Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

Kerry Express Thailand / Equity Capital Markets

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> and <a href="https://www.smartkarma.com/entities/best-inc" target="_blank" data-smartkarma-citation="entities:25494:1" rel="noopener">BEST Inc (BEST US).</a> KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant <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>. These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term.

The purpose of this note is to analyze the different eCommerce fulfillment markets pursued by Kerry Express Thailand (KEX TB) and BEST Inc (BEST US). KEX focuses on Thailand's domestic express market, while Best has a competing domestic service and is also developing a X-border express service to quickly move Chinese goods into multiple SE Asian markets.To better understand these two markets, we looked at market data from KEX's IPO documents as well as financial data disclosed by eCommerce giant Alibaba Group (BABA US). These figures, combined with numbers from KEX itself and the Chinese express companies, give investors a sense of the size and growth potential of the Thai domestic and X-border eComm fulfillment markets.While both markets offer attractive growth, they also present distinct challenges. In the Thai domestic express market, these challenges include a lack of scale (compared to China's expess market) and relatively low population density, especially outside of Metro Bangkok. Challenges presented by the X-border market include exorbitant pricing, competition from large multinationals, and increased complexity (ie, paperwork, customs, tariffs, etc). We conclude that KEX is an intriguing pure play on Thailand's eCommerce development whose upcoming IPO is worth following. Regarding Best, we recently upgraded its shares to Buy on expected sector consolidation. To date its Thai and X-border revenues remain a very small part of the company's business which probably won't "move the needle" in the near-term. 

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

China Tourism Group Duty Free Corp Ltd / Equity Bottom-Up

During the Golden Week, average daily (for 1-7 Oct) duty free sales amounted to Rmb126m in Hainan, or an impressive 142.7% YoY growth. Since the start of the new Hainan duty free policy, average daily duty free sales has increased by 53%, suggesting a solid trend of improvement. Duty free sales in Hainan in 3Q20 has now equaled to its total sales in the island in 1H20. In our view, this solid performance will reflect positively on <a href="https://www.smartkarma.com/entities/china-tourism-group-duty-free-corp-ltd" target="_blank" data-smartkarma-citation="entities:12278:1" rel="noopener">China Tourism Group Duty Free Corp Ltd (601888 CH)</a>'s quarterly result to be announced in late-Oct, and will serve as a positive share price catalyst. While rising competition is a valid concern, we believe any estimate of their impacts is overblown in the near term. The formation of a joint venture between <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a> and <a href="https://www.smartkarma.com/entities/dufry-ag" target="_blank" data-smartkarma-citation="entities:22344:1" rel="noopener">Dufry AG (DUFN SW)</a> to explore travel retail business opportunities in China is no difference. We believe CTG Duty Free's solid SOE status, unparalleled procurement and logistics capabilities, huge volume demand and excellent infrastructure are advantages difficult to challenge.

During the Golden Week, average daily (for 1-7 Oct) duty free sales amounted to Rmb126m in Hainan, or an impressive 142.7% YoY growth. Since the start of the new Hainan duty free policy, average daily duty free sales has increased by 53%, suggesting a solid trend of improvement. Duty free sales in Hainan in 3Q20 has now equaled to its total sales in the island in 1H20. In our view, this solid performance will reflect positively on China Tourism Group Duty Free Corp Ltd (601888 CH)'s quarterly result to be announced in late-Oct, and will serve as a positive share price catalyst. While rising competition is a valid concern, we believe any estimate of their impacts is overblown in the near term. The formation of a joint venture between Alibaba Group (9988 HK) and Dufry AG (DUFN SW) to explore travel retail business opportunities in China is no difference. We believe CTG Duty Free's solid SOE status, unparalleled procurement and logistics capabilities, huge volume demand and excellent infrastructure are advantages difficult to challenge. 

CTG Duty Free Corp (601888 CH): Extending Solid Sales Track in the Golden Week

Asean-focused. Ex-Head of Thai Research

Athaporn Arayasantiparb, CFA

Asean (Thailand) Focused Independent Research

M Corp Review

M Corp is led by Athaporn Arayasantiparb who served as Head of Research for UOB and ANZ in Thailand and was an award-winning telecoms analyst at UBS in 2010 (AsiaMoney Thailand category) and Regional Strategist for DMG in Singapore. Prior to that, he also served as Kasikornbank credit analyst and scholar. He has a total work experience of 17 years, of which 14 were in research and 4 in research management roles. He started his career as an engineer for PTT and currently manages family investments. He holds an MBA from Stern (NYU) and CFA Charter since 2006. Apart from IPO Radar, which focuses on future listings, MCorp Review also provides six on-going thematic series ranked by frequency in descending order, namely: 1) Silicon Stories (technology) 2) Sathorn Series (financial services) 3) Thai-Coons (billionaire origin stories) 4) Reality Check (data-driven, investigative) 5) Thai Media Spotlight; and 6) Thai Macro Watch (global market drivers).

Thematic (Sector/Industry)

Resistance is futile in the world of technology. In this review, we observe a number of Thai companies getting on the bandwagon. Others are finding it more difficult to adapt. For those with the strength to make real progress, it may be worth a look.<ul>
<li>
BAY upgrades Finnovate to venture capital after years of being an integral part of the bank. Finnovate's portfolio now includes Omise (cryptocurrency), Grab (food delivery), and Finnomena (financial advisory).</li>
<li>
Rise of robots. Thailand emerges as top ten user of industrial robots globally and key player in emerging markets and threatening both agricultural and industrial jobs nationwide, according to TNN Business Watch.</li>
<li>
RS reported strong profit growth of over 60% but more importantly, much of this is driven by yet a new business....e-commerce.</li>
<li>
Three interesting Thai startups were recently identified based on their strong funding: 1) a CP Group-backed AI firm Amity; 2) aCommerce, an e-commerce end-to-end enabler; and 3) Synqa, the parent company of Omise.</li>
<li>
Lazada goes omni-channel. Lazada sets up its first pop-up store at Siam Center emulating American leaders like WalMart and Amazon. They may have lost the crown to Shoppee, but it's still a better investment that local defender COL, which partners with rival JD.com.</li>
</ul>

Resistance is futile in the world of technology. In this review, we observe a number of Thai companies getting on the bandwagon. Others are finding it more difficult to adapt. For those with the strength to make real progress, it may be worth a look.

BAY upgrades Finnovate to venture capital after years of being an integral part of the bank. Finnovate's portfolio now includes Omise (cryptocurrency), Grab (food delivery), and Finnomena (financial advisory).

Rise of robots. Thailand emerges as top ten user of industrial robots globally and key player in emerging markets and threatening both agricultural and industrial jobs nationwide, according to TNN Business Watch.

RS reported strong profit growth of over 60% but more importantly, much of this is driven by yet a new business....e-commerce.

Three interesting Thai startups were recently identified based on their strong funding: 1) a CP Group-backed AI firm Amity; 2) aCommerce, an e-commerce end-to-end enabler; and 3) Synqa, the parent company of Omise.

Lazada goes omni-channel. Lazada sets up its first pop-up store at Siam Center emulating American leaders like WalMart and Amazon. They may have lost the crown to Shoppee, but it's still a better investment that local defender COL, which partners with rival JD.com.


Silicon Stories M: If You Can't Beat Them, Join Them

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

<a href="https://www.smartkarma.com/entities/dufry-ag" target="_blank" data-smartkarma-citation="entities:22344:1" rel="noopener">Dufry AG (DUFN SW)</a> is an operator of more than 2,400 travel retail stores globally under several famous brands including Dufry and World Duty Free. Yesterday, 6th October 2020, the company held an extraordinary general meeting and obtained shareholder approval to issue up to 25 million new shares to raise about CHF 700m ($764m).Existing holders will get priority over Alibaba and Advent International to participate in the secondary offering via an “at-market” rights offering of 4 new shares per every 9 existing shares held.Dufry has already secured a CHF 415m equity investment commitment from funds managed by Advent International Corporation and its affiliates to purchase shares at CHF 28.50 per share.On 5th October 2020, Dufry announced a strategic partnership with the <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>. The partnership involves creating a JV in China (51% Alibaba and 49% Dufry) and a capital injection of CHF 250m by Alibaba in exchange for a maximum of 9.99% ownership of Dufry’s post-offering share capital.The shares not taken up by existing shareholders will be first offered to Advent International and the remaining is offered to Alibaba Group at CHF 28.50 per share- subject to a minimum participation of 8.8% of Dufry’s post-offering share capital.Remaining shares will be offered to the market via a public offering in Switzerland and private placements in certain jurisdictions outside Switzerland.Both Alibaba and Advent International have agreed to a lock-up period of 6 months.If the offer price is higher than CHF 28.50 per share, Advent International and Alibaba will not be obliged to purchase Dufry shares.

Dufry AG (DUFN SW) is an operator of more than 2,400 travel retail stores globally under several famous brands including Dufry and World Duty Free. Yesterday, 6th October 2020, the company held an extraordinary general meeting and obtained shareholder approval to issue up to 25 million new shares to raise about CHF 700m ($764m).Existing holders will get priority over Alibaba and Advent International to participate in the secondary offering via an “at-market” rights offering of 4 new shares per every 9 existing shares held.Dufry has already secured a CHF 415m equity investment commitment from funds managed by Advent International Corporation and its affiliates to purchase shares at CHF 28.50 per share.On 5th October 2020, Dufry announced a strategic partnership with the Alibaba Group (BABA US). The partnership involves creating a JV in China (51% Alibaba and 49% Dufry) and a capital injection of CHF 250m by Alibaba in exchange for a maximum of 9.99% ownership of Dufry’s post-offering share capital.The shares not taken up by existing shareholders will be first offered to Advent International and the remaining is offered to Alibaba Group at CHF 28.50 per share- subject to a minimum participation of 8.8% of Dufry’s post-offering share capital.Remaining shares will be offered to the market via a public offering in Switzerland and private placements in certain jurisdictions outside Switzerland.Both Alibaba and Advent International have agreed to a lock-up period of 6 months.If the offer price is higher than CHF 28.50 per share, Advent International and Alibaba will not be obliged to purchase Dufry shares.

Supun Walpola

Alibaba Group Holding  / Equity Bottom-Up

Improving marginal profitability both at the segment level and the consolidated level suggests that benefits from Alibaba’s upfront investments in new businesses are gradually starting to materialise. Our linear model suggests an OP margin improvement of around 400-500bps in the medium-term (from 18%-19% currently to around 21%-23%).However, negative marginal profitability of the Cloud Computing, and Innovation Initiatives and Other segments continue to put pressure on consolidated margins. We believe it would be unlikely for the OP margin to recover to the pre-FY03/18 level of 30%+ anytime soon.We remain positive about Alibaba’s longer-term prospects as its e-commerce initiatives outside of Taobao and Tmall are getting closer to making profits, however, we believe the company’s medium-term valuation would still be driven by its steady growth profile rather than a margin improvement. Nevertheless, given that Alibaba is trading close to an all-time high, and looks fairly priced compared to its trading history, we would wait for a pullback to enter.

Improving marginal profitability both at the segment level and the consolidated level suggests that benefits from Alibaba’s upfront investments in new businesses are gradually starting to materialise. Our linear model suggests an OP margin improvement of around 400-500bps in the medium-term (from 18%-19% currently to around 21%-23%).However, negative marginal profitability of the Cloud Computing, and Innovation Initiatives and Other segments continue to put pressure on consolidated margins. We believe it would be unlikely for the OP margin to recover to the pre-FY03/18 level of 30%+ anytime soon.We remain positive about Alibaba’s longer-term prospects as its e-commerce initiatives outside of Taobao and Tmall are getting closer to making profits, however, we believe the company’s medium-term valuation would still be driven by its steady growth profile rather than a margin improvement. Nevertheless, given that Alibaba is trading close to an all-time high, and looks fairly priced compared to its trading history, we would wait for a pullback to enter.

Alibaba: New E-Commerce Businesses Could Soon Turn Profitable but a Big Margin Improvement Unlikely

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

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Alibaba Group Holding (9988 HK)

Kerry Express & Best Inc: Two Approaches to ECommerce Logistics Growth in SE Asia

Define market opportunity: domestic Thailand (KEX

Tracking Traffic

CTG Duty Free Corp (601888 CH): Extending Solid Sales Track in the Golden Week

During the Golden Week, China Tourism Group Duty Free Corp Ltd (601888 CH) has recorded an average daily duty free sales of Rmb

Osbert Tang, CFA

Silicon Stories M: If You Can't Beat Them, Join Them

Resistance is futile in the world of

Athaporn Arayasantiparb, CFA

Alibaba to Buy 10% of Dufry

$dufry is the operator of more than 2,400 travel retail stores globally under several famous brands including Dufry and World Duty Free. Yesterday,...

Oshadhi Kumarasiri

Alibaba: New E-Commerce Businesses Could Soon Turn Profitable but a Big Margin Improvement Unlikely

Improving marginal profitability both at the segment level and the consolidated level suggests that benefits from Alibaba’s upfront investments in...

Supun Walpola

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