LINE Corp (3938 JP) is one of the top Japanese names in our “Watchlist” of listed companies in Japan and South Korea that are adopting blockchain technologies or have exposure to cryptocurrencies.
Since being added to the “Watchlist” in May last year (2018), LINE has launched a cryptocurrency, a cryptocurrency exchange, and a blockchain venture fund. In this note, we revisit LINE’s blockchain and cryptocurrency plans.
In our opinion, potential synergies between LINE’s cryptocurrency business and its other business ventures are quite enticing. LINE could very well lure “millions” of its existing messaging and LINE Pay users to be a part of its blockchain eco-system.
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LG Uplus (032640 KS) shares have fallen around 20% from the highs of January when the market was excited by 5G. That always seemed overly optimistic given the lack of viable business cases and unknown investment requirements and we were comfortable with our Sell rating from mid October and KRW15,000 target price. Following weak results, an easing of 5G enthusiasm and the recently announced CJ Hello (037560 KS) deal the share price has fallen to around the KRW15,000. Alastair Jones now thinks a lot of bad news is in the price and the available synergies from CJ Hello offset a weaker earnings outlook.
We have recently written a report on Housing Finance Industry (please click here) where we delved on the outlook of the industry that has witnessed significant support from the government as it opened up the funding stream for the NBFC sector including HFCs who in the past relied heavily on banks. In addition, the government has also focussed on improving the housing demand through reforms like RERA, Housing For All etc. that has helped revive sales in the recent quarters.
We concluded the report by saying that the forthcoming articles in the form of a series will elaborate on some HFCs that are likely to be the key beneficiaries of an expected revival of the residential real estate. These HFCs have shown high corporate governance standard and their asset quality has not been compromised for growth. And this could be ascertained by the highest credit rating of AAA awarded to these HFCs by the noted credit rating agencies in India.
In continuation of the series, this article provides detail on Lic Housing Finance (LICHF IN) , the second largest HFC in the country. The company has witnessed robust growth in the past with an asset quality that is among the best in class. We initiate coverage on the company through this report that would delve on the outlook of the company along with some glaring risks that have lately emerged and may likely have an impact on the asset quality going forward.
Dutch lithography bellwether ASML is unique among its WFE peers in forecasting 2019 as yet another growth year for the company, making it eight such years in a row. While the likes of Applied Materials and Lam Research anticipate YoY revenue declines in the mid-to-high teens, ASML is sheltered from the worst excesses of the downturn by virtue of its technological moat, namely its EUV lithography tools. Customers like Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Intel are critically depending on ASML to deliver thirty of those tools in 2019 in order to ramp their latest process nodes.
On the latest earnings call, ASML underscored its confidence in the company’s prospects by proposing a 50% increase in dividends to €2.10 per share. Currently trading at a 17% discount to its 52-week high, ASML is a safe harbor in the current semiconductor storm.
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Today’s Micron earnings call underscored how difficult the memory business is getting, and the company’s guidance indicated that this is only the start of it. Revenues for 2FQ19 were down 26% Q/Q at $5.8 billion, and the company projects 3QF19 revenues to fall to $4.8 billion.
Brazil’s Ex-President Michel Temer has been arrested as part of the on-going CarWash (Lava Jato) criminal investigation, on bribery and corruption charges
We believe that this increases the near-term downside risk to the BOVESPA index and blue chips, including the large cap banks
This will also, we believe, heighten the negative “noise” around pension reform, potentially increasing the complexity of the reform process; even if this development alone should not serve to derail it, in our view
Large cap Brazilian banks’ share prices have come under pressure recently, and we would expect the market correction to continue in the short term
Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.
It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.
The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.
Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..
With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.
If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
We have recently written a report on Housing Finance Industry (please click here) where we delved on the outlook of the industry that has witnessed significant support from the government as it opened up the funding stream for the NBFC sector including HFCs who in the past relied heavily on banks. In addition, the government has also focussed on improving the housing demand through reforms like RERA, Housing For All etc. that has helped revive sales in the recent quarters.
We concluded the report by saying that the forthcoming articles in the form of a series will elaborate on some HFCs that are likely to be the key beneficiaries of an expected revival of the residential real estate. These HFCs have shown high corporate governance standard and their asset quality has not been compromised for growth. And this could be ascertained by the highest credit rating of AAA awarded to these HFCs by the noted credit rating agencies in India.
In continuation of the series, this article provides detail on Lic Housing Finance (LICHF IN) , the second largest HFC in the country. The company has witnessed robust growth in the past with an asset quality that is among the best in class. We initiate coverage on the company through this report that would delve on the outlook of the company along with some glaring risks that have lately emerged and may likely have an impact on the asset quality going forward.
Dutch lithography bellwether ASML is unique among its WFE peers in forecasting 2019 as yet another growth year for the company, making it eight such years in a row. While the likes of Applied Materials and Lam Research anticipate YoY revenue declines in the mid-to-high teens, ASML is sheltered from the worst excesses of the downturn by virtue of its technological moat, namely its EUV lithography tools. Customers like Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Intel are critically depending on ASML to deliver thirty of those tools in 2019 in order to ramp their latest process nodes.
On the latest earnings call, ASML underscored its confidence in the company’s prospects by proposing a 50% increase in dividends to €2.10 per share. Currently trading at a 17% discount to its 52-week high, ASML is a safe harbor in the current semiconductor storm.
Our analysis of how Spotify Technology Sa (SPOT US) turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.
With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.
Progression in GM and core business diversification strategy are worth monitoring.
MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
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Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Brazil’s Ex-President Michel Temer has been arrested as part of the on-going CarWash (Lava Jato) criminal investigation, on bribery and corruption charges
We believe that this increases the near-term downside risk to the BOVESPA index and blue chips, including the large cap banks
This will also, we believe, heighten the negative “noise” around pension reform, potentially increasing the complexity of the reform process; even if this development alone should not serve to derail it, in our view
Large cap Brazilian banks’ share prices have come under pressure recently, and we would expect the market correction to continue in the short term
Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.
It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.
The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.
Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..
With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.
If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Dutch lithography bellwether ASML is unique among its WFE peers in forecasting 2019 as yet another growth year for the company, making it eight such years in a row. While the likes of Applied Materials and Lam Research anticipate YoY revenue declines in the mid-to-high teens, ASML is sheltered from the worst excesses of the downturn by virtue of its technological moat, namely its EUV lithography tools. Customers like Taiwan Semiconductor Manufacturing Company, Samsung Electronics and Intel are critically depending on ASML to deliver thirty of those tools in 2019 in order to ramp their latest process nodes.
On the latest earnings call, ASML underscored its confidence in the company’s prospects by proposing a 50% increase in dividends to €2.10 per share. Currently trading at a 17% discount to its 52-week high, ASML is a safe harbor in the current semiconductor storm.
Our analysis of how Spotify Technology Sa (SPOT US) turned profitable in 4Q18 reveals three key ingredients: critical mass in sales, GM progression, and core business diversification.
With sales reaching critical mass, this would allow fixed costs to be spread out in such a way that opex/unit is lower than GP/unit.
Progression in GM and core business diversification strategy are worth monitoring.
MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. The spotlight is on Starhill Global REIT (SGREIT)’s unit price under-performance and deep discount to net asset value (NAV) after two years of declining revenues, net property income (NPI) and distribution per unit (DPU). Looking ahead, SGREIT looks poised for a re-rating based on the three R’s – review, recovery, revitalization.
Review – Master leases to Toshin and Katagreen (YTL Group), collectively representing 36% of gross portfolio rent as at 31 December 2018, are due for rent review and lease renewal in June 2019. The 12-year master lease to Toshin covers the retail strata area of Ngee Ann City owned by SGREIT. It provides SGREIT with potential rental upside every three years starting from June 2013. The master lease to Katagreen for its Malaysia properties Starhill Gallery and Lot 10 is due to expire in June 2019. The renewal proposal, which includes an asset enhancement initiative for Starhill Gallery, is being evaluated.
Recovery – 2Q18/19 revenue and NPI jumped 10.6% and 20.2% y-o-y respectively on office portfolio recovery. The committed occupancy for the REIT’s Singapore office portfolio rose to 93.6% as at 31 December 2018 from 89.4% as at 31 December 2017. The committed occupancy for Myer Centre Adelaide has also seen a big improvement. SGREIT’s office portfolio accounts for 13% of gross revenue in 2Q18/19.
Revitalization – Amidst a soft retail climate, SGREIT’s retail portfolio maintained a high average occupancy rate albeit at a softer rent, particularly at Wisma Atria. On 30 January 2019, the Singapore Tourism Board (STB), Urban Redevelopment Authority (URA) and National Parks Board (NParks) unveiled plans to strengthen Orchard Road’s position as a must-visit lifestyle destination. In addition, the impending completion of Thomson-East Coast Line’s (TEL) Orchard MRT Station in 2021 is expected to further transform Orchard Road and thus benefit SGREIT’s Singapore retail portfolio. Future mixed-use development will be built at the new Orchard MRT interchange station, which may provide investment opportunities for the REIT.
As an overview, SGREIT’s S$3.1bn property portfolio comprises 10 mid- to high- end retail properties in Singapore, Malaysia, Australia, China and Japan. The Singapore properties accounted for 69.5% of total asset value and 62% of gross revenue in 2QFY18/19 (financial year-end 30 June) and are made up of interests in two landmark properties in the heart of the Orchard Road shopping belt, Wisma Atria and Ngee Ann City. The REIT strikes a good balance between long and short term leases. Master leases and long-term leases, incorporating periodic rent reviews, represent about 49.4% of gross rent as at 31 December 2018, providing income stability.
Current annualized DPU yield of 6.5% appears attractive for a REIT with a resilient retail and office portfolio in stable and mature markets. We believe the revenue decline in recent years have been priced-in. Potential risks, other than foreign currency exchange-related risks and slower-than-expected recovery in its retail and office portfolio, include challenges in finding yield-accretive acquisitions due to its steep discount to net asset value (0.78x Price/NAV). The lack of scale in certain markets e.g. China and Japan, and strata-ownership of properties could explain SGREIT’s prolonged discount to NAV. Perhaps a portfolio reconstitution may hold the key to narrowing the discount.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Hankyu Hanshin has outperformed the department store sector in the last few years and continues to invest to lock in its dominance of the Osaka market.
It is now about to unveil a major new update to its Tokyo store, creating a more luxurious Men’s Emporium.
The investment is an example of how the better department stores are repositioning individual buildings to better meet target market needs and find relevance in an e-commerce age.
Onward Holdings (8016 JP) made a bold stand against price discounts in January when it announced plans to stop selling on ZOZO (3092 JP) but the timing was not ideal as Onward lowered its FY2018 sales guidance shortly thereafter..
With Zozo no longer a partner, Onward is investing in the growth of its own e-commerce business and has installed a new 50-person digital strategy group to make this happen.
If the plan works, Onward could finally break away from its dependence on the contracting department store apparel market but the journey to reach this goal will be a long one.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
The worst business, online game, recovered in 4Q2018, because small competitors died.
The growth rate of game broadcast also bounced up in 4Q2018, as an important competitor Panda TV went bankrupt.
In fact, games are only a small part of Tencent and other businesses have been growing strongly.
The re-organization in October 2018 controlled expenses well.
The 5-year P/E band suggests that Tencent’s stock price has upside of 26%.
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MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. The spotlight is on Starhill Global REIT (SGREIT)’s unit price under-performance and deep discount to net asset value (NAV) after two years of declining revenues, net property income (NPI) and distribution per unit (DPU). Looking ahead, SGREIT looks poised for a re-rating based on the three R’s – review, recovery, revitalization.
Review – Master leases to Toshin and Katagreen (YTL Group), collectively representing 36% of gross portfolio rent as at 31 December 2018, are due for rent review and lease renewal in June 2019. The 12-year master lease to Toshin covers the retail strata area of Ngee Ann City owned by SGREIT. It provides SGREIT with potential rental upside every three years starting from June 2013. The master lease to Katagreen for its Malaysia properties Starhill Gallery and Lot 10 is due to expire in June 2019. The renewal proposal, which includes an asset enhancement initiative for Starhill Gallery, is being evaluated.
Recovery – 2Q18/19 revenue and NPI jumped 10.6% and 20.2% y-o-y respectively on office portfolio recovery. The committed occupancy for the REIT’s Singapore office portfolio rose to 93.6% as at 31 December 2018 from 89.4% as at 31 December 2017. The committed occupancy for Myer Centre Adelaide has also seen a big improvement. SGREIT’s office portfolio accounts for 13% of gross revenue in 2Q18/19.
Revitalization – Amidst a soft retail climate, SGREIT’s retail portfolio maintained a high average occupancy rate albeit at a softer rent, particularly at Wisma Atria. On 30 January 2019, the Singapore Tourism Board (STB), Urban Redevelopment Authority (URA) and National Parks Board (NParks) unveiled plans to strengthen Orchard Road’s position as a must-visit lifestyle destination. In addition, the impending completion of Thomson-East Coast Line’s (TEL) Orchard MRT Station in 2021 is expected to further transform Orchard Road and thus benefit SGREIT’s Singapore retail portfolio. Future mixed-use development will be built at the new Orchard MRT interchange station, which may provide investment opportunities for the REIT.
As an overview, SGREIT’s S$3.1bn property portfolio comprises 10 mid- to high- end retail properties in Singapore, Malaysia, Australia, China and Japan. The Singapore properties accounted for 69.5% of total asset value and 62% of gross revenue in 2QFY18/19 (financial year-end 30 June) and are made up of interests in two landmark properties in the heart of the Orchard Road shopping belt, Wisma Atria and Ngee Ann City. The REIT strikes a good balance between long and short term leases. Master leases and long-term leases, incorporating periodic rent reviews, represent about 49.4% of gross rent as at 31 December 2018, providing income stability.
Current annualized DPU yield of 6.5% appears attractive for a REIT with a resilient retail and office portfolio in stable and mature markets. We believe the revenue decline in recent years have been priced-in. Potential risks, other than foreign currency exchange-related risks and slower-than-expected recovery in its retail and office portfolio, include challenges in finding yield-accretive acquisitions due to its steep discount to net asset value (0.78x Price/NAV). The lack of scale in certain markets e.g. China and Japan, and strata-ownership of properties could explain SGREIT’s prolonged discount to NAV. Perhaps a portfolio reconstitution may hold the key to narrowing the discount.
Take-up rate at Parc Botannia improved from 62% in 3Q FY19 to 66% in 4Q FY19. With the biggest agency in Singapore marketing the project, sales at Parc Botannia is expected to pick up in 2019.
A key surprise in Sing Holdings’ FY18 results was the 20% hike in its dividend to 1.2 S-cents per share in FY18.
My fair value for SHL is pegged at S$0.66 per share, implying an upside potential of 67%. I maintain my BUY recommendation on Sing Holdings Ltd.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.
In continuation of the Housing Finance Series (pleas click here and here for the earlier articles), this article provides a detail on HDFC, the largest Housing Finance Company (HFC) in the country. The company has a market share of 38% in the private sector. It is a AAA rated with one of the best asset quality among its peers.
The key strength of HDFC is its ability to generate low cost funds from multiple sources that helps in maintaining its spread irrespective of the interest rate cycles.
Given a long term secular trend of the housing industry in India, we expect HDFC to remain a key beneficiary. A strong corporate governance standard, high management quality and a robust risk management may help in sustaining the return ratios as well as the asset quality that are among the best in class.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. The spotlight is on Starhill Global REIT (SGREIT)’s unit price under-performance and deep discount to net asset value (NAV) after two years of declining revenues, net property income (NPI) and distribution per unit (DPU). Looking ahead, SGREIT looks poised for a re-rating based on the three R’s – review, recovery, revitalization.
Review – Master leases to Toshin and Katagreen (YTL Group), collectively representing 36% of gross portfolio rent as at 31 December 2018, are due for rent review and lease renewal in June 2019. The 12-year master lease to Toshin covers the retail strata area of Ngee Ann City owned by SGREIT. It provides SGREIT with potential rental upside every three years starting from June 2013. The master lease to Katagreen for its Malaysia properties Starhill Gallery and Lot 10 is due to expire in June 2019. The renewal proposal, which includes an asset enhancement initiative for Starhill Gallery, is being evaluated.
Recovery – 2Q18/19 revenue and NPI jumped 10.6% and 20.2% y-o-y respectively on office portfolio recovery. The committed occupancy for the REIT’s Singapore office portfolio rose to 93.6% as at 31 December 2018 from 89.4% as at 31 December 2017. The committed occupancy for Myer Centre Adelaide has also seen a big improvement. SGREIT’s office portfolio accounts for 13% of gross revenue in 2Q18/19.
Revitalization – Amidst a soft retail climate, SGREIT’s retail portfolio maintained a high average occupancy rate albeit at a softer rent, particularly at Wisma Atria. On 30 January 2019, the Singapore Tourism Board (STB), Urban Redevelopment Authority (URA) and National Parks Board (NParks) unveiled plans to strengthen Orchard Road’s position as a must-visit lifestyle destination. In addition, the impending completion of Thomson-East Coast Line’s (TEL) Orchard MRT Station in 2021 is expected to further transform Orchard Road and thus benefit SGREIT’s Singapore retail portfolio. Future mixed-use development will be built at the new Orchard MRT interchange station, which may provide investment opportunities for the REIT.
As an overview, SGREIT’s S$3.1bn property portfolio comprises 10 mid- to high- end retail properties in Singapore, Malaysia, Australia, China and Japan. The Singapore properties accounted for 69.5% of total asset value and 62% of gross revenue in 2QFY18/19 (financial year-end 30 June) and are made up of interests in two landmark properties in the heart of the Orchard Road shopping belt, Wisma Atria and Ngee Ann City. The REIT strikes a good balance between long and short term leases. Master leases and long-term leases, incorporating periodic rent reviews, represent about 49.4% of gross rent as at 31 December 2018, providing income stability.
Current annualized DPU yield of 6.5% appears attractive for a REIT with a resilient retail and office portfolio in stable and mature markets. We believe the revenue decline in recent years have been priced-in. Potential risks, other than foreign currency exchange-related risks and slower-than-expected recovery in its retail and office portfolio, include challenges in finding yield-accretive acquisitions due to its steep discount to net asset value (0.78x Price/NAV). The lack of scale in certain markets e.g. China and Japan, and strata-ownership of properties could explain SGREIT’s prolonged discount to NAV. Perhaps a portfolio reconstitution may hold the key to narrowing the discount.
Take-up rate at Parc Botannia improved from 62% in 3Q FY19 to 66% in 4Q FY19. With the biggest agency in Singapore marketing the project, sales at Parc Botannia is expected to pick up in 2019.
A key surprise in Sing Holdings’ FY18 results was the 20% hike in its dividend to 1.2 S-cents per share in FY18.
My fair value for SHL is pegged at S$0.66 per share, implying an upside potential of 67%. I maintain my BUY recommendation on Sing Holdings Ltd.
Recently, Softbank’s (9984 JP) shares jumped +18% after announcing a $5.5bn share buyback. Using Smartkarma’s holdco monitor, the discount to NAV had widened to around 55% prior to the announcement but is now sitting around 40-45%. There were a few key reasons for the buyback: (1) the Softbank Corp (9434 JP) (KK) IPO netted $20bn, giving the company the flexibility to do the buyback, and (2) Softbank is taking a more disciplined approach to further platform investments.
Both these arguments are also available to Naspers (NPN SJ) management and a move to buy back 5% of market cap is feasible and we believe would narrow the discount. The question is whether management are listening. They have been dismissive of buybacks in the past but this could change.
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