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Brief Thailand: RATCH: Stern and Steady Player in Thai Utility Sector and more

By | Daily Briefs, Thailand

In this briefing:

  1. RATCH: Stern and Steady Player in Thai Utility Sector
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. RATCH: Stern and Steady Player in Thai Utility Sector

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Yesterday analyst meeting came out in a neutral tone. Expect 2020E earnings to remain healthy backed by profit contribution from newly COD projects in 2019.

  • Expect 1Q20 earnings to improve both YoY and QoQ, given the profit recognition from 290MW capacity expansion in 2019. 
  • Positive Long term (2020-21) earnings outlook backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.
  • Estimate 7% CAGR EPS growth in 2020-22E.
  • The share has fallen 17% since early 2020 due to the negative sentiments of expected economic slowdown from COVID-19 spread. We believe this should be a short-term impact and recommend to accumulate the stock for 12-month period.

We maintain the BUY rating with a target price of Bt74.5 is based on sum-of-the-parts (SOTP) methodology, implying 16.6xPE’20E or 0.71x relative PE to Thai utility sector.

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

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.

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Brief Thailand: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Daily Briefs, Thailand

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. BGC: Stable Yield Play
  5. Fault Lines and Positive Surprises: Buy Car Makers

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

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The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

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We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

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As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. BGC: Stable Yield Play

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We initiate coverage of BG Container Glass PCL (BGC TB) with a BUY rating, based on a target price of Bt11.0, which is derived from 12.3xPE’20E, close to the average for the Asia ex-Japan Materials Sector.

The story:

  • Secured earnings with attractive dividend yield
  • Gross margin is in an expansion phase
  • Potential growth from M&As

Risks:

  • Raw material price fluctuation
  • Reliance on a few major customers
  • New innovative liquid container products

Background: BGC, a subsidiary of Bangkok Glass Public Company Limited, operates in the glass packaging business. The firm was established in 1974 and started production in Pathumthani in 1980. BGC is one of the largest glass container manufacturers in the ASEAN region with five glass packaging plants in Ayutthaya, Pathumthani, Khon Kaen, Prachinburi and Ratchaburi. Its combined maximum production capacity is 3,495 tons per day.

5. Fault Lines and Positive Surprises: Buy Car Makers

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Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

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Brief Thailand: RATCH: Stern and Steady Player in Thai Utility Sector and more

By | Daily Briefs, Thailand

In this briefing:

  1. RATCH: Stern and Steady Player in Thai Utility Sector
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  3. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

1. RATCH: Stern and Steady Player in Thai Utility Sector

Ea%201

Yesterday analyst meeting came out in a neutral tone. Expect 2020E earnings to remain healthy backed by profit contribution from newly COD projects in 2019.

  • Expect 1Q20 earnings to improve both YoY and QoQ, given the profit recognition from 290MW capacity expansion in 2019. 
  • Positive Long term (2020-21) earnings outlook backed by COD 782 MWe projects in pipeline, representing 11% expansion by 2022.
  • Estimate 7% CAGR EPS growth in 2020-22E.
  • The share has fallen 17% since early 2020 due to the negative sentiments of expected economic slowdown from COVID-19 spread. We believe this should be a short-term impact and recommend to accumulate the stock for 12-month period.

We maintain the BUY rating with a target price of Bt74.5 is based on sum-of-the-parts (SOTP) methodology, implying 16.6xPE’20E or 0.71x relative PE to Thai utility sector.

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

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.

3. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

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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.

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Brief Thailand: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, Thailand

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

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.

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Image 4689298321582770582330

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.

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Want to read on? Explore our tailored Smartkarma Solutions.

Brief Thailand: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, Thailand

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
  3. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

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.

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Image 4689298321582770582330

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.

3. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20

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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.

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Brief Thailand: London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint and more

By | Daily Briefs, Thailand

In this briefing:

  1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
  3. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20
  4. Thai Banks: KBANK & BBL (With a Permata on the Side)

1. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

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.

2. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

Image 4689298321582770582330

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.

3. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20

Picture1

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.

4. Thai Banks: KBANK & BBL (With a Permata on the Side)

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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.

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Brief Thailand: Tracking the Daily COVID-19 Cases for 10 Major Countries and more

By | Daily Briefs, Thailand

In this briefing:

  1. Tracking the Daily COVID-19 Cases for 10 Major Countries
  2. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  3. SHR: World Class Resorts at a Deeply Discounted Price
  4. Active Vs. Passive Investing Post COVID-19 Coronavirus World
  5. ADVANC: The Best Mobile Operator in Thailand

1. Tracking the Daily COVID-19 Cases for 10 Major Countries

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In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

2. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

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When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

3. SHR: World Class Resorts at a Deeply Discounted Price

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We initiate coverage of SHR with a BUY rating and a 2020E target price of Bt2.60, derived from 22.0x PE’21E, which is -1 SD of the 5-year trading average of peers MINT and CENTEL.

The story:

•Thai conglomerate is in the process of expanding its footprint in world class resort segment
•Less effect from Covid-19 compared to SET peers
•Trading deep at an NAV discount
•Expect earnings to turn around from late 2021 onward

Risks: 

•Foreign exchange rate fluctuation
•New project failure
•Reliance on third-party sales agents

Background: S Hotels and Resorts Public Company Limited (SHR) is a subsidiary of Singha Estate Public Company Limited. SHR is a holding company that is engaged in investment and management of high-end hotels and resorts. Currently, SHR has a total of 4,647 rooms in 39 hotels and resorts in five countries include Thailand, the Republic of Maldives, Republic of Fiji Islands, Mauritius and the United Kingdom.

4. Active Vs. Passive Investing Post COVID-19 Coronavirus World

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  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

5. ADVANC: The Best Mobile Operator in Thailand

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We initiate coverage of ADVANC with a BUY rating, based on a target price of Bt236.5, which is derived from a DCF methodology (WACC of 10.7% and terminal growth of 2%). Our target price implies 22.1xPE’20E, which is higher than the average of the Thailand telecoms sector.

The story:

• Leading position in a cash cow business
• Growing fixed broadband business
• Ready for 5G expansion
• 5G license costs to mildly pressure 3-year earnings
• Global 5G in its early stage

Risks:

• Intense competition in the telecommunication industry
• Changes in customer behavior
• Threat from cyber-attacks

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Brief Thailand: Governments and Policies Adapting to Critical Known Unknown and more

By | Daily Briefs, Thailand

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. BGC: Stable Yield Play
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. BTS Warrants – Expensive a Month Ago, Even Richer Now So Better to Bail

1. Governments and Policies Adapting to Critical Known Unknown

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We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. BGC: Stable Yield Play

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We initiate coverage of BG Container Glass PCL (BGC TB) with a BUY rating, based on a target price of Bt11.0, which is derived from 12.3xPE’20E, close to the average for the Asia ex-Japan Materials Sector.

The story:

  • Secured earnings with attractive dividend yield
  • Gross margin is in an expansion phase
  • Potential growth from M&As

Risks:

  • Raw material price fluctuation
  • Reliance on a few major customers
  • New innovative liquid container products

Background: BGC, a subsidiary of Bangkok Glass Public Company Limited, operates in the glass packaging business. The firm was established in 1974 and started production in Pathumthani in 1980. BGC is one of the largest glass container manufacturers in the ASEAN region with five glass packaging plants in Ayutthaya, Pathumthani, Khon Kaen, Prachinburi and Ratchaburi. Its combined maximum production capacity is 3,495 tons per day.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. BTS Warrants – Expensive a Month Ago, Even Richer Now So Better to Bail

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The BTS Group Holdings PCL (BTS-W5 TB) warrants on BTS Group Holdings (BTS TB) were listed, and there were no buy opportunities. 

Instead, there were selling opportunities. And if you did not sell them then, you should think about doing so now.

The warrants are trading at an implied volatility exceeding that seen in the aftermath of the Thai floods in 2011, the demonstrations in 2013 and beyond, and any other time save the buy of BTSC in May 2010 which saw trading volumes rise 25-fold for a period of six months or more. 

The company has changed dramatically since then. 

Thailand has also become the latest country to implement a broad lockdown. Thailand’s Prime Minister Prayuth Chan-Ocha said two days ago a state of emergency will be declared for a month. Borders will be closed to foreigners starting today the 26 March; social gatherings are banned, domestic travel has been limited, and only essential shops remain open. From my sources, activity has already been considerably dampened. We can expect damage to BTS revenues. That damage will impact the share price’s ability to rebound to record new highs within the next 10 months so the warrants seem like an asset which will wither (if you are a vol trader, you know what you are getting into and different parameters apply).

More below.

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Brief Thailand: Bumrungrad: Bangkok Dusit’s Poor Diagnosis and more

By | Daily Briefs, Thailand

In this briefing:

  1. Bumrungrad: Bangkok Dusit’s Poor Diagnosis
  2. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20
  3. Thai Banks: KBANK & BBL (With a Permata on the Side)
  4. Dark Clouds Over Erawan

1. Bumrungrad: Bangkok Dusit’s Poor Diagnosis

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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.

2. PTTGC: Virus Outbreak to Dampen Petrochemicals Demand in 1H20

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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.

3. Thai Banks: KBANK & BBL (With a Permata on the Side)

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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.

4. Dark Clouds Over Erawan

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We recently visited Erawan and Global Green Chemicals (GGC TB) this week. Let’s just say the companies are having a hard time even before the coronavirus outbreak.

  • Erawan reported flat EBITDA and 14% earnings decline in 2019 on barely rising revenues. Especially weak was the economy segment which saw an 11% in RevPar
  • The one-time hotel star also implied a decline of 40-50% during the period of the coronavirus outbreak, which only started in January 2020. This is likely to push them into a heavy loss for 2020. The stock was down 7% on the day of the meeting alone.
  • GGC reported an EBITDA decline of almost 60% in 2019 primarily due to decline in product prices. The company is still pursuing suppliers over the missing product.

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Brief Thailand: Costs of and Response to COVID-19 and more

By | Daily Briefs, Thailand

In this briefing:

  1. Costs of and Response to COVID-19
  2. BGC: Stable Yield Play
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. BTS Warrants – Expensive a Month Ago, Even Richer Now So Better to Bail
  5. Tracking the Daily COVID-19 Cases for 10 Major Countries

1. Costs of and Response to COVID-19

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As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. BGC: Stable Yield Play

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We initiate coverage of BG Container Glass PCL (BGC TB) with a BUY rating, based on a target price of Bt11.0, which is derived from 12.3xPE’20E, close to the average for the Asia ex-Japan Materials Sector.

The story:

  • Secured earnings with attractive dividend yield
  • Gross margin is in an expansion phase
  • Potential growth from M&As

Risks:

  • Raw material price fluctuation
  • Reliance on a few major customers
  • New innovative liquid container products

Background: BGC, a subsidiary of Bangkok Glass Public Company Limited, operates in the glass packaging business. The firm was established in 1974 and started production in Pathumthani in 1980. BGC is one of the largest glass container manufacturers in the ASEAN region with five glass packaging plants in Ayutthaya, Pathumthani, Khon Kaen, Prachinburi and Ratchaburi. Its combined maximum production capacity is 3,495 tons per day.

3. Fault Lines and Positive Surprises: Buy Car Makers

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Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. BTS Warrants – Expensive a Month Ago, Even Richer Now So Better to Bail

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The BTS Group Holdings PCL (BTS-W5 TB) warrants on BTS Group Holdings (BTS TB) were listed, and there were no buy opportunities. 

Instead, there were selling opportunities. And if you did not sell them then, you should think about doing so now.

The warrants are trading at an implied volatility exceeding that seen in the aftermath of the Thai floods in 2011, the demonstrations in 2013 and beyond, and any other time save the buy of BTSC in May 2010 which saw trading volumes rise 25-fold for a period of six months or more. 

The company has changed dramatically since then. 

Thailand has also become the latest country to implement a broad lockdown. Thailand’s Prime Minister Prayuth Chan-Ocha said two days ago a state of emergency will be declared for a month. Borders will be closed to foreigners starting today the 26 March; social gatherings are banned, domestic travel has been limited, and only essential shops remain open. From my sources, activity has already been considerably dampened. We can expect damage to BTS revenues. That damage will impact the share price’s ability to rebound to record new highs within the next 10 months so the warrants seem like an asset which will wither (if you are a vol trader, you know what you are getting into and different parameters apply).

More below.

5. Tracking the Daily COVID-19 Cases for 10 Major Countries

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In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

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