company has financial service (FS) and asset management &
investment (AMI) segments. Huarong recorded Rmb9.9bn of
NPAT in 1H15, with total assets of Rmb735bn as of June
2015. Huarong was listed in HKEx in Oct 2015.
Profit & Loss (CNYm)
30%
90,684 90,684 114,763 137,136 137,136
P/B (DB adj.) 2.16 1.17
25,836 25,836 32,696 39,070Share in Issue (m)
ROAE (stated) (%) 19.40% 19.14% 17.29% 18.39%
Credit Quality
Income from DDA classified as receivables 4,645 8,918
Valuation Ratios & Profitability Measures
1.87% 2.39%
1.71
21%
23,095 25,140
39,070
Market cap (HKDm)
2.11% 1.97% 1.72%
1.07
0.58
15%
3.38
0.17
137,136
39,070
5.6%
30%
28,477
5.40
5.40
0.93
0.93
18.29%
1.42%
0.62
7%
3.80
0.17
161,337
0.68
10%
4.31
0.20
161,337
45,965 45,965
5.19 4.91
5.19 4.91
0.85 0.78
0.85 0.78
17.16% 16.82%
35,667 41,600
1.37% 1.42%
5.3% 6.1%
30% 30%
15 December 2017
Banks
China AMCs
Page 4 Deutsche Bank AG/Hong Kong
2018 outlook for AMCs
Still in a pro-earnings cycle; we prefer Cinda to Huarong
Despite the business nature of distressed asset management with less
predictable earnings – we think current macro/policy cycles are still favorable
for AMCs to release core earnings given: 1) elevated asset prices (including
NPLs); 2) rising inflation expectations; 3) neutral/tightening-biased monetary
policy; and 4) manageable macro and policy risks. We also remain positive on
the sector over the longer term, given abundant distressed asset supply (15%
CAGR, DBe) especially those from shadow banking and corporate channels
where big AMCs would have an edge. We forecast Cinda and Huarong to
deliver 14%-19% net profit growth in 2017E-19E with attractive dividend yields
of 6%-8% (assuming 30% payout).
Figure 1: We expect mid-to-high-teen profit growth for
Cinda and Huarong
Figure 2: Both Cinda and Huarong offer attractive
dividend yields
24%
32%
18%
11%
15% 14%15%
47%
23%
36% 35%
15%16%
19%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2013 2014 2015 2016 2017E 2018E 2019E
Net profit growth - Cinda Net profit growth - Huarong
5.9%
6.7%
7.8%
5.7% 5.7%
6.8%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2018E 2019E 2020E
Dividend yield - Cinda Dividend yield - Huarong
Source: Deutsche Bank estimate, company data
Source: Deutsche Bank estimate, company data Note: price data are as of 13 December 2017
Stock pick: prefer Cinda (Buy) over Huarong (Hold)
We maintain our sector preference for Cinda over Huarong. Given its less
aggressive balance sheet expansion and smaller shadow banking exposure,
we see better quality earnings and more sustainable growth at Cinda than at
Huarong. In particular, we see earnings upside potential for Cinda from:
Larger TDA stock to benefit from rising NPL prices and higher disposal
returns;
Large (unlisted) coal mining exposure in DES portfolio to benefit more
from elevated commodity prices and IFRS 9 (discussed below);
Turnaround story in life insurance (Happy Life) and bank subsidiary
(NCB). We expect the life business to return to profitability and the
bank business ROE to continue rising.
For Huarong, we are still concerned about its large investment in shadow
banking credit (NSCA accounted for 28% of group assets as at 1H17),
especially after the recent policy tightening towards the asset management
industry. Huarong also needs to deleverage by issuing preferred shares and A-
share shares in an A-share IPO in 2018, which would be earnings dilutive.
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 5
Cinda’s 1H17 results disappointed some investors, prompting a negative share
price reaction. However, we argued that its core pre-provision profit actually
grew strongly by 29% yoy after stripping out one-offs (see our report: China
Cinda – 1H17 results not as bad as they appear dated 31 August 2017). We
suggest investors accumulate Cinda before the March 2018 results.
Figure 3: Cinda’s tangible P/B (excluding NCB goodwill) historically trades
above Huarong’s P/B and we expect Cinda to outperform Huarong in 2018
0.74
0.80
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
(x) 1-yr forward tangible P/B - Cinda 1-yr forward P/B - Huarong
Source: Deutsche Bank estimates, company data, Bloomberg Finance LP; Price as of Dec 13, 2017
In the sections below, we include discussion about: 1) key trends for each
AMC business line; 2) supply & demand dynamics in distressed assets; 3)
impact of PBOC’s new asset management guidance; and 4) capital and IFRS 9
impact.
Key trends for AMC business lines
Our overall thinking is that the current cycle still favors big AMCs as they could
release earnings from existing asset stock whose price has appreciated,
especially for TDA and DES business. A neutral/tightening-biased monetary
policy would also drive stable RDA earnings growth. However, the growth
outlook for the asset management businesses and various financial
subsidiaries may be affected by financial regulation tightening.
Traditional distressed asset (TDA), or the NPL acquisition & disposal
business, is on fire, as disposal returns are rising. Given the slowdown
in NPL supply from banks, we expect major AMCs to focus on NPL
disposal and squeeze the greatest return from the existing portfolio,
rather than bidding NPLs aggressively. The active NPL secondary
market also helps AMCs to realize decent IRR in TDA business. We
forecast TDA income to account for 14-15% of PBT at Cinda and 7% at
Huarong.
Restructuring distressed asset (RDA) business is likely to maintain
decent growth under a neutral or tightening-biased environment. More
distressed asset supply from corporate and shadow banking channels
provide RDA opportunities as well. RDA faces less competition as
most local AMCs have not started such businesses yet. On the margin
15 December 2017
Banks
China AMCs
Page 6 Deutsche Bank AG/Hong Kong
side, we may finally see an RDA yield recovery – as we saw for trust
product yields.
Debt-to-equity swap (DES) business is a moving part. The exit of
existing DES book depends on capital market conditions and the pace
of IPO approvals. For the new round of market-driven DES, we have
not seen major AMCs being as active as banks. Cinda has conducted
three new DES deals: China Shipbuilding Industry Corporation,
Chongqing Steel Xishan Mining and Aluminum Corporation of China
(Chalco). Huarong also participated in the Chalco deal. We think AMCs
would prefer to conduct new DES by setting up DES funds rather than
using their own capital. For example, Huarong set up a wholly owned
subsidiary – Huarong Ruitong – in Jan 2017 with Rmb300m capital,
and plans to raise Rmb50bn DES fund (Rmb10bn so far). In addition,
the implementation of IFRS 9 in 2018 may provide one-time
revaluation gains for unlisted DES assets, leading to a capital boost for
AMCs (2.4-4.7% CET-1 boost for Cinda per our estimate).
Expanding investment book and overseas business: Cinda is focusing
on investing private funds initiated by its own subsidiary (Rmb98bn
balance in 1H17, up 160% yoy), while Huarong continues to expand its
overseas business (international assets Rmb195bn in 1H17, up 120%
yoy). We have not seen any signs of a slowdown and we expect the
investment business to continue to drive profit growth going forward.
Tightening regulation to impact on financial subs: Preventing systemic
risk is now top of the central government’s agenda, and the recent
PBOC guidance on the asset management industry shows its
determination. We believe business growth at AMCs’ various financial
subsidiaries such as bank, trust, broker, insurer etc. may be less rosy
than in previous years. We discuss the impact of the asset
management new rule in a later section.
Given the complex AMC business model, we highlight our profit forecasts by
business line in the below chart and provide a chart on asset breakdown. We
also provide charts to show the operating trends of different distressed asset
management businesses.
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 7
Figure 4: AMCs’ PBT growth by business lines – we expect AMCs to maintain relatively fast profit growth going
forward
11% 9% 10%32%
22%
17%8%
4%
17%
18%
18%
19%
27%
33%
18%
17%
19%
0
10
20
30
40
50
60
70
80
90
2013 2016 2019E
(Rmb bn) PBT growth - Cinda + Huarong
Financial services
Investment &
asset mgmt
Other DAM
DES
RDA
TDA
26%
41%
29%
75%
12%
18%
2013-16 CAGR: 27%
20%
25%
18%
-8%
7%
23%
2016-19E CAGR: 17%
25
52
84
Source: Deutsche Bank estimates, company data Note: Financial services’ PBT CAGR is affected by Cinda’s acquisition of Nanyang Commercial Bank in May 2016, leading to a lower CAGR for 2013-16 and an inflated CAGR for 2016-19E TDA = traditional distress asset management, or the NPL acquisition-and-disposal business RDA = restructuring distressed asset management business DES = debt-to-equity swap Other DAM = other distressed asset management business other than TDA, RDA and DES Investment & asset management: this mainly includes proprietary investment, HK subsidiary operations and asset management business Financial services: this includes operations of a wide range of financial subsidiaries such as bank, broker, insurance, leasing etc.
Figure 5: Changing AMC model from asset growth perspective
6%23%
17%
2%
14%
16%
12%
21%
40%
37%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2013 1H17
(Rmb bn) Asset growth - Cinda + Huarong
Financial
services
Investment &
asset mgmt
Other DAM
DES
RDA
TDA
42%
71%
53%
-0.4%
34%
80%
2013-1H17 CAGR: 45% Bank subs:
Rmb646b
or 22%
Overseas sub:
c.Rmb270b or
10%
c
792
2,937
Source: Deutsche Bank estimates, company data Note: Financial services’ asset CAGR is affected by Cinda’s acquisition of Nanyang Commercial Bank in May 2016 TDA = traditional distress asset management, or the NPL acquisition-and-disposal business RDA = restructuring distressed asset management business DES = debt-to-equity swap Other DAM = other distressed asset management business other than TDA, RDA and DES
15 December 2017
Banks
China AMCs
Page 8 Deutsche Bank AG/Hong Kong
Figure 6: Cinda has larger TDA stock than Huarong Figure 7: TDA disposal return is recovering
38
24
6668
91
8
17
42
83
94
108
0
20
40
60
80
100
120
2012 2013 2014 2015 2016 1H17
Rmb bn TDA balance - Huarong TDA balance - Cinda
23.2
9.94.2 2.9
7.9
104.1
57.8
9.0 9.2
23.9
0.0
20.0
40.0
60.0
80.0
100.0
120.0
2013 2014 2015 2016 1H17
(%) TDA return on disposal - Huarong TDA return on disposal - Cinda
Source: Deutsche Bank, company data
Source: Deutsche Bank, company data
Figure 8: RDA balance grew strongly in since 2H16 due
to tightened liquidity
Figure 9: We expect RDA yield to recover in 2018
99%
9% (3%)
31%
15% 14%
82%
127%
46%
13%
39%
20% 14%
-50.0%
-25.0%
0.0%
25.0%
50.0%
75.0%
100.0%
125.0%
150.0%
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016 2017E 2018E 2019E
Rmb bn
RDA avg monthly balance - Cinda RDA avg monthly balance - Huarong
YoY growth - Cinda (RHS) YoY growth - Huarong (RHS)
16.0%
13.5%12.2% 11.7%
9.9%8.5% 9.0% 9.0%
19.4%
17.9%
13.1%12.5% 12.1%
10.0% 10.3% 10.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2012 2013 2014 2015 2016 2017E 2018E 2019E
RDA yield - Cinda RDA yield - Huarong
Source: Deutsche Bank estimates, company data
Source: Deutsche Bank estimates, company data
Figure 10: Trust product yield finally saw recovery,
indicating higher RDA yield
Figure 11: Cinda has larger DES portfolio than Huarong
7.24
5.00
6.00
7.00
8.00
9.00
10.00
11.00
(%) Trust product expected yield - 2-3 yrs
48
42 42 39
40
45
21 22 24 24
19 17
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 1H17
Rmb bn DES book value - Cinda DES book value - Huarong
Source: Deutsche Bank, WIND
Source: Deutsche Bank, company data
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 9
Distressed asset supply & demand
We think supply and demand dynamics for distressed assets in China are likely
to maintain a tight balance as new NPL supply should be absorbed quickly by
various distressed asset players, although demand sentiment may become
softer as economic activities cool down (DB China economist expects GDP
growth to slow in 4Q17 and 1H18). On the supply side, more NPLs may come
from shadow banking channels, given tightening asset management rules; on
the demand side, local AMCs (over 50 now) will still be active as will other
distressed funds. NPL pricing has been rising in 2017 and would remain stable
on our base case going forward. Cinda and Huarong, with large existing NPL
stock, should continue to record decent returns.
Supply: stable supply from banks; more distressed assets likely from shadow
banking
NPL formation at most banks has decreased and banks are under less
immediate pressure to sell out NPLs (e.g., Ping An Bank has expanded its in-
house NPL work-out team), but we think the absolute NPL disposal amount
from banks should be maintained at a stable level given strong loan growth. In
addition, distressed assets supply from shadow banking channels and
corporate is rising. We consider the following factors in forecasting distressed
asset supply.
Banks may see lower NPL formation but the overall bank system is
maintaining low-teens loan growth. Some smaller banks are still
experiencing asset quality pressure.
Shadow banking credit growth may slow down significantly with
tighter regulations (recent PBOC’s asset management new rules
targeting bank WMPs and various asset managers) and rising asset
quality pressure. We expect more NPAs coming from non-
standardized credit assets such as banks’ receivable investment and
trust assets.
Corporates’ accounts receivable balances may continue to record
rapid growth and AMCs are likely to proactively acquire distressed
accounts receivable.
As such, we estimate total distressed assets supply in China to remain around
15% growth to reach Rmb1.9tr in 2019. Nevertheless, resolving distressed
assets from shadow banking channels and corporate requires sophisticated
solutions (e.g., liquidity support, restructuring, M&A etc.), favoring the Big Four
AMCs – which have multiple financial licenses, relevant talent and more than
17 years of industry experience.
15 December 2017
Banks
China AMCs
Page 10 Deutsche Bank AG/Hong Kong
Figure 12: We estimate distressed assets supply to keep high-teens growth in the coming years
Rmb bn 2013 2014 2015 2016 2017E 2018E 2019E Comments
System loan balance 76,633 86,787 99,346 112,055 126,062 141,820 159,547
yoy growth 13.9% 13.3% 14.5% 12.8% 12.5% 12.5% 12.5% China to keep low teen loan growth
- Commercial banks 59,210 67,405 76,313 86,885 97,746 109,964 123,709
- Policy banks and other banking FIs 17,423 19,382 23,033 25,170 28,316 31,856 35,838
Banks' receivable investment 3,636 5,585 12,775 21,298 21,298 19,168 17,251
yoy growth 111.7% 53.6% 128.7% 66.7% 0.0% (10.0%) (10.0%) Slowing growth due to tighter shadow banking regulation
- Deduct investment to trust products (1,454) (2,234) (5,110) (8,519) (8,519) (7,667) (6,901) Assume 40% receivable inv overlapping with trust asssets
Trust assets 10,907 13,980 16,364 20,220 24,264 21,838 19,654
yoy growth 46.0% 28.2% 17.1% 23.6% 20.0% (10.0%) (10.0%) Slowing growth due to tighter shadow banking regulation
Industrial account receivables 9,569 10,517 11,455 12,600 13,860 15,246 16,771 Only industrial A/R balance data available
yoy growth 13.9% 9.9% 8.9% 10.0% 10.0% 10.0% 10.0%
Total credit assets (bank + trust + NFE) 99,291 114,634 134,829 157,654 176,965 190,404 206,323
yoy growth 17.9% 15.5% 17.6% 16.9% 12.2% 7.6% 8.4%
NPL sold from banks 118 186 589 540 548 576 633
as % avg outstanding balance 0.16% 0.23% 0.63% 0.51% 0.46% 0.43% 0.42% Lower selling % due to moderating NPL formation
NPA selling from receivable investment 26 64 81 91
as % avg outstanding balance 0.15% 0.30% 0.40% 0.50% Rising pressure on shadow credit asset quality
NPA selling from trust assets 37 67 92 104
as % avg outstanding balance 0.20% 0.30% 0.40% 0.50% Rising pressure on shadow credit asset quality
- deduction of double accounting (10) (26) (32) (36)
Distressed account receivables from NFE 662 794 946 1,121
as % avg outstanding balance 5.5% 6.0% 6.5% 7.0% Cinda + Huarong acquisition accounted for 3% of A/C in 2016
Total distressed assets supply 1,254 1,447 1,663 1,912
yoy growth 15.4% 14.9% 15.0% Source: Deutsche Bank estimates, PBOC, CBRC, NBS, Trust Association, company data Note: Historical NPL sold from banks is implied from Cinda’s reported TDA data
Figure 13: Distressed asset channels – more supply from corporate than from
banks
62.4% 63.5%
81.6%
9.5% 16.1%
11.4%
13.0%
12.8%
3.2%
5.5% 2.1%
1.3% 9.4% 5.1% 2.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Cinda + Huarong -
2015
Cinda + Huarong -
2016
Cinda + Huarong -
1H17
Distressed asset acquisition by channels Other banks
Non-bank
financial
institutions
City and rural
commercial
banks
Joint-stock
Commercial
Banks
Large
Commercial
Banks
Non-bank
enterprises
(NFE)
Source: Deutsche Bank, company data
Demand: strong appetite from local AMCs and various distressed funds
On the demand side, distressed asset players are increasing as well. New local
AMC openings have been accelerating since China allowed the setting up of
two local AMCs in each province in October 2016. Eighteen new local AMCs
have been established in 2017 so far and the total number has reached 56
according to our database (Figure 14). The total registered capital of these local
AMCs amounted to Rmb118bn, already exceeding Cinda’s TDA balance. Local
AMCs’ current market share in NPL acquisition is less than 10%, and it has
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 11
room to increase further. Local AMCs typically have strong connections with
local governments so they need to balance commercial activities with policy
tasks. We found the Big Four AMCs invested in eight local AMCs with
Huarong taking controlling stakes in two of them.
In addition, the Big Four banks all won approval this year to set up asset
management subsidiaries specializing in DES business with Rmb10-12bn
registered capital each. The AMC subsidiaries of BoCom and CMB/MSB are
still awaiting approval. We are not sure whether these bank-sponsored AMCs
will compete in TDA or RDA business in the future.
Many distressed asset funds funded by domestic private investors, foreign
investors or even state capital are emerging in China. For example, Chengtong
Huan (诚通湖岸) Distressed Investment Fund jointly set up by China Chengtong
Group (under central SASAC) and Shoreline Capital in March 2017 has
Rmb10bn size with a four-year investment term. According to current
regulations, these distressed funds can only participate in the NPL secondary
market (i.e., purchase NPL packages from AMCs). The activities of these
distressed funds actually boost the NPL secondary market and benefit AMCs in
NPL disposal.
Last, but not least, the other two big AMCs are chasing, aiming for listing after
completing the introduction of strategic investors in 2017. News reported
Great Wall may raise US$2bn proceeds via a HK IPO in 2018. We think these
two AMCs will be more aggressive in acquiring NPLs as well. Great Wall AMC
reported it had acquired distressed assets of Rmb129bn in 9M17, up 154%
yoy, including Rmb73bn from financial institutions and Rmb56bn from
corporate.
15 December 2017
Banks
China AMCs
Page 12 Deutsche Bank AG/Hong Kong
Figure 14: List of 56 local AMCs set up so far (as of August 2017)
Prov ince Company name CompanyDate of
estab lishment
Reg istered
cap ita l (Rmb mn)Major shareho lders
1 Henan Henan Asset Management Co., Ltd 河南资产管理公司 2017-Aug 5,000 Henan Investment Group
2 Xinjiang Xinjiang Jintou Asset Management Co., Ltd 新疆金投资产管理股份有限公司 2017-Aug 1,000 Xinjiang Financial Investment; Shenwan Hongyuan Group
3 Ningxia Ningxia Financial Asset Management Co., Ltd 宁夏金融资产管理有限公司 2017-Aug 1,000 Ningxia Guotou Group; Great Wall Guorong Investment
4 Gansu Gansu Changda Financial Asset Management Co. 甘肃长达金融资产管理股份有限公司 2017-Aug 1,000 Great Wall Asset Management Co.
5 Guizhou Guizhou Asset Management Co., Ltd 贵州省资产管理股份有限公司 2017-Aug 1,000 Guizhou Guimin Investment Corporation
6 Heilongjiang Heilongjiang Guotou Suiyong Asset Management 黑龙江国投穗甬资产管理公司 2017-Jul 1,000 State Development Investment Corp; Suiyong Holding
7 Anhui Zhongan Financial Asset Management Co., Ltd 安徽中安金融资产股份有限公司 2017-Jun 4,000 Anhui Provincial Investment Group; Zhongrun Jingfa (sub of Cinda)
8 Liaoning Liaoning Fu'an Financial Asset Management Co. 辽宁富安金融资产管理公司 2017-May 1,000 Hanhua Financial Holding Group
9 Guangdong Guangzhou Asset Management Co., Ltd 广州资产管理有限公司 2017-Apr 3,000 Yuexiu Financial Holding
10 Henan Zhongyuan Yubei Asset Management Co., Ltd 中原豫北资产管理公司 2017-Apr 1,000 Henan Yuda Capital
11 Shaanxi Yulin Financial Asset Management Co. 榆林金融资产管理有限公司 2017-Apr 500 Shaanxi Financial Asset Management Co.
12 Hebei Jizi Tangshan Asset Management Co., Ltd 冀资唐山资产管理有限公司 2017-Mar 500 Hebei Asset Management
13 Shanxi Jinyang Asset Management Co., Ltd 晋阳资产管理股份有限公司 2017-Mar 3,000 Jinshang Credit Enhancement; China Overseas Holding
14 Guangdong Merchant Pingan Asset Management Co., Ltd 深圳招商平安资产管理有限责任公司 2017-Mar 3,000 China Merchants Group
15 Fujian Industrial Asset Management Co., Ltd 兴业资产管理有限公司 2017-Mar 3,000 China Industrial Asset Management Ltd
16 Zhejiang Ningbo Financial Asset Management Co., Ltd 宁波金融资产管理股份有限公司 2017-Feb 1,000 Ningbo Financial Holding Group; Bangxin AM
17 Shandong Taihe Asset Management Co., Ltd 泰和资产管理有限公司 2017-Jan 10,000 China Minsheng Investment Group
18 Chongqing Chongqing Fucheng Asset Management Co., Ltd 重庆富城资产管理有限公司 2017-Jan 1,500 Maiqi Investment Co
19 Hubei Hubei Tianqian Asset Management Co., Ltd 湖北天乾资产管理有限公司 2016-Dec 2,000 Wuhan Donde Tech Industry Group
20 Yunan Yunan Asset Management Co., Ltd 云南省资产管理有限公司 2016-Dec 1,000 Yunan Investment Holding Co
21 Jiangsu Suzhou Asset Management Co. 苏州资产管理公司 2016-Nov 1,200 Suzhou SASAC, one of big AMCs, and local SOEs
22 Shanghai Shanghai Ruiyin Shengjia AMC 上海睿银盛嘉资产管理有限公司 2016-Nov 1,000 Shanghai Jiading State Assets Operation Co.
23 Heilongjiang Heilongjiang Jiashi Longsheng Financial Assets 黑龙江嘉实龙昇金融资产有限公司 2016-Nov 1,000 Zhongsheng Heyin Asset Management; Harvest Capital Management
24 Tianjin Tianjin Binhai Zhengxin Asset Management Co. 天津滨海正信资产管理有限公司 2016-Nov 1,000 Tianjin Zhengxin Group
25 Guangxi Guangxi Investment Asset Management Co. 广西广投资产管理有限公司 2016-Oct 1,000 Guangxi Investment Financial Holding Group
26 Shaanxi Shaanxi Financial Asset Management Co. 陕西金融资产管理股份有限公司 2016-Aug 4,500 Shaanxi SASAC
27 Gansu Gansu Asset Management Co. 甘肃资产管理有限公司 2016-Aug 2,000 Gansu Provincial State-owned Asset Investment Group
28 Hainan Hainan Haide Asset Management Co. 海德资产管理有限公司 2016-Jul 1,000 Hainan Haide Industry Co.,Ltd
29 Guangxi Guangxi Financial Holding Asset Management Co. 广西金控资产管理公司 2016-Jul 5,000 Guangxi Financial Investment Group
30 Tibet Haide Asset Management Co. 海徳资产管理有限公司 2016-Jul 1,000 Hainan Haide Industrial (000567.SZ)
31 Qinghai Huarong Kunlun Asset Management Co. 华融昆仑青海资产管理股份有限公司 2016-Jun 1,000 China Huarong AMC
32 Fujian Xiamen Asset Management Co., Ltd 厦门资产管理有限公司 2016-May 1,000 Jinyuan Group
33 Shandong Qingdao Municipal Asset Management Co. 青岛市资产管理有限责任公司 2016-Mar 1,000 Qingdao International Investment
34 Jiangxi Jiangxi Financial Asset Management Co. 江西省金融资产管理股份有限公司 2016-Mar 1,300 Jiangxi Financial Holding
35 Shanxi Huarong Jinshang AMC 华融晋商资产管理股份有限公司 2016-Feb 3,000 China Huarong AMC
36 Sichuan Sichuan Development Asset Management Co. 四川发展资产管理公司 2016-Jan 1,000 Sichuan Development (Holding) Co.
37 Hunan Hunan Provincial Asset Management Co. 湖南省资产管理有限公司 2015-Dec 1,000 Hunan Caixin Financial Holding
38 Zhejiang Everbright Jinou Asset Management Co. 光大金瓯资产管理有限公司 2015-Dec 1,000 Everbright Group
39 Hebei Hebei Provincial Asset Management Co. 河北省资产管理有限公司 2015-Dec 1,000 Hebei Construction Investment Group
40 Henan Zhongyuan Asset Management Co. 中原资产管理有限公司 2015-Oct 3,000 Henan Finance Bureau/ Cinda
41 Inner Mongolia Inner Mongolia Financial Asset Management Co. 内蒙古金融资产管理公司 2015-Sep 2,040 Local Finance Bureau
42 Ningxia Ningxia Shunyi Asset Management Co. 宁夏顺亿资产管理公司 2015-Apr 1,000 Shanghai Ruiyin Financial Holding; Shanghai Dongxing Investment
43 Jilin Jilin Provincial Asset Management Co. 吉林省资产管理公司 2015-Feb 1,000 Jilin SASAC
44 Shandong Shandong Financial Asset Management Co. 山东省金融资产管理股份有限公司 2014-Dec 2,030 Shandong Luxin Investment Holding
45 Tianjin Tianjin Jinrong Investment Service Co., Ltd. 天津津融投资服务有限公司 2014-Jul 2,888 Tianjin SASAC
46 Anhui Anhui Guohou Asset Management Co., Ltd 安徽省国厚资产管理有限公司 2014-Jul 1,500 Shanghai Dongxing Investment
47 Fujian Fujian Mintou Asset Management Co. 福建省闵投资产管理有限公司 2014-Jun 1,500 Fujian Investment and Development Group
48 Zhejiang Zheshang Asset Management Co., Ltd. 浙商资产管理公司 2013-Aug 2,718 Zhejiang International Trade Group
49 Jiangsu Jiangsu Provincial Asset Management Co., Ltd. 江苏资产管理有限公司 2013-May 5,000 Jiangsu SASAC
50 Guangdong Yuecai Asset Management Co., Ltd 粤财资产管理公司 2006-Sep 1,200 Guangdong Yuecai Holding
51 Liaoning Liaoning State-owned Assets Operation Co., Ltd 辽宁国有资产经营公司 2006-Mar 1,000 Liaoning State-owned Asset Management Co.
52 Beijing Beijing Guotong Asset Management Co.,Ltd 北京国通资产管理公司 2005-Feb 1,000 Beijing State-owned Asset Management Co.
53 Chongqing Chongqing Yufu Assets Management Group Co., Ltd 重庆渝富资产经营管理集团有限公司 2004-Feb 10,000 Chongqing SASAC
54 Hainan Hainan Union Asset Management Co., Ltd 海南联合资产管理公司 2003-Jul 1,034 Hainan Government
55 Shanghai Shanghai State-owned Assets Operation Co., Ltd 上海国有资产经营有限公司 1999-Jan 5,500 Shanghai International Group
56 Hubei Hubei Provincial Asset Management Co. 湖北宏泰国有资产经营有限公司 1905-Jul 1,000 Hubei SASAC
Sum 117,910 Source: Deutsche Bank, media report, company data Note: local AMCs highlighted with light orange color are invested in by Big Four AMCs
Figure 15: List of bank-sponsored AMC subsidiaries (specializing in debt-to-equity swaps)
Company name CompanyDate of
estab lishment
Registered
cap ita l (Rmb mn)Major shareho lders
ICBC Asset Management Co. 2016-Dec 12,000 ICBC
ABC Asset Management Co. 2016-Nov 10,000 ABC
BOC Asset Management Co. 2016-Dec 10,000 BOC
CCB Asset Management Co. 2016-Dec 12,000 CCB
BoCOM Asset Management Co. 2017-Jan 10,000 BoCOM
CMB MSB Great Wall Asset Management Co. 2016-Nov 10,000 Great Wall Asset Management Co.
Sum 64,000 Source: Deutsche Bank, company data Note: CMB MSB Great Wall AMC’s registered capital is estimated by DB
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 13
Tightening shadow banking – impact of new asset management rules
PBOC on 17 November 2017 released a draft document on China’s asset
management business, which is an essential part of the shadow banking
system (see report: Asset Management Guideline – Reshaping China’s shadow
banking). Although the document is not finalized yet and lacks implementation
details, our initial thinking is that it is likely to shrink shadow banking liquidity
and thus put asset quality pressure on shadow banking channels. This creates
distressed asset business opportunities for AMCs on the one hand, but may
affect AMCs’ own shadow banking businesses on the other, including on-
balance sheet NSCA investment and the wealth management business of
various subsidiaries. We think Huarong may be more impacted than Cinda,
given its much larger on-balance shadow credit exposure.
Tightening non-standardized credit asses (NSCA) – upcoming asset quality
pressure
The new asset management guidance proposes to reduce duration
mismatches, cap leverage, cut down shadow banking SPV layers and remove
implicit guarantees. For asset management products (e.g., bank WMP)
investing in non-standardized credit, NSCA maturity should not be longer than
the maturity of close-end products or next open-end products. As such, many
bank WMPs and brokers’ AMPs can no longer invest in NSCA given their short
product duration (average bank WMP duration only two months vs. one to five
years for NSCA). We estimate the total size of NSCAs reached Rmb37trn as of
2016 by stripping out the overlap among different asset managers (Figure 16).
After the tightening, we believe some NSCAs are likely to be: 1) converted to
standard products via ABS or asset exchange; 2) replaced by banks’ balance
sheet loans (for those off-balance sheet portion); 3) purchased by longer
duration asset management products; and 4) left as distressed assets. We
think regulators will manage the process smoothly but distressed asset supply
should increase from these shadow banking channels as we highlighted earlier
in our supply forecast.
15 December 2017
Banks
China AMCs
Page 14 Deutsche Bank AG/Hong Kong
Figure 16: Overview of China’s asset management sector – regulation tightening may lead to more distressed asset
supply from non-standard credit assets (Rmb37tr in 2016)
Brokers' AM
schemes
(Rmb17.6trn)Trust investment
schemes
(Rmb17.5trn)
Public
mutual fund
(Rmb9.2trn)
Fund and fund
subsidiaries'
investment
schemes
(Rmb16.9trn)
Privatefunds
(Rmb10.2t
rn)
Retail investors (31%)
Corporates (18%)
Financial institutions (51%) Non-standard asset (36%) ~ Rmb37trn
Mutual fund (2%)
Others (11%)
Deposit and money market fund (15%)
Bond (29%)
Equity and other securities (7%)
Funding Source Underlying Asset
Bank's WMP
(Rmb29trn)
Insurance
investment
schemes (1.7trn)
Total asset management industry AUM at Rmb102trn as of end-2016; or
Rmb60-70trn if stripping out overlap.
China's asset management sector
Source: Deutsche Bank estimates, PBOC, AMAC, Trust Association, CIRC, CBRC, “Blue Book of Asset Management 2017” Note: The size of squares represents the size of AUM.
AMCs’ on-balance sheet shadow banking lending may be affected
AMCs use their own balance sheets to lend shadow credit to corporate
customers (most are non-distressed customers) to fulfill their financing needs,
and such business has become a key revenue driver in recent years. Huarong
has a much larger shadow credit exposure with NSCA, reaching Rmb471bn in
1H17, up 109% yoy, accounting for 28% of total assets per our calculation. For
comparison, Cinda’s NSCA exposure was only Rmb74bn. These NSCAs were
mainly booked under other AFS assets and receivable investments. We
summarize NSCA exposure details for the two AMCs in the following figures.
In our view, the direct impact on AMCs’ on-balance sheet shadow credit
exposure from the new AM guidance is limited as it targets the off-balance
sheet AM businesses. However, the asset quality of AMCs’ NSCA investment
may be negatively affected, and we cannot exclude the possibility of further
shadow banking tightening/window guidance to include AMCs, given the
current risk prevention attitude of top level of government. We expect AMCs,
especially Huarong, to slow down aggressive expansion in shadow banking
lending going forward.
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 15
Figure 17: Shadow credit accounts – Huarong Figure 18: Shadow credit accounts – Cinda
8 7 20 41
121169
24 3970
127
279
333
3147
89
167
401
503
0
100
200
300
400
500
600
2012 2013 2014 2015 2016 1H17
Rmb bn Non-RDA receivable investment - HuarongNon-DES AFS assets - Huarong
2012-1H17 CAGR : 85%
1630
44
82
172
209
3
1919
18
14
19
19
4963
100
186
228
0
50
100
150
200
250
2012 2013 2014 2015 2016 1H17
Rmb bn Non-RDA receivable investment - Cinda Non-DES AFS assets - Cinda
2012-1H17 CAGR : 73%
Source: Deutsche Bank, company data
Source: Deutsche Bank, company data; Note: Cinda’s non-DES AFS in 1H17 included Rmb88bn fund investment (vs. Rmb65bn in 2016) which was due to increasing private fund investment by Cinda and its subsidiaries
Figure 19: Summary of NSCA exposure – Huarong
Rmb mn 2014 2015 2016 1H17
Trust products 13,284 63,287 140,801 176,476
Debt instruments 20,500 42,418 84,494 90,625
Entrusted loans 18,462 21,746 54,207 76,331
WMP 8,560 7,403 25,992 30,173
Asset management plans 18,917 8,578 26,250 25,190
Unlisted funds 0 7,104 37,446 62,721
Structured products 1,418 4,082 5,094 9,171
Total NSCA 81,142 154,618 374,283 470,687
Total assets 600,521 866,546 1,411,969 1,658,155
NSCA as % total assets 14% 18% 27% 28%
Provision as % NSCAs 1.5% 2.5% 2.2% 1.9%
Source: Deutsche Bank, company data
Figure 20: Summary of NSCA exposure – Cinda
Rmb mn 2014 2015 2016 1H17
Unlisted funds 9,061 13,284 15,552 14,489
Trust products 6,559 14,663 23,563 31,169
Asset management plans 4,414 8,507 12,720 14,606
WMP 3,760 7,586 10,485 10,495
Structured products 13,259 10,059 1,232 482
Debt instruments 13,003 3,986 3,833 3,223
Entrusted loans 0 0 0 0
Total NSCA 50,055 58,084 67,383 74,464
Total assets 544,427 713,975 1,174,481 1,295,566
NSCA as % total assets 9% 8% 6% 6%
Provision as % NSCAs 0.1% 0.1% 0.5% 0.4%
Source: Deutsche Bank, company data
15 December 2017
Banks
China AMCs
Page 16 Deutsche Bank AG/Hong Kong
Impact on asset management businesses of AMCs’ subsidiaries
The new guidance will impact the various asset management businesses of
the AMCs’ subsidiaries, such as bank, trust, broker, and private funds etc.,
especially those channel business. Bank WMP and those non-active managed
AUM growth are under pressure going forward. Nevertheless, the financial
impact is limited as the revenue of these asset management businesses
accounted for less than 5% at the two AMCs with higher exposure in Huarong
(4-5%). We summarize the AM businesses of the AMC subsidiaries and new
guidance impact in the below table.
Figure 21: Summary of asset management businesses of AMC subsidiaries and impact from new PBOC guidance
Subsidiaries
Rmb mn Sub name AUM - 1H17 Trust rev - 1H17 Sub name AUM - 2016 AM rev - 2016 Sub name AUM - 2016 AM rev - 2016 Sub name AUM - 1H17 Rev - 1H17
Cinda Jingu Trust 110,312 190 Cinda Securities 71,255 270
Nanyang
Commercial
Bank
20,779 91Cinda
Investment187,100 140
Huarong Huarong Trust 315,942 737Huarong
Securities306,139 893
Huarong
Xiangjiang Bank18,767 na Huarong Yufu 71,860 621
New rule impact
BankTrust Broker Private fund
Less channel business (lower AUM) Less channel business (lower AUM)Less NSCA investment, so lower AUM, and lower
yieldLeverage & tranche restrictions
Source: Deutsche Bank, company data
Capital & IFRS 9 impact
Divergent capital management between Cinda and Huarong
Capital management at Cinda and Huarong differ. Cinda runs a prudent capital
strategy and it replenished capital at different levels in 2016 by issuing a
private placement, preferred shares and a tier-2 bond. We believe Cinda will
focus more on organic capital generation going forward. Cinda’s CET-1 ratio
dipped to 10.6% in 1H17 due to the dividend payment (c.1ppt impact) and
Rmb3.6bn capital injection into Happy Life. In contrast, Huarong’s strategy is
grow first and get capital later. It maintained a thin buffer above minimum
capital requirement with aggressive balance sheet growth (12.9% CAR in 2016
and 13.9% in 1H17 vs. 12.5% required). Huarong issued an Rmb10bn tier-2
bond in June 2017 and plans to issue Rmb20bn overseas preferred shares and
an A-share IPO in 2018. Huarong currently ranks No.88 in the A-share IPO
queue, as shown on the CSRC website. In addition, we notice Huarong
continued to issue overseas perpetual bonds to lower group leverage
(Rmb27bn balance in 1H17, issuing a further US$700m in Nov 2017). We
summarize the leverage & capital ratios for Cinda and Huarong in below table.
Figure 22: Summary of leverage & capital ratios of Cinda and Huarong
Min. requirement
2016 1H17 2016 1H17
Leverage ratio - group 17.0% 16.5% 15.0% 14.2% 6.0%
Leverage ratio - company 16.9% 16.4% 11.0% 9.9% 6.0%
CAR - company 19.4% 17.2% 12.9% 13.9% 12.5%
Tier-1 ratio - company 16.4% 14.6% na 10.5-11.5% 10.0%
CET-1 ratio - company 11.9% 10.6% na 10.5-11.5% 9.0%
Cinda Huarong
Source: Deutsche Bank, company data Note: Leverage ratio = equity / interest bearing liabilities CET-1 ratio for Huarong is estimated number by DB (deducting subordinated bonds issued)
Unlisted DES assets – a potential capital boost under IFRS 9
IFRS 9 will be effective in the beginning of 2018 for banks, insurers and AMCs.
We think the new accounting method is net positive for AMCs due to fair value
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 17
adjustment to unlisted DES portfolio, which may have a large boost to capital
ratio. Unlisted DES assets are currently recorded at historical acquisition cost
on balance sheet and will be re-evaluate using fair value approach under IFRS
9 based on our understanding. We estimate Cinda’s CET-1 ratio would be lifted
from 10.6% to 13.0% if we assume a 50% value appreciation of unlisted DES
book and further to 15.3% assuming 100% higher unlisted DES valuation.
Cinda historically recorded 2.5x DES exit multiple, i.e., 150% value
appreciation, so 50-100% assumption should be a conservative assumption, in
our view. We cannot do the same analysis for Huarong due to insufficient
data, but the capital boost should be smaller than for Cinda given the smaller
unlisted DES book. On the other hand, IFRS 9 may negatively impact the
provision expense from the expected loss perspective, the same way as banks,
but the magnitude should be relatively small.
Figure 23: Cinda has Rmb29.1bn unlisted DES assets
booked at historical cost
Figure 24: We estimate fair value adjustment (50%-
100%) to unlisted DES assets under IFRS 9 may boost
Cinda’s CET-1 ratio by 2.4%/4.7%
29.1
9.5
16.3
7.9
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Cinda Huarong
Rmb bn DES book value - unlisted DES book value - listed
45.5
17.5
10.6% 10.6%
2.4%4.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Assume 50% value appreciation for
unlisted DES
Assume 100% value appreciation for
unlisted DES
Rmb bn CET-1 ratio - 1H17 CET-1 boosted
13.0%
17.5
15.3%
Source: Deutsche Bank, company data
Source: Deutsche Bank estimates, company data
Valuation and risks
Valuation
We adopt the sum-of-the-parts (SoTP) valuation methodology for Cinda and
Huarong given the different business models and risk profiles of the business
lines. For both companies, we assume an 11.8% COE for the TDA business
and a 15.6% COE for the RDA business, compared with the 11.5-14.0% COE
we assume for Chinese banks. We are raising our earnings forecasts for Cinda
and Huarong by 2-4% by factoring in 1H17 results. We lift our target price by
7% for Cinda and 12% for Huarong due to rolling over to 2018E.
For Cinda, our target price of HK$3.75 is equal to 0.90x 2018E P/B and
we have stripped out the premium paid in the NCB acquisition from
our valuation. The stock is currently trading at 0.67x 2018E P/B or
0.79x tangible P/B (vs. 18% return on tangible book), and 4.8x 2018E
P/E.
For Huarong, our target price of HK$3.90 is equal to 0.94x 2018E P/B.
The stock is currently trading at 0.86x 2018E P/B and 5.3x P/E.
15 December 2017
Banks
China AMCs
Page 18 Deutsche Bank AG/Hong Kong
Sector risks Significant price correction in the property market in China given the
AMCs’ 30% direct/indirect balance sheet exposure to the property
sector, leading to asset quality deterioration and falling collateral
values
Weaker-than-expected distressed asset supply
Balance sheet risks relating to proprietary investment and shadow
credit
Stronger-than-expected competition from local AMCs and banks
driving down business volume and pricing.
Stock-specific risks Cinda: Key downside risks include: 1) large property market correction;
2) weaker-than-expected synergies with NCB; and 3) lower return on
proprietary investment.
Huarong: Key upside risks include: 1) better-than-expected asset
quality in RDA and shadow bank credit; and 2) less strict shadow
banking regulation. Key downside risks include: 1) delay of A-share
IPO and other capital raising plans; 2) balance risks in shadow bank
credit and HK subsidiaries; 3) worse-than-expected operating trend for
the bank subsidiary (Huarong Xiangjiang Bank), which would require a
capital injection from the group; and 4) credit rating downgrade to
push up funding cost.
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 19
Figure 25: Valuation comparison of Cinda and Huarong with related listed financial peers
Ticker Name Rating TP Price Upside Market cap
LCY LCY USD m 17Y 18Y 17Y 18Y 17Y 18Y 17Y 18Y
China AMCs
1359 HK Equity China Cinda Buy 3.75 2.79 34.5% 13,642 5.35 4.83 0.73 0.67 5.6% 6.2% 14.29 14.61
2799 HK Equity China Huarong Hold 3.90 3.57 9.3% 17,870 5.49 5.28 0.94 0.86 5.5% 5.3% 18.29 17.16
Average 5.43 5.09 0.85 0.78 5.5% 5.7% 16.56 16.06
China banks
1398 HK Equity ICBC-H Buy 6.52 6.23 4.7% 309,408 6.59 6.28 0.90 0.82 4.6% 4.9% 14.32 13.62
939 HK Equity CCB-H Buy 7.68 6.98 10.0% 223,657 6.10 5.79 0.85 0.77 4.9% 5.2% 14.66 13.94
1288 HK Equity ABC-H Buy 4.10 3.66 12.0% 179,329 5.31 5.08 0.73 0.67 5.8% 6.1% 14.54 13.76
3988 HK Equity BOC-H Buy 4.78 3.81 25.5% 165,184 5.69 5.26 0.67 0.61 5.5% 6.0% 12.23 12.12
3328 HK Equity BCOM-H Buy 6.53 5.82 12.2% 63,547 5.43 5.18 0.59 0.54 5.5% 5.8% 11.36 10.95
3968 HK Equity CMB-H Hold 26.27 31.25 (15.9%) 107,597 9.64 8.46 1.48 1.31 3.1% 3.5% 16.23 16.40
998 HK Equity CITIC Bank-H Hold 4.67 4.93 (5.3%) 41,662 4.89 4.73 0.55 0.50 3.1% 3.2% 11.67 11.02
1988 HK Equity Minsheng-H Hold 7.80 7.80 0.0% 45,401 4.97 4.73 0.65 0.58 3.0% 3.2% 13.90 13.05
3618 HK Equity CRCB Hold 6.05 5.54 9.2% 6,970 4.89 4.51 0.72 0.64 4.1% 4.4% 15.66 15.01
3698 HK Equity Huishang Sell 3.14 3.83 (18.0%) 5,408 4.81 4.53 0.68 0.60 2.0% 2.2% 15.11 14.06
1963 HK Equity BOCQ Sell 5.65 6.16 (8.3%) 2,472 4.27 3.97 0.61 0.55 6.1% 6.5% 15.16 14.56
Average 6.34 5.96 0.86 0.77 4.2% 4.5% 14.10 13.49
Insurance
2628 HK Equity China Life - H Buy 33.20 24.35 36.3% 121,368 24.72 18.07 1.78 1.72 1.9% 2.1% 7.41 9.48
2601 HK Equity CPIC - H Buy 48.90 37.55 30.2% 53,466 21.71 18.67 2.11 1.95 2.6% 3.1% 10.04 10.86
1336 HK Equity NCI - H Buy 71.20 51.95 37.1% 26,924 24.45 19.40 2.20 2.00 1.3% 1.7% 9.40 10.81
966 HK Equity CTIH Buy 38.70 28.55 35.6% 13,123 18.28 15.51 1.57 1.43 0.5% 0.6% 9.00 9.66
1339 HK Equity PICC Group Hold 4.50 3.91 15.1% 21,089 9.17 10.00 1.02 1.08 0.9% 0.9% 11.80 11.39
2328 HK Equity PICC P&C Hold 18.00 14.96 20.3% 29,030 9.37 10.00 1.47 1.52 2.8% 3.2% 16.78 16.19
Average 20.85 16.67 1.79 1.71 1.9% 2.2% 9.60 10.79
Chinese brokers
6030 HK Equity CITICS- H Buy 21.10 15.94 32.4% 32,101 15.98 13.56 1.11 1.05 1.9% 2.2% 7.11 7.95
6837 HK Equity HTS- H Buy 17.30 11.24 53.9% 22,104 13.72 11.80 0.96 0.90 2.3% 2.7% 7.14 7.87
6881 HK Equity CGS Buy 8.70 5.62 54.8% 13,707 9.74 8.44 0.75 0.70 3.1% 3.6% 8.14 8.57
1776 HK Equity Guangfa - H Buy 21.30 15.68 35.8% 18,863 11.81 10.41 1.19 1.10 3.0% 3.4% 10.46 10.98
6886 HK Equity Huatai - H Buy 21.60 15.54 39.0% 19,022 16.85 14.28 1.04 0.99 2.1% 2.5% 6.86 7.13
Average 14.11 12.10 1.03 0.97 2.4% 2.7% 7.80 8.41
Financia l leas ing
5871 TT Equity Chailease Holding n.a. n.a. 85.60 n.a. 3,633 10.29 10.29 2.13 1.93 4.3% 4.8% 20.81 19.55
3360 HK Equity Far East Horizon Buy 8.80 6.76 30.2% 3,433 6.79 5.79 0.89 0.80 4.4% 5.2% 13.78 14.50
1848 HK Equity China Aircraft Leasing Group n.a. n.a. 7.83 n.a. 686 6.89 6.89 1.61 1.42 6.7% 7.1% 20.97 22.33
1606 HK Equity CDB Financial Leasing Hold 2.05 1.66 23.5% 2,673 9.14 7.43 0.76 0.72 4.9% 6.1% 8.47 9.91
2666 HK Equity Universal Medical Buy 9.40 7.40 27.0% 1,612 8.85 8.85 1.70 1.50 2.6% 3.3% 15.71 17.53
2588 HK Equity BOC Aviation Buy 49.00 40.35 21.4% 3,632 7.41 6.47 0.99 0.90 4.7% 5.4% 13.96 14.62
000415 CH Equity Bohai Leasing n.a. n.a. 5.83 n.a. 5,422 10.18 10.18 1.15 1.02 0.0% 0.0% 8.85 10.00
Average 8.83 8.29 1.26 1.13 3.3% 3.9% 13.46 14.14
Trust
600816 CH Equity Anxin Trust n.a. n.a. 13.37 n.a. 9,329 16.27 13.29 3.51 3.13 2.4% 2.9% 23.35 24.48
600643 CH Equity Shanghai Aj Corporation n.a. n.a. 12.60 n.a. 2,729 21.07 16.03 2.28 2.05 1.6% 2.0% 12.16 14.02
000563 CH Equity Shaanxi Intl Trust n.a. n.a. 4.49 n.a. 2,084 26.41 20.69 1.64 1.56 0.6% 0.7% 6.87 7.23
Average 18.69 14.91 3.00 2.69 1.9% 2.4% 18.76 19.92
Financia l ho ld ing group
2318 HK Equity Ping An Group Buy 106.10 79.00 34.3% 193,958 19.90 17.02 2.97 2.58 1.5% 1.8% 15.94 16.22
2882 TT Equity Cathay Financial Holding Buy 59.50 54.30 9.6% 22,322 12.60 13.08 1.23 1.22 3.2% 2.9% 8.40 8.68
2881 TT Equity Fubon Financial Holding Hold 56.00 50.70 10.5% 17,194 9.23 9.24 1.11 1.02 3.2% 3.2% 12.60 11.65
2891 TT Equity Ctbc Financial Holding Buy 23.00 20.65 11.4% 13,226 10.37 10.06 1.32 1.23 4.8% 5.0% 13.10 12.66
2886 TT Equity Mega Financial Holding Hold 26.20 23.60 11.0% 10,745 10.24 9.82 1.05 1.00 4.5% 4.7% 9.68 9.62
2880 TT Equity Hua Nan Financial Holdings n.a. n.a. 16.70 n.a. 6,131 13.62 12.87 1.10 1.09 3.9% 4.2% 8.40 9.05
2892 TT Equity First Financial Holding n.a. n.a. 19.35 n.a. 7,839 15.07 12.52 1.21 1.18 4.3% 5.6% 8.23 9.40
2885 TT Equity Yuanta Financial Holding n.a. n.a. 13.95 n.a. 5,475 11.05 9.94 0.80 0.77 3.6% 4.2% 7.30 7.96
2890 TT Equity Sinopac Financial Holdings n.a. n.a. 9.58 n.a. 3,518 12.38 11.04 0.75 0.72 3.4% 3.6% 6.32 6.91
2884 TT Equity E.Sun Financial Holding Hold 20.50 18.80 9.0% 6,349 11.72 11.69 1.26 1.17 2.4% 2.6% 10.70 10.88
2887 TT Equity Taishin Financial Holding n.a. n.a. 13.70 n.a. 4,526 10.91 10.43 1.09 1.00 3.4% 3.6% 9.45 9.51
2888 TT Equity Shin Kong Financial Holding n.a. n.a. 10.75 n.a. 3,614 10.28 10.59 0.81 0.73 1.6% 1.6% 8.59 7.64
Average 16.94 14.94 2.33 2.06 2.3% 2.5% 13.84 14.03
Alternative asset management
BX US Equity Blackstone Group n.a. n.a. 31.99 n.a. 38,402 11.42 10.40 5.70 5.25 8.2% 7.5% 26.22 na
KKR US Equity Kkr & Co n.a. n.a. 19.94 n.a. 16,520 8.15 8.26 1.42 1.31 3.3% 3.3% 19.11 16.70
APO US Equity Apollo Global Management n.a. n.a. 32.17 n.a. 13,157 10.95 10.81 10.05 6.31 5.9% 7.8% 39.60 40.40
CG US Equity Carlyle Group n.a. n.a. 22.50 n.a. 7,642 7.85 9.14 6.46 4.86 6.3% 8.0% 39.07 40.80
OAK US Equity Oaktree Capital Group n.a. n.a. 41.95 n.a. 6,556 11.00 11.47 3.06 3.03 7.2% 7.4% 27.18 30.03
FIG US Equity Fortress Investment n.a. n.a. 7.85 n.a. 3,051 6.89 10.06 na na 1.1% na na na
OZM US Equity Och-Ziff Capital n.a. n.a. 2.58 n.a. 1,354 4.75 7.27 na na 6.1% 7.2% na na
Average 10.12 9.96 5.12 4.19 6.4% 6.5% 26.77 15.18
Note: closing price of Dec 13,2017
PE Ratio PB Ratio Div idend Yield Return on Equity (%)
Source: Deutsche Bank estimates, Bloomberg Finance LP, WIND Note: Estimates for those companies not under our coverage are based on BBG
15 December 2017
Banks
China AMCs
Page 20 Deutsche Bank AG/Hong Kong
Appendix 1
Important Disclosures
*Other information available upon request
Disclosure checklist
Company Ticker Recent price* Disclosure
China Cinda 1359.HK 2.80 (HKD) 14 Dec 17 1,7,14,15
China Huarong 2799.HK 3.58 (CNY) 14 Dec 17 1,7 Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr. Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.
Important Disclosures Required by U.S. Regulators
Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year.
15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.
Important Disclosures Required by Non-U.S. Regulators
Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes.
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.
For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Jacky Zuo
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 21
Historical recommendations and target price: China Cinda (1359.HK) (as of 12/14/2017)
1
2
3 4
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 30/03/2016: Buy, Target Price Change HKD4.43 Hans Fan, CFA 3. 28/07/2017: Buy, Target Price Change HKD3.72 Jacky Zuo
2. 12/05/2017: Buy, Target Price Change HKD3.60 Jacky Zuo 4. 30/08/2017: Buy, Target Price Change HKD3.50 Jacky Zuo
Historical recommendations and target price: China Huarong (2799.HK) (as of 12/14/2017)
1
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17
Secu
rity
Pri
ce
Date
Previous Recommendations
Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating
Current Recommendations
Buy Hold Sell Not Rated Suspended Rating
*New Recommendation Structure as of September 9,2002
**Analyst is no longer at Deutsche Bank
1. 12/05/2017: Upgrade to Hold, Target Price Change CNY3.50 Jacky Zuo
15 December 2017
Banks
China AMCs
Page 22 Deutsche Bank AG/Hong Kong
Equity rating key Equity rating dispersion and banking relationships
Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.
Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock
Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.
Newly issued research recommendations and target prices supersede previously published research.
56 %
33 %
11 %18 %17 % 13 %
0
100
200
300
400
500
600
Buy Hold Sell
Asia-Pacific Universe
Companies Covered Cos. w/ Banking Relationship
15 December 2017
Banks
China AMCs
Deutsche Bank AG/Hong Kong Page 23
Additional Information
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Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise
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German Banking Law and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal
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Copyright © 2017 Deutsche Bank AG
David Folkerts-Landau Group Chief Economist and Global Head of Research
Raj Hindocha Global Chief Operating Officer
Research
Michael Spencer Head of APAC Research
Global Head of Economics
Steve Pollard Head of Americas Research
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Anthony Klarman Global Head of Debt Research
Paul Reynolds Head of EMEA
Equity Research
Dave Clark Head of APAC
Equity Research
Pam Finelli Global Head of
Equity Derivatives Research
Andreas Neubauer Head of Research - Germany
Spyros Mesomeris Global Head of Quantitative
and QIS Research
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