Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><em>There is a BIG trade coming up starting next Monday. If you have exposure in Indonesia, it is worth thinking about. </em></p><hr><p>Back in January 2021, Bloomberg reported that <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> - the country's largest lender by assets - was <em>"exploring a plan to raise at least US$1bn through a rights issue."</em></p><p>Almost a year ago in October 2020 BBRI signed a conditional deal to merge their Shariah-compliant unit with those of <a href="https://www.smartkarma.com/entities/bank-mandiri-persero-tbk-pt" target="_blank" data-smartkarma-citation="entities:441:1" rel="noopener">Bank Mandiri Persero (BMRI IJ)</a> and <a href="https://www.smartkarma.com/entities/bank-negara-indonesia-persero" target="_blank" data-smartkarma-citation="entities:8285:1" rel="noopener">Bank Negara Indonesia Persero (BBNI IJ)</a> and there had been talks (since Feb 2020?) with the government for BBRI to take over state-owned pawnshop lender PT Pegadaian and financing firm PT Permodalan Nasional Madani to provide affordable loans to SMEs. A deal for BBRI to take over those two firms was <a href="https://www.reuters.com/article/bank-bri-ma-idUSL4N2KE2J5" target="_blank" rel="noopener">decided</a> in early February, and the need for a rights issue was set, though this required parliamentary approval and BBRI needed shareholder approval for the rights issue - which it announced in June and <a href="https://www.thejakartapost.com/adv/2021/07/23/bri-egms-approves-rights-issue-of-28-billion-shares.html" target="_blank" rel="noopener">received</a> in July - under the mechanism of <em>Capital Increase by Granting Securities Subscription Rights First</em> (PMHMETD). <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> discussed the bank's initiatives and aspirations in the micro lending space in <a href="https://www.smartkarma.com/insights/bank-rakyat-indonesia-bbri-ij-both-micro-and-digital" target="_blank" data-smartkarma-citation="insights:48613" rel="noopener">Bank Rakyat Indonesia (BBRI IJ) - Both Micro and Digital</a> in February followed by a discussion of the rights issue itself in early July in <a href="https://www.smartkarma.com/insights/bank-rakyat-indonesia-bbri-ij-ultra-micro-and-digital-aspirations-in-place" target="_blank" data-smartkarma-citation="insights:54111" rel="noopener">Bank Rakyat Indonesia (BBRI IJ) - Ultra-Micro and Digital Aspirations in Place</a>. Angus made a strong case for the bank in both insights and they are worth a read. </p><p>The shares have basically had an overhang in place since early this year but in June when it became clear the rights issue would be Very Large, that overhang became more pronounced. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/528/original/Screenshot+2021-09-08+at+2.18.15+PM.png?1631081912" class="editor-image img-responsive" data-smartkarma-image-id="228528"></figure><p></p></section><p>The presentation made to get this past shareholders (never really in doubt as the govt owns 57%) announced the development of an "Ultra-Micro segment" to create an <em>Ultra-Micro Ecosystem</em> as the foundation for further growth, structured under <strong>Ultra Micro Holding</strong> owned by BRI, in the form of previous precedents of SOE development platforms such as Biofarma/<a href="https://www.smartkarma.com/entities/indofarma-tbk-pt" target="_blank" data-smartkarma-citation="entities:5319:1" rel="noopener">Indofarma (INAF IJ)</a> and Inalum's investment in Indonesian mining companies. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/228/527/original/Screenshot+2021-09-08+at+2.02.45+PM.png?1631080980" class="editor-image img-responsive" data-smartkarma-image-id="228527"></figure></section><p>The way this would be done is a rights offering to offer 230,128,553 rights for every 1,000,000,000 Existing Shares (roughly 0.23013 for 1), with the government contributing its ownership of Pegadaian and PNM in kind to fulfil its rights exercise consideration payment.</p><p>That means the ~0.23 to 1 Rights Offering would be in effect for the other 43% of holders, which is a vast array of local and international institutions and local retail shareholders, with an Exercise Price of IDR 3400/share, and assuming 100% participation, that would garner IDR 41.15trln in proceeds, which, according to the roadshow <a href="https://www.ir-bri.com/misc/PS/2021/RI-Deal-Roadshow-Presentation-Final.pdf" target="_blank" rel="noopener">presentation</a> released in early September, <em>"will be used for working capital for BRI in order to develop an ultra-micro ecosystem as well as micro and small businesses."</em></p><p>The shares traded on the regular market went ex-rights today. Rights will be distributed on 10 September, traded from 13-22 September and exercised in the same period, with the last day for Excess Rights Subscription the 24 September and allotment of Excess Rights on 27 September.</p><p>There is considerable opportunity here. Some short-term, some longer-term. But it is considerable because there is a fair bit of potential overhang here.</p><p>I consider the opportunity set below the fold. </p>

There is a BIG trade coming up starting next Monday. If you have exposure in Indonesia, it is worth thinking about. Back in January 2021, Bloomberg reported that Bank Rakyat Indonesia Persero (BBRI IJ) - the country's largest lender by assets - was "exploring a plan to raise at least US$1bn through a rights issue."Almost a year ago in October 2020 BBRI signed a conditional deal to merge their Shariah-compliant unit with those of Bank Mandiri Persero (BMRI IJ) and Bank Negara Indonesia Persero (BBNI IJ) and there had been talks (since Feb 2020?) with the government for BBRI to take over state-owned pawnshop lender PT Pegadaian and financing firm PT Permodalan Nasional Madani to provide affordable loans to SMEs. A deal for BBRI to take over those two firms was decided in early February, and the need for a rights issue was set, though this required parliamentary approval and BBRI needed shareholder approval for the rights issue - which it announced in June and received in July - under the mechanism of Capital Increase by Granting Securities Subscription Rights First (PMHMETD). Angus Mackintosh discussed the bank's initiatives and aspirations in the micro lending space in Bank Rakyat Indonesia (BBRI IJ) - Both Micro and Digital in February followed by a discussion of the rights issue itself in early July in Bank Rakyat Indonesia (BBRI IJ) - Ultra-Micro and Digital Aspirations in Place. Angus made a strong case for the bank in both insights and they are worth a read. The shares have basically had an overhang in place since early this year but in June when it became clear the rights issue would be Very Large, that overhang became more pronounced. The presentation made to get this past shareholders (never really in doubt as the govt owns 57%) announced the development of an "Ultra-Micro segment" to create an Ultra-Micro Ecosystem as the foundation for further growth, structured under Ultra Micro Holding owned by BRI, in the form of previous precedents of SOE development platforms such as Biofarma/Indofarma (INAF IJ) and Inalum's investment in Indonesian mining companies. The way this would be done is a rights offering to offer 230,128,553 rights for every 1,000,000,000 Existing Shares (roughly 0.23013 for 1), with the government contributing its ownership of Pegadaian and PNM in kind to fulfil its rights exercise consideration payment.That means the ~0.23 to 1 Rights Offering would be in effect for the other 43% of holders, which is a vast array of local and international institutions and local retail shareholders, with an Exercise Price of IDR 3400/share, and assuming 100% participation, that would garner IDR 41.15trln in proceeds, which, according to the roadshow presentation released in early September, "will be used for working capital for BRI in order to develop an ultra-micro ecosystem as well as micro and small businesses."The shares traded on the regular market went ex-rights today. Rights will be distributed on 10 September, traded from 13-22 September and exercised in the same period, with the last day for Excess Rights Subscription the 24 September and allotment of Excess Rights on 27 September.There is considerable opportunity here. Some short-term, some longer-term. But it is considerable because there is a fair bit of potential overhang here.I consider the opportunity set below the fold. 

Bank Rakyat Indonesia (BBRI)'s Mega Rights Issue - Plenty of Opportunity Short-Term and Long-Term

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a> announced its 1H2021 results with sales increasing by +20% YoY and headline net profit decreasing by -22% YoY but removing the impact of the <a href="https://www.smartkarma.com/entities/bank-permata-tbk-pt" target="_blank" data-smartkarma-citation="entities:728:1" rel="noopener">Bank Permata (BNLI IJ)</a> sale last year, net profit increased by an impressive +61% YoY.</p>
<p>The better numbers were driven by a strong improvement in the auto business, with car sales up +50% YoY and motorcycle sales +29% YoY.</p>
<p>The group was also a beneficiary of higher commodity prices in 1H2021, which boosted the performance of its heavy equipment and mining business under <a href="https://www.smartkarma.com/entities/united-tractors-tbk-pt" target="_blank" data-smartkarma-citation="entities:698:1" rel="noopener">United Tractors (UNTR IJ)</a> and its agribusiness under <a href="https://www.smartkarma.com/entities/astra-agro-lestari-tbk-pt" target="_blank" data-smartkarma-citation="entities:4050:1" rel="noopener">Astra Agro Lestari (AALI IJ)</a>, which saw net profit +14% YoY and +66% YoY respectively.  </p>
<p>The group consumer finance business saw a +13% increase in the amounts financed with an increase of +2% in net profit growth. Car finance saw a +2% increase and motorcycle finance a +3% YoY increase in net profit, while heavy equipment finance saw a +46% increase in the amounts financed by a -20% decrease in contribution due to a reduced loan portfolio. </p>
<p><a href="https://www.smartkarma.com/entities/united-tractors-tbk-pt" target="_blank" data-smartkarma-citation="entities:698:1" rel="noopener">United Tractors (UNTR IJ) </a>saw a +13% increase in net income with a +60% increase in Komatsu heavy equipment sales and helped by higher coal prices. <a href="https://www.smartkarma.com/entities/astra-agro-lestari-tbk-pt" target="_blank" data-smartkarma-citation="entities:4050:1" rel="noopener">Astra Agro Lestari (AALI IJ)</a>saw a boost from higher crude palm oil prices, which rose +29% in 1H2021.</p>
<div class="content-highlight">
<p><a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a> remains relatively cautious on the outlook given the current wave of COVID-19 cases but the company is well-positioned to weather any delay in an economic recovery but also to take advantage of any potential opportunities, given its rock-solid balance sheet. <a href="https://www.smartkarma.com/entities/astra-international-tbk-pt" target="_blank" data-smartkarma-citation="entities:46:1" rel="noopener">Astra International (ASII IJ)</a> is trading on 10.6x FY2021E PER and 9.1x FY2022E PER versus its 5-year average forward PER of 14.2x, making it attractive from a valuation perspective. It remains one of our top recovery picks for Indonesia, given its exposure to autos, motorcycles, consumer finance, heavy equipment, and commodities.</p>
</div>

Astra International (ASII IJ) announced its 1H2021 results with sales increasing by +20% YoY and headline net profit decreasing by -22% YoY but removing the impact of the Bank Permata (BNLI IJ) sale last year, net profit increased by an impressive +61% YoY.
The better numbers were driven by a strong improvement in the auto business, with car sales up +50% YoY and motorcycle sales +29% YoY.
The group was also a beneficiary of higher commodity prices in 1H2021, which boosted the performance of its heavy equipment and mining business under United Tractors (UNTR IJ) and its agribusiness under Astra Agro Lestari (AALI IJ), which saw net profit +14% YoY and +66% YoY respectively.  
The group consumer finance business saw a +13% increase in the amounts financed with an increase of +2% in net profit growth. Car finance saw a +2% increase and motorcycle finance a +3% YoY increase in net profit, while heavy equipment finance saw a +46% increase in the amounts financed by a -20% decrease in contribution due to a reduced loan portfolio. 
United Tractors (UNTR IJ) saw a +13% increase in net income with a +60% increase in Komatsu heavy equipment sales and helped by higher coal prices. Astra Agro Lestari (AALI IJ)saw a boost from higher crude palm oil prices, which rose +29% in 1H2021.

Astra International (ASII IJ) remains relatively cautious on the outlook given the current wave of COVID-19 cases but the company is well-positioned to weather any delay in an economic recovery but also to take advantage of any potential opportunities, given its rock-solid balance sheet. Astra International (ASII IJ) is trading on 10.6x FY2021E PER and 9.1x FY2022E PER versus its 5-year average forward PER of 14.2x, making it attractive from a valuation perspective. It remains one of our top recovery picks for Indonesia, given its exposure to autos, motorcycles, consumer finance, heavy equipment, and commodities.


Astra International (ASII IJ) - Leaning into the Recovery

Thai Equity - Bottom-up - Equities, Pi Securities PCL, Thailand

Pi Research

Thai Equity - Bottom-up - Equities

Leading, full-service investment firm in Thailand

Pi Securities PCL, Thailand

Pi Securities is a well known securities company with 40 years experience in the industry, serving more than 60,000 clients. We offer one - stop service providing full range of financial products and services including extensive Brokerage, Proprietary Trading (Equities and Bonds), Advisory Services, Structured Products.

Moreover, our new research team tailored for institutional clients to focus on mid to small cap of Thai equities and trading strategies. Our services offered to our premium clients also include arrangement of company or site visits to with the managements of Thai listed companies.

Note: Effective on 1 March 2022, Country Group Securities PCL changed its name to Pi Securities

<p><strong>Neutral tone from yesterday analysts’ meeting. We reiterate our BUY rating with a target price at Bt155, derived from 0.65x PBV’21E,which is close to its 3-year average.</strong></p><div>• Management maintain financial targets as previous quarter and in line with our expectation. In essence to our believe, the bank has sufficient loan loss reserve with 190% of coverage ratio in 2Q21  and could decrease its expected credit loss  in 2H21 to meet the target 22,000 million baht in 2021.</div><div></div><div>• The bank will also benefit from expanding export sector and could reach its target loan growth at 3-4% among covid-19 pandemic. Meanwhile, fund management business and brokerage fee would be the key driver for enhancing net fee income of BBL in this years.</div><div></div><div>• We expect earnings momentum to remain weak in 2H21 given prolong pandemic which could depress loan growth and NIM. However, current share price which is trading at 0.4xPBV’21E is quite cheap. Together with its secured loan portfolio, any downside should be limited relative to peers.</div>

Neutral tone from yesterday analysts’ meeting. We reiterate our BUY rating with a target price at Bt155, derived from 0.65x PBV’21E,which is close to its 3-year average.• Management maintain financial targets as previous quarter and in line with our expectation. In essence to our believe, the bank has sufficient loan loss reserve with 190% of coverage ratio in 2Q21  and could decrease its expected credit loss  in 2H21 to meet the target 22,000 million baht in 2021.• The bank will also benefit from expanding export sector and could reach its target loan growth at 3-4% among covid-19 pandemic. Meanwhile, fund management business and brokerage fee would be the key driver for enhancing net fee income of BBL in this years.• We expect earnings momentum to remain weak in 2H21 given prolong pandemic which could depress loan growth and NIM. However, current share price which is trading at 0.4xPBV’21E is quite cheap. Together with its secured loan portfolio, any downside should be limited relative to peers.

BBL: Cheap Valuation with Secured Portfolio Will Limit Downside

<p><strong>BBL’s net profit in 2Q21 was Bt6.36 bn (+105%YoY, -8%QoQ), 5% better than our forecast with stable NPL at 3.7%.</strong></p><div>• Pre-provision profit grew 1.6%YoY and 16%QoQ to Bt17.5bn backed QoQ growth by growing Non-NII. Net interest income was Bt 20.0bn (+10.6%YoY, +1.6%QoQ) ,in line with our forecast supported by loan growth (+2.2%YTD).</div><div></div><div>• Meanwhile, Non-NII dropped 2.6%YoY but grew 23.7%QoQ to Bt13.7bn , driven QOQ by higher dividend income and better gain from portfolio investment. However, net fees and service income declined 6%QoQ due to lower fee income from mutual funds and bancassurance services.</div><div></div><div>• We expect earnings momentum to remain mute HoH in 2H21 given possible rising provision in reaction to prolong pandemic, but to grow strongly YoY due to low base. However, current share price at 0.4xPBV’21E is quite cheap. Together with its secured loan portfolio, any downside should be limited.</div><div></div><div><strong>We reiterate our BUY rating with a target price at Bt155, derived from 0.65x PBV’21E,which is close to its 3-year average.</strong></div>

BBL’s net profit in 2Q21 was Bt6.36 bn (+105%YoY, -8%QoQ), 5% better than our forecast with stable NPL at 3.7%.• Pre-provision profit grew 1.6%YoY and 16%QoQ to Bt17.5bn backed QoQ growth by growing Non-NII. Net interest income was Bt 20.0bn (+10.6%YoY, +1.6%QoQ) ,in line with our forecast supported by loan growth (+2.2%YTD).• Meanwhile, Non-NII dropped 2.6%YoY but grew 23.7%QoQ to Bt13.7bn , driven QOQ by higher dividend income and better gain from portfolio investment. However, net fees and service income declined 6%QoQ due to lower fee income from mutual funds and bancassurance services.• We expect earnings momentum to remain mute HoH in 2H21 given possible rising provision in reaction to prolong pandemic, but to grow strongly YoY due to low base. However, current share price at 0.4xPBV’21E is quite cheap. Together with its secured loan portfolio, any downside should be limited.We reiterate our BUY rating with a target price at Bt155, derived from 0.65x PBV’21E,which is close to its 3-year average.

BBL: 2Q21 Result Was in Line with Our Expectation

Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

<p><strong><em>*Weak Numerics: </em></strong>Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and</p><p><strong><em>*Credit Risk Remains Elevated: </em></strong>We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.</p>

*Weak Numerics: Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and*Credit Risk Remains Elevated: We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.

Thailand

Bangkok Bank Public Company Limited provides various banking and financial services including commercial, consumer, credit card, and mortgage lending, international trade financing, investment banking, and securities services.

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Bangkok Bank Public (BBL TB)

Bank Rakyat Indonesia (BBRI)'s Mega Rights Issue - Plenty of Opportunity Short-Term and Long-Term

Bank Rakyat (BBRI) Indonesia's largest bank by assets, has a rights issue (stock went ex-rights today). The bank hopes to raise $2.8bn from its...

Travis Lundy

Astra International (ASII IJ) - Leaning into the Recovery

Astra Internations remains one of our top recovery picks for Indonesia, given its exposure to autos, motorcycles, consumer finance, heavy...

Angus Mackintosh

BBL: Cheap Valuation with Secured Portfolio Will Limit Downside

Neutral tone from yesterday analysts’ meeting. We reiterate our BUY rating with a target price at Bt155, derived from 0.65x PBV’21E,which is close...

Pi Securities PCL, Thailand

BBL: 2Q21 Result Was in Line with Our Expectation

BBL’s net profit in 2Q21 was Bt6.36 bn (+105%YoY, -8%QoQ), 5% better than our forecast with stable NPL at 3.7%. We reiterate our BUY rating with a...

Pi Securities PCL, Thailand

Bangkok Bank – Rotten To The Core

BANGKOK BANK: BBL reported a 2Q21 QOQ core operating results decline of 86.2%. The increase in net new NPLs, unknown moratorium credits, and COVID...

Thomas J. Monaco

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