20231020-招银国际-Initiate_coverage_on_Chinese_leasing_sector_14页_985kb

FixedIncome Credit Commentary Summary

Date: October 20, 2023
Analysts: CyrenaNg, CPA (吳蒨瑩, 王世超, CFA; 高志和)

Overview

This report analyzes the fixed-income and credit opportunities in China's leasing sector, distinguishing between commercial leasing companies and financial leasing companies. Financial leasing companies face stricter regulations but offer lower funding costs, leading to separate risk-return analysis.

Key Findings

1. Leasing Company Classification:

   • Commercial leasing companies are non-financial institutions, while financial leasing companies are non-bank financial institutions.
   • Financial leasing companies have access to diversified funding channels (e.g., interbank markets and deposit-taking), enabling lower average funding costs than commercial peers.

2. Bond Recommendations:

   • Commercial Leasing:
     • FRESHK2⅝ '24 (rating: -, trading at 97.7, YTM 9.1%) recommended as a short-dated carry play.
     • FRESHK3⅜ '25 (rating: -, trading at 91.5, YTM 10.4%) praised for better risk-return profile due to Far East Horizon's diversified operations and stable profitability.
   • Financial Leasing:
     • BCLMHK floating-rate notes (e.g., '24-'25 series) recommended for low beta and yield pick-ups against BOCOM and CDB senior notes.
     • CDBFLC2⅞ '30 (Tier 2 bond, callable) noted as a yield play with 142bps pick-up over CDB senior bonds, trading at YTC 6.9%.

3. Financial Analysis:

   • Far East Horizon (FRESHK) shows strong operating performance with revenue growth and lower impairment losses.
   • Financial leasing companies like BCLMHK and CDBFLC benefit from regulatory buffers, avoiding credit lines exceeding 8x asset-risk ratio.
   • Cross-default clauses with parent banks (e.g., BOCOM, CDB) provide implied support, triggering at low thresholds (USD 25-50 million).

4. Funding Cost Trends:

   • FEH has reduced average onshore bond costs through shorter tenors, reflecting higher market funding costs.
   • Access to loan markets and undrawn credit lines (e.g., USD 30 billion) support liquidity, with a positive net liquidity gap.

Risks and Considerations

• Uncertain interest rate environments may affect bond yields.
• Regulatory changes or funding disruptions could impact leasing companies, though financial ones appear more resilient.
• Recommendations based on bottom-up credit profiles, avoiding reliance on parent links where remote.

Conclusion

The leasing sector offers attractive yields in China, with financial leasing companies favored for lower risk and commercial ones for their operational diversity. Bonds identified provide yield pick-ups and carry opportunities, supported by regulatory frameworks and cross-default mechanisms.