In this briefing:
- London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
- Bumrungrad: Bangkok Dusit’s Poor Diagnosis
- PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20
- Thai Banks: KBANK & BBL (With a Permata on the Side)
Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect. There have been no listing of Chinese Depository Receipts by companies listed in London. This is starting to look like a white elephant. We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present. We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so. By following the factors we have identified, authorities and exchanges could build a more successful programme.
Bangkok Dusit Med Service (BDMS TB) has made a Conditional Voluntary Tender Offer (CVTO) for 24.99% held Bumrungrad Hospital Pub Co (BH TB) at THB125/share, an 11.6% premium to last close.
That Offer Price may increase by up to 20% – or up to THB150/share – depending on the “appropriateness of the market directions of the market of the Stock Exchange of Thailand and the trading price of BH at the time.”
In addition to requiring approval from BDMS’ shareholders, the key condition to the Offer will be the approval from the Trade Competition Commission (TCC). That is unlikely to be a defeating condition.
The initial headline price, and even the high end of this indicative range, appears highly opportunistic.
More below the fold.
Analyst meeting yesterday came out with a neutral tone for its 2020 performance. 1H20 outlook seems bearish, pressured by virus outbreak. Meanwhile, we view commodity market to recover in 2H20.
• Management expects overall petrochemical products to remain soft in 1H20, eroded by coronavirus concern. However, it was expected to recover in the 2H20.
• We expect the company’s revenue to recover, starting in 1Q20 after major planed turnaround in 2019.
• The olefin projects (PO/polyols) with a capacity of 1.1 MTA (+10%) are on track and expected to COD by 4Q20E.
• In short term, we expect commodity market to be highly volatile from continuation in global infection and uncertainty in OPEC cut run decision.
We maintain our ‘HOLD’ recommendation but cut our target price to Bt50.0 (from Bt59), to reflect weak outlook in petrochemical market. Our target price based on 10.2xPE’20E, which is equal -0.5SD to its 5 year average.
As Smartkarma contributor Brian Freitas has ably discussed in a couple of pieces on the Kasikornbank PCL (KBANK TB) buyback program which has been ongoing for the past two weeks, it has been a setup situation to play the pair against Bangkok Bank Public (BBL TB).
The normal way of things might be to get long the stock which was about to prospectively buy back a huge portion of its ADV after MSCI had announced a down-weight, and short the one which still had potential large overhang from a possible change in the NVDR limit 4-5 months out.
Indeed on the day of the announcement (30 Jan), KBANK shares rallied 6%. They rallied further the next day. What had been an 6-7% underperformance against BBL in the first week after the MSCI news turned into a 15% rebound against BBL to the day after the buyback announcement.
In the next two weeks until the buyback started, KBANK gained 1.5%, but underperformed BBL by about 2%. Then the buyback started…
The first four days of the buyback KBANK averaged buybacks of 27.3% of daily volume, and KBANK gained ~2.3% vs BBL. The next day it was 15.5%, and BBL outperformed KBANK by 3.4%. And BBL has outperformed KBANK each day since that day as well.
On Wednesday 26 Feb, the day before the last day of the buyback, KBANK was down a shocking 9.7% as the SET Index as a whole had its worst single day in 6 years at -5.05%. Surprisingly, KBANK did not execute nearly as much as they could have – a measly 1.05mm shares in the face of massive selling pressure.
That leaves up to 5,076,000 shares to buy today. It is a goodly amount, and it is possible that they left a fair bit for the last day so they could prove a point. They are certainly not in danger of breaching the limit of the upper limit (buybacks must not purchase shares at more than 115% of the average of the previous five closes (i.e. they’ll have to keep it below THB 147.55).
But there is pushing and shoving today, there may be a setup opportunity. Today is a day to watch.