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

An informative call with <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> management underpinned a positive view on the company's prospects for 2020, not just for its Big C retail business but also for its packaging business, where it is a leading manufacturer of glass bottles and aluminium cans for SE Asia. 
The company continues to build out is its Big C hypermarket business, opening 3-4 stores a year but the real focus in the medium term is on its Mini Big C convenience stores, where it aims to be the number two player in Thailand after <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB).</a>
During the last slower two quarters, the company has been reducing the bulk sales element at its hypermarkets, which has helped profitability.
Big C continues to 'right-size" its existing stores by reducing the space occupied by the hypermarket and filling it with complementary rental tenants with positive results. 
The company's packaging should see more positive results this year given last year was a "transition year" for its aluminium can business and it also expanded its can capacity in Vietnam last year.
Amongst <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)'</a>s other divisions its logistics division is seeing strong growth, as is its specialty chemicals business, as it continues to assimilate White Group that was bought end 2018.
<div class="content-highlight">
2018 should be a better year for <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> in terms of growth, with most divisions forecast to see higher growth but valuations are currently knocking on 3-year lows in PER terms. The wild card for the company is a potential acquisition of Tesco Lotus, which would give them the lion's share of the hypermarket business in Thailand but a potential deal is likely to be stymied given monopolistic considerations from the regulator. <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> trades on 22.9x FY20E PER and 21.0x FY21E PER, with forecast EPS growth of +11.8% and +9.0% for FY20E and FY21E respectively.
</div>

An informative call with Berli Jucker (BJC TB) management underpinned a positive view on the company's prospects for 2020, not just for its Big C retail business but also for its packaging business, where it is a leading manufacturer of glass bottles and aluminium cans for SE Asia. 
The company continues to build out is its Big C hypermarket business, opening 3-4 stores a year but the real focus in the medium term is on its Mini Big C convenience stores, where it aims to be the number two player in Thailand after CP All PCL (CPALL TB).
During the last slower two quarters, the company has been reducing the bulk sales element at its hypermarkets, which has helped profitability.
Big C continues to 'right-size" its existing stores by reducing the space occupied by the hypermarket and filling it with complementary rental tenants with positive results. 
The company's packaging should see more positive results this year given last year was a "transition year" for its aluminium can business and it also expanded its can capacity in Vietnam last year.
Amongst Berli Jucker (BJC TB)'s other divisions its logistics division is seeing strong growth, as is its specialty chemicals business, as it continues to assimilate White Group that was bought end 2018.

2018 should be a better year for Berli Jucker (BJC TB) in terms of growth, with most divisions forecast to see higher growth but valuations are currently knocking on 3-year lows in PER terms. The wild card for the company is a potential acquisition of Tesco Lotus, which would give them the lion's share of the hypermarket business in Thailand but a potential deal is likely to be stymied given monopolistic considerations from the regulator. Berli Jucker (BJC TB) trades on 22.9x FY20E PER and 21.0x FY21E PER, with forecast EPS growth of +11.8% and +9.0% for FY20E and FY21E respectively.


Berli Jucker (BJC TB) - Well-Rounded Consumer Leader

<a href="https://www.smartkarma.com/entities/tesco-plc" target="_blank" data-smartkarma-citation="entities:22187:1" rel="noopener">Tesco PLC (TSCO LN)</a> announced the sale of its Thai operations under Tesco Lotus along with its Malaysian operations in November 2019, with a slated valuation range of US$7bn-US$9bn, which would make it the largest domestic deal in Thai history after <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB)</a>'s US$6.6bn acquisition of Makro.
The jewel in the crown of the Tesco Lotus business is its Thai business, where the company is the leader in the Hypermarket business through Tesco Lotus and the No.2 player in the convenience store business, with Tesco Lotus Express. 
<div class="content-highlight">
As we enter 2020, speculation is mounting as to who will bite the bullet and acquire these prized Thai retail assets. Front runners include <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB), </a><a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB),</a> <a href="https://www.smartkarma.com/entities/central-retail-corp-ltd" target="_blank" data-smartkarma-citation="entities:28240:1" rel="noopener">Central Retail,</a> or even <a href="https://www.smartkarma.com/entities/ptt-pcl" target="_blank" data-smartkarma-citation="entities:197:1" rel="noopener">PTT PCL (PTT TB),</a> which has recently entered the retail space through PTTOR. 
The key consideration in the bidding process will come from how the regulator views any combined entity, given the potential for a monopolistic situation. We look to assess the three suitors and the barriers to potential deals.   
</div>
The result of this takeover will have repercussions for the Thai Retail landscape no matter which of the three contenders ends up winning out. We discussed the implications for the market in the context of <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB)</a> and <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> in our earlier insight <a href="https://www.smartkarma.com/insights/thailand-a-two-player-retail-market-cpall-and-berli-jucker" target="_blank" data-smartkarma-citation="insights:34753" rel="noopener">Thailand: A Two-Player Retail Market? - CPALL and Berli Jucker</a> but a bid from <a href="https://www.smartkarma.com/entities/central-retail-corp-ltd" target="_blank" data-smartkarma-citation="entities:28240:1" rel="noopener">Central Retail (CRC TB)</a> would introduce a different dynamic if it was within the group's capacity to make an acquisition so soon after the IPO. We outline our conclusions below the fold.

Tesco PLC (TSCO LN) announced the sale of its Thai operations under Tesco Lotus along with its Malaysian operations in November 2019, with a slated valuation range of US$7bn-US$9bn, which would make it the largest domestic deal in Thai history after CP All PCL (CPALL TB)'s US$6.6bn acquisition of Makro.
The jewel in the crown of the Tesco Lotus business is its Thai business, where the company is the leader in the Hypermarket business through Tesco Lotus and the No.2 player in the convenience store business, with Tesco Lotus Express. 

As we enter 2020, speculation is mounting as to who will bite the bullet and acquire these prized Thai retail assets. Front runners include CP All PCL (CPALL TB), Berli Jucker (BJC TB), Central Retail, or even PTT PCL (PTT TB), which has recently entered the retail space through PTTOR. 
The key consideration in the bidding process will come from how the regulator views any combined entity, given the potential for a monopolistic situation. We look to assess the three suitors and the barriers to potential deals.   

The result of this takeover will have repercussions for the Thai Retail landscape no matter which of the three contenders ends up winning out. We discussed the implications for the market in the context of CP All PCL (CPALL TB) and Berli Jucker (BJC TB) in our earlier insight Thailand: A Two-Player Retail Market? - CPALL and Berli Jucker but a bid from Central Retail (CRC TB) would introduce a different dynamic if it was within the group's capacity to make an acquisition so soon after the IPO. We outline our conclusions below the fold. 

Thai Retail - Who Will Bite the Tesco Lotus Bullet?

In this next part of a Smartkarma Originals Series on ASEAN Retail, we look at Thailand and specifically two companies including <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB), </a>the operator of over 11,600 7Eleven stores in the country, as well as cash &amp; carry operator Makro and, <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB),</a> a relative newcomer and owner of number two hypermarket operator Big C Supercentre.
In this report, we take a deep dive into both <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB)</a> and <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> having had face to face meetings with the management of both companies in Thailand, as well as visiting a number of their stores in Bangkok.
Both companies are pushing forward with innovative strategies in their own sub-segments, with <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB)</a> gradually increasing the size of its convenience store offering and adding to the services side of its revenue mix. It is also exploring some higher-end offerings, with a greater range of ready-to-eat options in a new clean shiny environment.  
Big C rapidly pushing out it's Mini Big C offering, with larger size convenience stores, more like mini-markets, targetting top-up shoppers in residential areas. It has also introduced a new Big C Food Place concept targetting more affluent customers in urban areas. Its other major business is consumer packaging and consumer supply chain, which are stable growth businesses with significant synergies with its retail business. The company's aluminium can business has growth potential given a switch from other packaging mediums to cans.
The other major player in Thailand is TESCO through its TESCO Lotus stores. It operates around 400 supermarkets and hypermarkets and 1,500  Tesco Express convenience stores and recent newsflow suggest that it is looking to sell those assets together with its 74 Malaysian stores for a price tag of US$9bn.
A potential front-runner to buy those assets is <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB),</a> which would further transform that company's business towards being a purer retail play and the number one player in the hypermarket space by a significant margin. Should this transaction take place, it would likely narrow the valuation gap between the two players, though <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB),</a> would likely continue to trade at a premium, given its higher ROE and pure retail status.
In terms of upside, both companies look attractive versus there 3-year average PER multiples. <a href="https://www.smartkarma.com/entities/cp-all-pcl" target="_blank" data-smartkarma-citation="entities:13889:1" rel="noopener">CP All PCL (CPALL TB)</a> trades on a forward PER of 25.9x FY20E versus a three year average PER multiple of 29.4x implying upside of 13.5% or a target price of THB85.00. <a href="https://www.smartkarma.com/entities/berli-jucker-public-co-ltd" target="_blank" data-smartkarma-citation="entities:3685:1" rel="noopener">Berli Jucker (BJC TB)</a> looks even more attractive, trading on a forward PER of 21.8x versus a 3-year mean forward PER of 30x implying upside of 37% to a target price of THB56.70.

In this next part of a Smartkarma Originals Series on ASEAN Retail, we look at Thailand and specifically two companies including CP All PCL (CPALL TB), the operator of over 11,600 7Eleven stores in the country, as well as cash &amp; carry operator Makro and, Berli Jucker (BJC TB), a relative newcomer and owner of number two hypermarket operator Big C Supercentre.
In this report, we take a deep dive into both CP All PCL (CPALL TB) and Berli Jucker (BJC TB) having had face to face meetings with the management of both companies in Thailand, as well as visiting a number of their stores in Bangkok.
Both companies are pushing forward with innovative strategies in their own sub-segments, with CP All PCL (CPALL TB) gradually increasing the size of its convenience store offering and adding to the services side of its revenue mix. It is also exploring some higher-end offerings, with a greater range of ready-to-eat options in a new clean shiny environment.  
Big C rapidly pushing out it's Mini Big C offering, with larger size convenience stores, more like mini-markets, targetting top-up shoppers in residential areas. It has also introduced a new Big C Food Place concept targetting more affluent customers in urban areas. Its other major business is consumer packaging and consumer supply chain, which are stable growth businesses with significant synergies with its retail business. The company's aluminium can business has growth potential given a switch from other packaging mediums to cans.
The other major player in Thailand is TESCO through its TESCO Lotus stores. It operates around 400 supermarkets and hypermarkets and 1,500  Tesco Express convenience stores and recent newsflow suggest that it is looking to sell those assets together with its 74 Malaysian stores for a price tag of US$9bn.
A potential front-runner to buy those assets is Berli Jucker (BJC TB), which would further transform that company's business towards being a purer retail play and the number one player in the hypermarket space by a significant margin. Should this transaction take place, it would likely narrow the valuation gap between the two players, though CP All PCL (CPALL TB), would likely continue to trade at a premium, given its higher ROE and pure retail status.
In terms of upside, both companies look attractive versus there 3-year average PER multiples. CP All PCL (CPALL TB) trades on a forward PER of 25.9x FY20E versus a three year average PER multiple of 29.4x implying upside of 13.5% or a target price of THB85.00. Berli Jucker (BJC TB) looks even more attractive, trading on a forward PER of 21.8x versus a 3-year mean forward PER of 30x implying upside of 37% to a target price of THB56.70.

Thailand: A Two-Player Retail Market? - CPALL and Berli Jucker

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On the 26th of July, a Board of Directors’ Meeting of <a href="https://www.smartkarma.com/entities/robinson-public-company" target="_blank" data-smartkarma-citation="entities:14108:1" rel="noopener">Robinson Public Company (ROBINS TB)</a> passed a resolution to propose that an Extraordinary General Meeting of Shareholders consider and approve the Delisting of the Company's shares from the Stock Exchange of Thailand, pursuant to the business restructuring of the subsidiaries of <a href="https://www.smartkarma.com/entities/central-retail-corp-ltd" target="_blank" data-smartkarma-citation="entities:28240:1" rel="noopener">Central Retail (192323Z TB)</a>, Robinson's parent, holding 53.8% of the shares of Robinson. <div class="content-highlight">
The nominal "Value" of the Delisting Offer will be THB 66.5/share. That was "derived from various methods." That is misleading, however. 
Consideration for the shares will NOT be cash.
There is NO cash alternative here at all. 
Consideration will be a variable number of shares in the Robinson Public Company parent Central Retail which is the largest retail operator in Thailand. 
The thing is... Central Retail isn't listed yet and won't be listed for probably 6-8 months after shareholders of Robinson must decide whether to support delisting or not.  
One can, based on the <a href="https://www.set.or.th/set/pdfnews.do?newsId=15640981823380&amp;sequence=2019071693" target="_blank" rel="noopener">Announcement</a> (pdf download; SET url <a href="https://www.set.or.th/set/newsdetails.do?newsId=15640981823380&amp;language=en&amp;country=US" target="_blank" rel="noopener">here</a>), assume that the 1,119,661,133 shares outstanding of Central Retail marked at THB 66.5/share will represent one part of the "exchange" and shareholders will be given THB 74.457bn worth of shares in Central Retail (which has 470mm shares outstanding now). This can be construed as a swap ratio.
In effect, you are simply getting an allocation in the Central Retail IPO for the money you invest in Robinson, marked at THB 66.5/share.
The Preliminary Swap Ratio between Robinson Public and Central Retail shares would be decided when the bankers and company come up with a range for the IPO price. The Final Swap Ratio will come when bookbuilding is complete and the IPO price is decided. 
This introduces non-negligible market risk for shareholders who hold significant Active Share in Robinson exposure. 
However, it also introduces really, really interesting possibilities for those who are not faint of heart.
</div>This deal appears structurally designed to disadvantage Robinson minority investors, and it is not in any way a "clean" arbitrage. But it is interesting. It may be worth doing the work now.

On the 26th of July, a Board of Directors’ Meeting of Robinson Public Company (ROBINS TB) passed a resolution to propose that an Extraordinary General Meeting of Shareholders consider and approve the Delisting of the Company's shares from the Stock Exchange of Thailand, pursuant to the business restructuring of the subsidiaries of Central Retail (192323Z TB), Robinson's parent, holding 53.8% of the shares of Robinson. 
The nominal "Value" of the Delisting Offer will be THB 66.5/share. That was "derived from various methods." That is misleading, however. 
Consideration for the shares will NOT be cash.
There is NO cash alternative here at all. 
Consideration will be a variable number of shares in the Robinson Public Company parent Central Retail which is the largest retail operator in Thailand. 
The thing is... Central Retail isn't listed yet and won't be listed for probably 6-8 months after shareholders of Robinson must decide whether to support delisting or not.  
One can, based on the Announcement (pdf download; SET url here), assume that the 1,119,661,133 shares outstanding of Central Retail marked at THB 66.5/share will represent one part of the "exchange" and shareholders will be given THB 74.457bn worth of shares in Central Retail (which has 470mm shares outstanding now). This can be construed as a swap ratio.
In effect, you are simply getting an allocation in the Central Retail IPO for the money you invest in Robinson, marked at THB 66.5/share.
The Preliminary Swap Ratio between Robinson Public and Central Retail shares would be decided when the bankers and company come up with a range for the IPO price. The Final Swap Ratio will come when bookbuilding is complete and the IPO price is decided. 
This introduces non-negligible market risk for shareholders who hold significant Active Share in Robinson exposure. 
However, it also introduces really, really interesting possibilities for those who are not faint of heart.
This deal appears structurally designed to disadvantage Robinson minority investors, and it is not in any way a "clean" arbitrage. But it is interesting. It may be worth doing the work now.

Robinson Delisting Central Retail IPO Exchange Offer - Interesting, but Disadvantaged

Equity analyst UK & Europe, UK Long Short

Peter Toeman

Equity analyst UK & Europe

Accelerating Tomorrow’s Independent Research

Boost Research

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The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
<h2>Hargreaves Lansdown: What does it do ?</h2>
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
<h2>Why is it in the Short portfolio ?</h2>
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/444/original/port%202.PNG?1551297124" class="editor-image img-responsive" data-smartkarma-image-id="80444"></figure>
<div class="content-caption">S&amp;P Capital IQ</div>

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket.  A tough market background and Brexit concerns have reduced in-flows into Wealth and Investment Management companies. This growth hiatus could last for some time.  
Hargreaves Lansdown: What does it do ?
Hargreaves Lansdown is a wealth manager and private client stockbroker with a market value of  GBP8bn. It provides the UK's largest direct to investor platform administering £86bn of investments for more than 1.1m active clients
Why is it in the Short portfolio ?
Interim figures for the 6 months to December 2018, (published 29th Jan)  mark a deterioration in operating performance brought about by adverse market conditions. Assets under administration declined and net new business was 25% down on the prior year. Earnings per share increased 4%. The share price declined 6% on the day of the results but has subsequently been stable leaving the group on a forward multiple of over 30x. Unless the retail investment market recovers quickly this premium rating may prove vulnerable. 

S&amp;P Capital IQ

Hargreaves Lansdown (HL/:LN) No Flow, No Go

United Kingdom

Tesco PLC is a British multinational retailer specializing in groceries and general merchandise. It operates various store formats, including hypermarkets, supermarkets, and convenience shops, alongside an extensive online marketplace. The company also offers banking, insurance, and telecommunications services. Tesco is headquartered in Welwyn Garden City, UK, and was founded in 1919.

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Tesco (TSCO LN)

Berli Jucker (BJC TB) - Well-Rounded Consumer Leader

An informative call with Berli Jucker (BJC TB) management underpinned a positive view on the company's prospects for 2020, not just for its Big C...

Angus Mackintosh

Thai Retail - Who Will Bite the Tesco Lotus Bullet?

Tesco PLC (TSCO LN) announced the sale of its Thai operations under Tesco Lotus along with its Malaysian operations in November 2019, with a slated...

Angus Mackintosh

Thailand: A Two-Player Retail Market? - CPALL and Berli Jucker

In this next part of a Smartkarma Originals Series on ASEAN Retail, we look at Thailand and specifically two companies including CP All PCL (CPALL...

Angus Mackintosh

Robinson Delisting Central Retail IPO Exchange Offer - Interesting, but Disadvantaged

On the 26th of July, a Board of Directors’ Meeting of Robinson Public Company (ROBINS TB) passed a resolution to propose that an Extraordinary...

Travis Lundy

Hargreaves Lansdown (HL/:LN) No Flow, No Go

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. A tough market...

Boost Research

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