Category

Singapore

Singapore: SGX and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Singapore Exchange – Peripatetic

Singapore Exchange – Peripatetic

By Thomas J. Monaco

*Analysts’ Day Reveals More Scrambling: Singapore Exchange (SGX.SG) [SGX] held an Analysts’ Day on June 11, 2021, where Acquisitions; Equities; FICC; and ESG were discussed. We were left with the impression that management is scrambling to offset revenue losses which appear to have been taking place in nearly every aspect of its business; and

*This Kind Of Hope Is Not A Strategy: Hoping for near-term revenue strength from higher equity market volatility which helps SGX’s derivatives business volumes, and a further delay in HKEX’s launch of MSCI China A index futures are not sustainable long-term strategies. SGX needs a long-term plan, which should include the government recognizing that this national champion might actually have to be sold.


Before it’s here, it’s on Smartkarma

Singapore: Snack Empire Holdings Ltd and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Snack Empire: One of The Few Restaurant Businesses That I Would Own

Snack Empire: One of The Few Restaurant Businesses That I Would Own

By Steven Chen

  • I am reluctant to own a restaurant business;
  • But Snack Empire can be an exceptional hidden gem in this challenging space;
  • Given the high-quality fundamentals and attractive pricing, the stock can be a decent candidate for multi-bagger collectors.

Before it’s here, it’s on Smartkarma

Singapore: Del Monte Pacific and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Del Monte Pacific HoldCo Trade – Potential 50% Upside from DMPI IPO

Del Monte Pacific HoldCo Trade – Potential 50% Upside from DMPI IPO

By Zhen Zhou, Toh

Del Monte Pacific (DELM SP) (DMPL) owns 87% of Del Monte Philippines (1575316D PM) (DMPI) which is looking to IPO this year. 

DMPL’s Consumer Foods division, Del Monte Foods (DMFL) hasn’t been doing well since DMPL acquired it in 2014. The IPO of DMPI will help to deleverage DMPL which could lead to a much needed catalyst for further re-rating. Despite DMPL’s recent share price rally, there is still potentially still room for further upside subject to DMPI’s final valuation.

We looked at DMPI’s IPO in:


Before it’s here, it’s on Smartkarma

Singapore: Dutech Holdings and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Dutech Holdings (DTECH SP): A Safe Bet

Dutech Holdings (DTECH SP): A Safe Bet

By David Blennerhassett

Dutech Holdings (DTECH SP), a security product – safes – manufacturer, and S-chip, has announced a voluntary unconditional cash Offer from TSI Metals for S$0.40/share, in cash, a 60% premium to last close. TSI is a holding company wholly-owned by CEO, executive chairman, and director, Johnny Liu.

Any dividends declared and paid will reduce the Offer price.

Liu, via Spectacular Bright, holds 42.76%, which has given an irrevocable to accept the Offer and has also entered into a rollover arrangement which would be allocated shares in TSI. The SIC has already signed off on this arrangement. 

Willalpha, a vehicle owned by Liu Bin, Liu’s brother, holds 15.79%, and has given an irrevocable to accept the Offer. 

Irrevocables, therefore, total 58.54%.

Liu does not intend to maintain the listing, nor does it intend to take any steps to restore the free float.

The pushback, if any? Dutech had net cash on hand of ~S$75mn as at FY20, around 50% of the implied market cap under the Offer.

More below the fold.


Before it’s here, it’s on Smartkarma

Singapore: Bitcoin, DBS, iShares Barclays USD Asia High Yield Bond Index ETF and more

By | Daily Briefs, Singapore

In today’s briefing:

  • ESG and Bitcoin: The Truth Lies Somewhere Between Benign and Boiling Off Oceans
  • Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services
  • Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

ESG and Bitcoin: The Truth Lies Somewhere Between Benign and Boiling Off Oceans

By Kyle Rudden

This Insight is about a trainwreck, the head-on collision of two megatrends in investing: ESG, and cryptocurrencies. “Trainwreck,” because the raging cryptocurrency/ESG debate has spiraled out of control and made absolute lunatics out of everyone, environmentalists and crypto-zealots alike.

Cryptocurrency’s environmental impact is not a recent epiphany. Back in 2009, Hal Finney (creator of Bitcoin’s proof-of-work system, and even rumored to be the elusive Satoshi Nakamoto) tweeted, “Thinking about how to reduce CO2 emissions from widespread Bitcoin implementation.

Prescient, but it didn’t elicit a reaction because in 2009 few investors had even heard of Bitcoin and ESG. In 2021, however, Elon Musk’s words are able to spark a firestorm because Bitcoin and ESG are now deeply ingrained in the collective investor psyche, and the zeitgeist.

And Elon Musk’s words sure did spark a firestorm.

With this report, I hope to provide what is entirely absent in that firestorm – i.e., a comprehensive, rational, and balanced view of the multifaceted cryptocurrency/ESG relationships. Environmental, Social, and Governance. Including some issues that no one is talking about, but should be.


Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

By Kyle Rudden

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.

Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.

For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto’s wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.

Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)‘s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.

However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be “neutral” at worst, and definitely not across-the-board “negative.”

But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.


Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

By Hank Calenti, CFA

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.

Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia’s AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. 

As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.

Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.


Before it’s here, it’s on Smartkarma

Singapore: iShares Barclays USD Asia High Yield Bond Index ETF and more

By | Daily Briefs, Singapore

In today’s briefing:

  • New Issue Machinations – Looks Can Be Deceiving
  • Bank Credit Weekly: Month-End Rebalancing Takes Risk-Off Before Take-Off

New Issue Machinations – Looks Can Be Deceiving

By Hank Calenti, CFA

Executive Summary: Looks can be deceiving when considering performance potential in newly issued securities. While the issuance spread may be wider than peers, this is only one-half of the story. We consider the other half as it relates to UBS (UBSG SW) and Jyske Bank’s (JYSK DC) recently issued AT1 bonds and we ponder the potential in Oman Arab Bank’s security.  


Bank Credit Weekly: Month-End Rebalancing Takes Risk-Off Before Take-Off

By Hank Calenti, CFA

Executive Summary: A liquidity driven melt-up combined with month-end rebalancing to drive bank credit spread performance over the last week. Remove the month-end rebalancing and short duration positioning may remain the best strategy over the next few weeks, absent a material inflection point in the upcoming non-farm payroll numbers. 

The short end of the rates market continued to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up was the key driver of credit spread outperformance.

Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last few weeks. In fact, rate curve flattening, and falling forward breakeven rates, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory.

While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning. Although not consensus, this thought is disconcerting, as it suggests the rising rates consensus is very wrong.

Therefore, the risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive. Moving too early to position for higher or longer than anticipated inflation may be career ending. Extending duration to take advantage of declining rates is considered insane. Carry trades remain unloved. Ergo, the silent self-doubtful suffering of the rate and credit markets. Security selection based on fundamental analysis, in so much as one avoids unexpected spread widening, may be the differentiator for outsized total returns over the next few weeks.  

We elaborate on these themes within.

Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender rather than the bouncer.


Before it’s here, it’s on Smartkarma

Singapore: Wilmar International and more

By | Daily Briefs, Singapore

In today’s briefing:

  • StubWorld: Wilmar’s Stake In Yihai Kerry At 300% Of Market Cap

StubWorld: Wilmar’s Stake In Yihai Kerry At 300% Of Market Cap

By David Blennerhassett

This week in StubWorld …

I see Wilmar International (WIL SP)‘s discount to NAV at 69%. The ~90% holding into Yihai Kerry Arawana Holdings (300999 CH) accounts for a staggering 300% of Wilmar’s market cap.

Preceding my comments on Wilmar are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Before it’s here, it’s on Smartkarma

Singapore: Frasers Logistics & Commercial Trust and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Frasers Logistics Placement – Consistent Performance, Accretive Deal

Frasers Logistics Placement – Consistent Performance, Accretive Deal

By Zhen Zhou, Toh

Frasers Logistics & Commercial (FLT SP) is raising US$231m to partially fund its acquisition of logistics and industrial properties in Germany, the Netherlands and, UK. This is the first placement that the REIT is conducting since its merger with FCOT.

We have covered the REIT’s previous placement and IPO in:


Before it’s here, it’s on Smartkarma

Singapore: SIA, iShares Barclays USD Asia High Yield Bond Index ETF and more

By | Daily Briefs, Singapore

In today’s briefing:

  • Singapore Air Rights MCBs – S$6.2bn of Capital Suck
  • Bank Credit Weekly: Liquidity Driven Melt-Up Pulls Spreads Tighter

Singapore Air Rights MCBs – S$6.2bn of Capital Suck

By Travis Lundy

Just over a year ago, nearer the start of the impact of covid-19 on the global airline industry, Singapore Airlines also known as “SIA (SIA SP)” announced a pair of rights offerings meant to shore up its capital base, and to allow it to survive through the pandemic. 

The rights offerings required a Circular, and a shareholder meeting to approve them, then Singapore Air raised S$5.3bn in New Shares and S$3.5bn in Mandatory Convertible Bonds (MCBs). The shareholder meeting of summer 2020 also allowed for Singapore Air to raise up to S$6.2bn of Additional Rights MCBs within 15 months of the original shareholder meeting. 

Last week on Wednesday night, Singapore Air announced the launch of a renounceable rights offering for S$6.2bn of Mandatory Convertible Bonds, following on from last year. The record date will be 28 May 2021.

The company also announced results, with a full-year net loss of S$4.3bn after passenger traffic is down 97.9%, including S$1.953bn in impairment charges. Non-fuel expenditures dropped by more than half, but that was still not enough to overcome the severe drop in flight mile revenues (-76.1%; -94.7% for passenger flights)), despite a significant increase (+38.8%yoy) in cargo revenues.

The company ended the year with S$7.8bn in cash and bank balances against S$14.3bn of debt. NAV per share was S$5.36/share vs S$7.86 a year earlier on 31 March 2020.

None of this should be a surprise. 

That Singapore Airlines had raised S$15.4bn since April 2020 (S$8.8bn in rights issues, S$2.1bn in secured financing, S$2.5bn in convertible bonds ($850mm 1.625% in Dec 2020), notes, and credit lines, S$2.1bn of secured financing against aircraft, and earlier this month a S$2.0bn sale and leaseback of 11 aircraft), lost S$2.5bn this year on an operating basis, and in February the company deferred S$4bnof aircraft delivery over the next four fiscal years) and lowered non-fuel expenditures by S$5bn annually should be a positive outcome.

But another S$6.2bn of MCBs is not bullish. Just as the first S$8.8bn was not bullish last year. 

More below the fold. 


Bank Credit Weekly: Liquidity Driven Melt-Up Pulls Spreads Tighter

By Hank Calenti, CFA

Executive Summary: A liquidity driven melt-up remains the key driver of bank credit spread performance. As US banks push deposits into money market funds, to manage their Supplemental Leverage Ratio requirements, the short end of the rates market continues to push investors up the curve to generate returns. Awash with still rising liquidity, this melt-up is the key driver of credit spread outperformance.

Risk asset volatility and talking about, talking about, talking about tapering had little lasting impact on US interest rates over the last week. In fact, rate curve flattening, and forward breakeven rate declines, suggest that the interest rate market may buy the Fed’s assessment of inflation as being transitory. 

While the transitory mantra is believed, whispers of supply driven growth constraints are being mentioned. This would be interest rate and credit spread positive as it would extend the duration of the recovery and thereby delay late-stage economic cycle repositioning.

The risk is clearly that the rates market is underpricing the potential for an extended period of higher than anticipated inflation. However, holding cash is expensive and moving too early to position for higher or longer than anticipated inflation may be career ending. Ergo, the silent self-doubtful suffering of the rate and credit markets.

We elaborate on these themes within.

Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.


Before it’s here, it’s on Smartkarma

Singapore: AEM, Mapletree Industrial Trust, Sea Ltd, Grab and more

By | Daily Briefs, Singapore

In today’s briefing:

  • AEM Holding: Aggressively Buying Their Own Stock; Historically Pre-Cursor to Strong Performance
  • Mapletree Industrial (MINT SP) Placement – Large but Accretive Deal, Becoming More like Keppel DC
  • Sea Ltd – Supercharged
  • Grab – Too Much Euphoria?

AEM Holding: Aggressively Buying Their Own Stock; Historically Pre-Cursor to Strong Performance

By Nicolas Van Broekhoven

AEM (AEM SP) reported results which disappointed the market. See my latest insight for more details AEM: Temporary Weakness Creates Buying Opportunity Going into New Product Cycle as of 3Q21. As a result the stock is now lower by 1% YTD.

Over the past week the company has been buying back shares almost every day. Does this signal a bottom?  We looked at similar episodes in 2019 and 2020 and conclude that when the company is aggressively buying it is a pre-cursor of strong share price performance going forward. Unlike some US companies which are perennially buying back their own stock AEM (AEM SP) is very specific in their timing and it usually reflects management sentiment that AEM is undervalued.

Bottom line: while 2Q21 results might not be glorious we expect strong performance in 2H21 and into 2022. Management was very clear on the call “big” new customer wins by 2022 are very likely. If AEM can prove other big customer wins outside Intel Corp (INTC US) this would be a game-changer and increase its M&A appeal going forward. Fair Value remains unchanged at 5 SGD (43% upside from 3.5 SGD).



Sea Ltd – Supercharged

By Angus Mackintosh

Sea Ltd (SE US) announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.

Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.

The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.

In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game Free Fire.

The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of Free Fire. It is also seeing huge response in the eSports arena for Free Fire.

Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.

Sea Ltd (SE US)‘s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. 

The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.

Sea Ltd (SE US)‘s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.

This latest set of results provides further proof of the success of the Sea Ltd (SE US) growth model which generates huge EBITDA from gaming and reinvests that money into growing the company’s e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.

Sea Ltd (SE US) continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game Free Fire and its gaming business, together with its move into digital payments a third leg to future growth.

Sea Ltd (SE US) valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.


Grab – Too Much Euphoria?

By Angus Mackintosh

Looking at the reports in the press on the news that Grab will seek a listing through an Altimeter Capital SPAC, there seems to be nothing but euphoria, without very much commentary on the potential risks ahead to the company’s bullish forecasts and relatively high valuations. 

In terms of profitability, Grab maintains that ride-hailing was EBITDA positive in 4Q2019 but the company still lost US$800m in 2020.

Grab‘s projections are quite long-dated in the face of increasing and very unpredictable competitive pressures from the other major digital players, more especially the newly merged Gojek and Tokopedia under “GoTo Group” and from Shopee (Sea Ltd (SE US)). 

The delivery and mobility take-rate assumptions also look quite high given the potential for heavy promotional activity from major competitors.

In the company’s presentation, there are three pages of detailed “Risk Factors Relating to Grab” in a small font covering a lot of bases, and leaving plenty of room for disappointment.

Our main concern would be the strong competition from Shopee on digital payments plus its move into food delivery in Indonesia under ShopeeFood.  It is also possible OVO stands to lose a good deal of business to GoPay with the merger moving ahead. 

We also see the combined force of Gojek and Tokopedia under GoTo Group will also be a formidable competitor, given it will also have an e-commerce arm. Please see GoTo – Enter the Green Dragon for more background

The valuations look quite aggressive given that on the stated EV of US$30.36bn, it will be valued at 13.2x FY21E EV/Sales and 9.2x FY22E EV/Sales, which is pretty much in line with Sea Ltd (SE US), which currently trades on .

We await more details on the planned floatation of GoTo Group, which is expected to be valued at more than US$40bn but probably deserves a higher multiple, given it has an e-commerce arm and a more established digital finance business, even though still at an early stage.

It is interesting to note that the share price of the Altimeter SPAC is approaching US$11, which suggests there is not much of a premium being built into the float, given that PIPE investors get shares at US$10.


Before it’s here, it’s on Smartkarma