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

Cross Asset Strategy

Thailand has managed its way through the COVID-19 Pandemic admirably, in terms of bringing the numbers of new infections almost down to zero, outperforming its ASEAN peers along with Vietnam, quite considerably. 
In order to achieve this result, the country imposed quite draconian lockdown measures closing restaurants and non-essential retail, even including an alcohol ban for a period to dissuade the population from socialising. 
The Kingdom probably saw the impact at its most intense in April and May, with a gradual recovery starting in June and July across the domestic economy. 
As part of these measures, Thailand closed its borders to foreigners and most importantly to tourists from the start of the pandemic until now. This has put a significant dent in the country's economy,  given that tourism is estimated to account for anything between 12%-20% of GDP. 
The repercussions of this are wide-ranging from the obvious knock to hotels and restaurants but also has a significant impact on retailers, domestic consumption, and indirectly on the banking system, as NPLs from the different tourism-related segments start to rise.
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Thailand is taking the first steps to tentatively re-open the country's doors to tourism, for those wishing to stay more than 90 days, as well as for COVID-19 free medical tourists. There may be a more meaningful opening up towards the end of the year.
We look at hotels, hospitals, and retailers in an attempt to identify the key beneficiaries of gradual recovery in tourism and those stocks that remain the most defensive. There is also likely to be a knock-on impact for the Thai banks, which are looking attractive from a valuation perspective. 
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Thailand has managed its way through the COVID-19 Pandemic admirably, in terms of bringing the numbers of new infections almost down to zero, outperforming its ASEAN peers along with Vietnam, quite considerably. 
In order to achieve this result, the country imposed quite draconian lockdown measures closing restaurants and non-essential retail, even including an alcohol ban for a period to dissuade the population from socialising. 
The Kingdom probably saw the impact at its most intense in April and May, with a gradual recovery starting in June and July across the domestic economy. 
As part of these measures, Thailand closed its borders to foreigners and most importantly to tourists from the start of the pandemic until now. This has put a significant dent in the country's economy,  given that tourism is estimated to account for anything between 12%-20% of GDP. 
The repercussions of this are wide-ranging from the obvious knock to hotels and restaurants but also has a significant impact on retailers, domestic consumption, and indirectly on the banking system, as NPLs from the different tourism-related segments start to rise.

Thailand is taking the first steps to tentatively re-open the country's doors to tourism, for those wishing to stay more than 90 days, as well as for COVID-19 free medical tourists. There may be a more meaningful opening up towards the end of the year.
We look at hotels, hospitals, and retailers in an attempt to identify the key beneficiaries of gradual recovery in tourism and those stocks that remain the most defensive. There is also likely to be a knock-on impact for the Thai banks, which are looking attractive from a valuation perspective. 


Thailand's Tourism Dilemma - Buy Retailers, Hospitals, and Select Hotels

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Back on the 4 March, <a href="https://www.smartkarma.com/entities/bank-of-east-asia-ltd" target="_blank" data-smartkarma-citation="entities:341:1" rel="noopener">Bank of East Asia (23 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0304/2020030400035.pdf" target="_blank" rel="noopener">announced</a> a strategic review of its portfolio. The review was supported by Elliott Management, and was viewed as a tentative truce between the two ahead of an expected court date to arbitrate BEA's alleged relationship with two of its key shareholders, Japan’s <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-gr" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial (8316 JP)</a> and Spain’s <a href="https://www.smartkarma.com/entities/caixabank-sa" target="_blank" data-smartkarma-citation="entities:21255:1" rel="noopener">CaixaBank SA (CABK SM)</a>. I discussed this development in <a href="https://skr.ma/f3hfy" target="_blank" rel="noopener">Elliott &amp; BEA: "Fiefdom" On Pause</a>.
Fast forward six and half months and BEA has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0923/2020092300183.pdf" target="_blank" rel="noopener">decided</a> to initiate a "sale process for BEA Life Limited (“BEA Life”) in order to enhance the value of the Bank’s business, improve its financial position and enable its management team to focus on its core banking operations in Hong Kong and Mainland China".  The announcement was supported by Elliott.
BEA added that it would seek to enter into a "long-term exclusive distribution agreement that will provide an ongoing source of revenue for BEA as a distributor of insurance products through its banking platform."
Reportedly BEA could raise US$500mn-US$600mn from the sale, which is roughly in line with the gross written premiums of HK$4.8bn in 2019; and ~5.5x the net insurance premium of HK$826mn in FY19. 
BEA said it would further identify opportunities to grow its core businesses   - presumably this already formed part of its forward roadmap. 
But does the sale and formation of a so-called bancassurance partnership, make BEA a more attractive company (as a standalone or takeover target); or a less attractive bank as it focuses on is pedestrian traditional banking ops? Or is this simply, just the opening salvo from its ongoing strategy?
As always, more below the fold.

Back on the 4 March, Bank of East Asia (23 HK) announced a strategic review of its portfolio. The review was supported by Elliott Management, and was viewed as a tentative truce between the two ahead of an expected court date to arbitrate BEA's alleged relationship with two of its key shareholders, Japan’s Sumitomo Mitsui Financial (8316 JP) and Spain’s CaixaBank SA (CABK SM). I discussed this development in Elliott &amp; BEA: "Fiefdom" On Pause.
Fast forward six and half months and BEA has decided to initiate a "sale process for BEA Life Limited (“BEA Life”) in order to enhance the value of the Bank’s business, improve its financial position and enable its management team to focus on its core banking operations in Hong Kong and Mainland China".  The announcement was supported by Elliott.
BEA added that it would seek to enter into a "long-term exclusive distribution agreement that will provide an ongoing source of revenue for BEA as a distributor of insurance products through its banking platform."
Reportedly BEA could raise US$500mn-US$600mn from the sale, which is roughly in line with the gross written premiums of HK$4.8bn in 2019; and ~5.5x the net insurance premium of HK$826mn in FY19. 
BEA said it would further identify opportunities to grow its core businesses   - presumably this already formed part of its forward roadmap. 
But does the sale and formation of a so-called bancassurance partnership, make BEA a more attractive company (as a standalone or takeover target); or a less attractive bank as it focuses on is pedestrian traditional banking ops? Or is this simply, just the opening salvo from its ongoing strategy?
As always, more below the fold.

BEA (23 HK): Big Banc Theory And Elliott's Hard Slog

Private Capital Markets

GoTo Gojek Tokopedia Tbk PT / Private Capital Markets

Recent news suggests that <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a> and <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> have restarted discussions on a possible merger backed by SoftBank CEO and founder Masayoshi Son. Our view is that it seems this ride-hailing mega-merger becomes less-likely should <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> take a stake in <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a>. It was recently reported that it would invest US$3bn into the ride-hailing company, with some of this stake potentially coming out of <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US).</a>
Quite apart from the fact that <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> has only recently received investment from <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> and <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US),</a> the company is also viewed as a  national champion in Indonesia, with high-profile shareholders such as <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> and Djarum Group, who may object to the deal, under which <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a> may come out on top being the bigger company currently, in terms of recent valuations. 
There has been much debate surrounding the incessant competition between so-called Super Apps Indonesia-based <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> and Singapore headquartered <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP),</a> as they vie for position in the former's home market and across the rest of South-East Asia.  Although originally both App-based ride-hailing companies, both now offer a much wider variety of services including food-delivery and crucially, digital payments, and other financial services. Gojek through Go-Pay and Grab through GrabPay regionally, and OVO in Indonesia, where it has a stake. 
<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> backed <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> dominates in its home market of Indonesia, which makes up 90% of its revenues but it is also presenting some challenges to Grab in Singapore, Thailand, and Vietnam and possibly soon to be the Philippines and even Malaysia. 
<a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a> has been making in-roads into the App-based motorcycle and taxi business in Indonesia, as well as the food-delivery business through GrabFood with the use of heavy promotions and subsidies. Given a more recent focus on profitability plus the impact of COVID-19 PSBB (large scale social distancing) measures on all businesses, especially ride-hailing, it is undoubtedly feeling the pressure in Indonesia.
Both companies have formidable funding war chests, with <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> managing to complete its latest US$2.5bn round in the midst of the pandemic and topping this up again only a couple of months ago. Grab raised a whopping US$4.5bn in its last round and potentially another US$3bn round from <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> though some of this may be existing shares. 
In some ways, money is not the issue and it is the winning strategy that counts. <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> has a history of frugality but has made a number of missteps in the last year, withdrawing some of its GoLife services, withdrawing GoMart, and a failed attempt at entering the Philippines. <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a> has been very aggressive in providing subsidies in its food businesses in Indonesia to gain share. It remains to be seen how this approach will pan out in the longer-term, especially in light of COVID-19, which has hit ride-hailing hard.
Future funding is another longer-term issue, despite the recent amounts that have been raised. In this respect, <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> is better positioned after its very recent funding round, which brought in <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> and <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US)</a>. For <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a>, it was less certain until recently, at a time when Softbank is reeling from the WeWork and OYO experiences. Valuations of global comparable such as <a href="https://www.smartkarma.com/entities/uber-technologies-inc" target="_blank" data-smartkarma-citation="entities:430:1" rel="noopener">Uber (UBER US)</a> and <a href="https://www.smartkarma.com/entities/lyft-inc" target="_blank" data-smartkarma-citation="entities:24423:1" rel="noopener">Lyft Inc (LYFT US)</a> have also come under pressure, which suggests that we could see some markdown on <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP),</a> especially with its higher exposure to ride-hailing.

Recent news suggests that Grab (0967655D SP) and Gojek (1379371D IJ) have restarted discussions on a possible merger backed by SoftBank CEO and founder Masayoshi Son. Our view is that it seems this ride-hailing mega-merger becomes less-likely should Alibaba Group (BABA US) take a stake in Grab (0967655D SP). It was recently reported that it would invest US$3bn into the ride-hailing company, with some of this stake potentially coming out of Uber (UBER US).
Quite apart from the fact that Gojek (1379371D IJ) has only recently received investment from Facebook Inc A (FB US) and Paypal Holdings (PYPL US), the company is also viewed as a  national champion in Indonesia, with high-profile shareholders such as Astra International (ASII IJ) and Djarum Group, who may object to the deal, under which Grab (0967655D SP) may come out on top being the bigger company currently, in terms of recent valuations. 
There has been much debate surrounding the incessant competition between so-called Super Apps Indonesia-based Gojek (1379371D IJ) and Singapore headquartered Grab (0967655D SP), as they vie for position in the former's home market and across the rest of South-East Asia.  Although originally both App-based ride-hailing companies, both now offer a much wider variety of services including food-delivery and crucially, digital payments, and other financial services. Gojek through Go-Pay and Grab through GrabPay regionally, and OVO in Indonesia, where it has a stake. 
Tencent Holdings (700 HK) backed Gojek (1379371D IJ) dominates in its home market of Indonesia, which makes up 90% of its revenues but it is also presenting some challenges to Grab in Singapore, Thailand, and Vietnam and possibly soon to be the Philippines and even Malaysia. 
Grab (0967655D SP) has been making in-roads into the App-based motorcycle and taxi business in Indonesia, as well as the food-delivery business through GrabFood with the use of heavy promotions and subsidies. Given a more recent focus on profitability plus the impact of COVID-19 PSBB (large scale social distancing) measures on all businesses, especially ride-hailing, it is undoubtedly feeling the pressure in Indonesia.
Both companies have formidable funding war chests, with Gojek (1379371D IJ) managing to complete its latest US$2.5bn round in the midst of the pandemic and topping this up again only a couple of months ago. Grab raised a whopping US$4.5bn in its last round and potentially another US$3bn round from Alibaba Group (BABA US) though some of this may be existing shares. 
In some ways, money is not the issue and it is the winning strategy that counts. Gojek (1379371D IJ) has a history of frugality but has made a number of missteps in the last year, withdrawing some of its GoLife services, withdrawing GoMart, and a failed attempt at entering the Philippines. Grab (0967655D SP) has been very aggressive in providing subsidies in its food businesses in Indonesia to gain share. It remains to be seen how this approach will pan out in the longer-term, especially in light of COVID-19, which has hit ride-hailing hard.
Future funding is another longer-term issue, despite the recent amounts that have been raised. In this respect, Gojek (1379371D IJ) is better positioned after its very recent funding round, which brought in Facebook Inc A (FB US) and Paypal Holdings (PYPL US). For Grab (0967655D SP), it was less certain until recently, at a time when Softbank is reeling from the WeWork and OYO experiences. Valuations of global comparable such as Uber (UBER US) and Lyft Inc (LYFT US) have also come under pressure, which suggests that we could see some markdown on Grab (0967655D SP), especially with its higher exposure to ride-hailing. 

Gojek and Grab - A Merger of the Super Apps on the Offing? We Think Not.

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

As Thailand prepares to re-open airports to foreign travel, it is worth understanding how the country appears more geared to tourism than most all others in Asia-Pacific. We can see this in the number of tourist arrivals and also in tourism revenue compared with GDP. While banks typically do not have a segment of loans labled ‘tourism’ they will nonetheless be well exposed, as banks are the financiers of economies. To us, Thailand’s <a href="https://www.smartkarma.com/entities/kasikornbank-pcl" target="_blank" data-smartkarma-citation="entities:293:1" rel="noopener">Kasikornbank PCL (KBANK TB)</a> stands out positively not only with relatively high SME lending - which may be the most general bucket of loans most related to tourism -  but also with relatively high credit costs in recent quarters.

As Thailand prepares to re-open airports to foreign travel, it is worth understanding how the country appears more geared to tourism than most all others in Asia-Pacific. We can see this in the number of tourist arrivals and also in tourism revenue compared with GDP. While banks typically do not have a segment of loans labled ‘tourism’ they will nonetheless be well exposed, as banks are the financiers of economies. To us, Thailand’s Kasikornbank PCL (KBANK TB) stands out positively not only with relatively high SME lending - which may be the most general bucket of loans most related to tourism -  but also with relatively high credit costs in recent quarters.

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

We have a SELL recommendation on CHAYO with our target price of Bt6.90, implying a downside of 16% from the current price. We derive our target price from the PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
Investment thesis:
<ul>
<li>Rising level of bad loans in Thailand can boost core business</li>
<li>Economic uncertainty helps to expand the customer base for debt collection</li>
<li>Debt collection to further benefit from increasing mobile usage</li>
<li>High growth is priced in, warrant exercise to fund growth</li>
</ul>
Interim: The 2Q20 results were mainly in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.
Risks: Increased competition in acquiring non-performing loans, loss from unsecured debt management, adverse regulatory changes, and potential litigation issues arising from debt collection service. A risk to our recommendation is that sentiment drives the share price considerably higher.

We have a SELL recommendation on CHAYO with our target price of Bt6.90, implying a downside of 16% from the current price. We derive our target price from the PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
Investment thesis:

Rising level of bad loans in Thailand can boost core business
Economic uncertainty helps to expand the customer base for debt collection
Debt collection to further benefit from increasing mobile usage
High growth is priced in, warrant exercise to fund growth

Interim: The 2Q20 results were mainly in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.
Risks: Increased competition in acquiring non-performing loans, loss from unsecured debt management, adverse regulatory changes, and potential litigation issues arising from debt collection service. A risk to our recommendation is that sentiment drives the share price considerably higher.

CHAYO: Remarkable Growth, but Would Need More

Thailand

SCB X Public Company Limited provides banking services. The Bank offers accounts, loans, cards, deposits, insurance, investment, payment, digital banking, and other related services. SCB X serves customers worldwide.

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Siam Commercial Bank (SCB TB)

Thailand's Tourism Dilemma - Buy Retailers, Hospitals, and Select Hotels

Thailand has maanged

Angus Mackintosh

BEA (23 HK): Big Banc Theory And Elliott's Hard Slog

Just two months before Elliott Management and Bank Of East Asia (23 HK) head back to court to arbitrate on BEA's purported overarching relationship...

David Blennerhassett

Gojek and Grab - A Merger of the Super Apps on the Offing? We Think Not.

There has been much debate surrounding the incessant competition between so-called Super Apps Indonesia-based Gojek (1379371D IJ) and Singapore...

Angus Mackintosh

Thai Banks – Leveraged To Tourism?

As Thailand prepares to re-open airports to foreign travel, it is worth understanding how the country appears more geared to tourism than most all...

Daniel Tabbush

CHAYO: Remarkable Growth, but Would Need More

The 2Q20 results were in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.

A. Stotz Investment Research

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