Monday, May 17, 2010

>CHINESE BANKS: Property Correction: Why We Are Not Too Worried

25% property correction manageable — We expect China’s property tightening will see prices fall 25% from recent peak (back to late 09 levels) and volumes contract 25%. We believe credit quality will be little affected in this scenario given: 1) only property lending in 1Q10 is at risk, which we estimate is 14% of mortgages, 19% of developer loans; 2) conservative LTVs; 3) property prices have been on a rising trend; & 4) developers’ relatively strong financial positions.

But a 30-40% correction would be more severe — In this scenario, the risks will spread into the 2009 vintage as well, which accounts for the bulk (estimated 40-45%) of property loans following the lending surge in 2009. We estimate average LTV for 2009 mortgages to be ~60%, so there is still a buffer.

Volumes will be hit — Mortgage volumes will suffer from a double whammy of lower transaction volumes and lower LTVs. We expect system mortgages to grow 23% in 2010, down from 60% in 2009, and vs. 12% YTD growth.

NIM slightly positive — Most banks have revised up mortgage rates for 1st homes by ~90bps (from 0.7x to 0.85x benchmark rate); we think this will only benefit NIM by ~1bps given the expected slowdown in new mortgage volumes.

Pressure on UDIV loans — An indirect result is the impact on local governments given their dependence on land sale revenues. It is yet unclear how much extra provisions the CBRC will require banks make on UDIV loans (~11% of total loans), but surplus provisions in the sector are rising (~40bps of loans 1Q10) & we think will help meet any extra provision requirements later this year.

Prefer big banks — We believe property tightening/correction will be a near-term overhang despite inexpensive valuations/solid fundamentals. We prefer big banks; top picks CCB, ICBC. Note ICBC is the worst-performing big bank YTD.

To read the full report: CHINESE BANKS


Company Profile: JSW Energy Ltd (JSWEL) is a fast growing power services company that is part of the prestigious, $4 Billion valued Jindal South West (JSW) group. The group has diversified interests in areas ranging from steel, energy, minerals and mining, aluminum, infrastructure and logistics, cement and information technology. Formed in the year 1994, as a joint venture between the JSW group and Tractebel S.A. of Belgium, JSW Energy commenced operations in the year 2000 as an Independent Power Producer (IPP), setting up a 260 MW power generating unit. The company was initially called ‘Jindal Tractebel Power Company Ltd.’, but after Tractebel S.A. sold their stake in 2001, the company was renamed as ‘Jindal Thermal
Power Company Limited’. The company secured its current name ‘JSW Energy’ once the JSW group secured a 100% stake in the company. The company has the distinction of being the
first Independent Power Producer (IPP) to set up operations in the state of Karnataka, initially installing 2 units of 130 MW each, with both units generating power using corex gas and coal. In addition to power generation, the firm is also involved in power trading (playing the role of a
power supplier to JSW Steel Ltd. and other Power Trading Corporations), power distribution, providing operation and maintenance services, mining and the manufacturing of super
critical boilers. The company follows very strict environmental standards and its Environmental Management system (EMS) has been certified as ISO 14001 compliant by BVQI. JSW Energy is
also an ISO 9001-2000 and ISO 18001 certified company.

To read the full report: JSW ENERGY

>Educomp Solutions Ltd Q4FY10 results were In-line With Our Expectations

The top-line of the company appreciated 48.65% YoY to Rs 273.37cr (inline with our expectations of Rs 264cr).

The bottom line performance of the company was marginally below our research estimations, to Rs 67.52cr. (as against our expectations of Rs. 72 crore)

The EBITDA expanded by 33.27% to Rs and there was a 23.85% YoY increase in the net profit to Rs 67.52cr. A good revenue growth can be attributed to School Learning Solutions segment which grew by more than 60% Y-O-Y and accounts for 98% of the total revenues of the

Educomp Solutions Ltd, formerly known as Educomp Datamatics Limited, was incorporated in 1994 and is based in New Delhi, India. It is India's largest educational service provider with foremost emphasis on the K-12 space.

Educomp group serves over 19,000 schools, 9.4 million learners and educators across the world. Company operates private schools across various cities and has also collaborated with various state governments.

It has 27 offices worldwide. In addition, the Company operates through its various subsidiaries including author GEN, Three brix eServices,, USA, AsknLearn Pte Ltd, Singapore and via its associates such as Savvica in Canada.

To read the full report: EDUCOMP SOLUTIONS


To read report: RCOM