Category

Thailand

Brief Thailand: The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos and more

By | Daily Briefs, Thailand

In this briefing:

  1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
  2. USD/Thai Baht Macro Cycle Low
  3. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm
  4. Are Risky Assets Overvalued?
  5. Taking Off: Vietnamese Exports Are Rocking and Rolling

1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos

This past week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Macro Insights

In Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession), CrossASEAN Economist Prasenjit K. Basu revisits the Singapore economic outlook in light of recent indicative numbers that suggest that the economy has stalled. 

In Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked, CrossASEAN Indght Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

In Taking Off: Vietnamese Exports Are Rocking and Rolling,Dr. Jim Walker zeros in on the picture for Asia Exports as the US-China Trade War continues to simmer. 

In Thai Macro Watch: Huawei, Trade Wars, and More, our Thai Guru Athaporn Arayasantiparb, CFA looks at five news on the global front that may impact Thai equities directly or indirectly.

Equity Bottom-Up Insights

In Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s leading smartphone retailer and finds plenty to cheer about after a conversation with management. 

In EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?,Nicolas Van Broekhoven revisits Alliance Mineral Assets (AMS SP) after attending the company’s recent EGM. 

In Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend, Consumer specialist Devi Subhakesan takes a close look at this leading Indonesian staples player. 

In Health Management Int’l Privatisation – Easy Peasy,Travis Lundy zeros in on this potential privatisation event. 

In IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm,Athaporn Arayasantiparb, CFA takes a close look at the upcoming IPO of Singha Group’s hotel arm. 

In Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times, Banking Specialist looks at this impending merger of these two major financial institutions in Thailand. 

In StubWorld: Just Rumours (For Now) As SIA Engineering Pops,David Blennerhassett examines the possibility of privatisation of Sia Engineering (SIE SP). Sia Engineering (SIE SP) is not aware of any information, however last week’s 15% gain in two days rekindles privatisation talks by Singapore Airlines (SIA SP)

In Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy,Travis Lundy looks at this proposed merger, which would create the largest hospitality trust in Asian Pac. 

Sector and Thematic Insights

In Indonesian Telecoms: The Recovery Continued in 1Q and We Expect It to Last, our friends at New Street Research circle back to the Indonesian Telco sector post 1Q19 results and maintain an upbeat view on the prospects for an increasingly data-driven market.

In Singapore REIT – Cautious Search for High Yield, property specialist Anni Kum revisits the REIT sector and identifies her top picks. 

In REIT Discover: Prime US REIT IPO Brief Review,Anni Kum takes a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP)

2. USD/Thai Baht Macro Cycle Low

THB (USDTHB CURNCY) below 31 is flagging valuation concerns with high conviction chart bottoming signals. The macro cycle is due to bottom near the 30.50 level with risk toward the lower 30 area as the risk limit area. 

Micro and macro cycle bull divergence is maturing in the daily and weekly charts and forms when the trend is near a terminal point stemming from diminishing USD sell volumes and momentum (THB tends to spike into a low however) as the market finds itself very long the THB.

USD/THB macro cycle is etching out a cycle low at a time when intervention risk is rising to stem the Baht’s strength.

A USD cycle low will provide headwinds for the SET rally and front run an equity peak. Exports plays on our radar.

3. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm

Sing%20hotel%20main

Singha Group plans to launch the IPO of its hotel arm SHR in Q3’19. Interestingly, they have more rooms and higher room rates than Erawan. These are some observations we make about this upcoming IPO:

  • Structure. The IPO will be firmly underwritten by CIMB and includes 70m warrants for executives and subsidiaries and staggered lock-up periods and expected free float of 40%. Singha Group already has four other listed entities we know of, namely S, NVD, SPRIME, and BGC.
  • Business. Over the past 3 years, SHR has grown revenues and earnings by 63% and 53% respectively. Their portfolio includes 39 hotel properties spread over 5 countries and 3 continents. They include several international brands (Hilton, Hard Rock, Holiday Inns) as well as a few in-house brands (Santiburi, Outrigger).
  • Valuation. We conservatively value SHR at Bt5.3/sh using DCF valuation and Bt10.5/sh using relative valuation. Depending on the market sentiment during the IPO period, we would expect the stock to be closer to one end of this spectrum.
  • Risk. The company/underwriter identifies many risks, most notably competitive risks. Others mentioned include those linked to branding, events risk, Brexit (since they have 29 in UK), and economic risks.

4. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

5. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

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.



Brief Thailand: KTC – Marginal Yields to Double? and more

By | Daily Briefs, Thailand

In this briefing:

  1. KTC – Marginal Yields to Double?
  2. The Best of May/June 2019 Company Visits
  3. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. KTC – Marginal Yields to Double?

1

Thailand’s credit card and personal lender, Krungthai Card (KTC TB), will enter the Pico and Nano loan market in July.  These loans are capped at a rate of 36% compared with 28% for personal loans and 18% for credit card loans.  We must expect therefore that at least during 2020, that marginal loans will be done a rate that is essentially double the rate on core credit card loans. Even where KTC is able to end next year with only 5% of its loans in this segment, the impact to profit can be substantial.

2. The Best of May/June 2019 Company Visits

During this period, we visited around 10 companies. These were the two we liked best of the pack.

  • Osotspa, one of the country’s oldest conglomerates, pointed to passing of overhangs and all-rounded strong growth in smaller businesses such as Vitamin C, canned coffee, and childcare products.
  • Chaiyo, the country’s second largest debt collector but the better performer. They’ve almost doubled their earnings and expanded their gross margins by a whopping 13%.

3. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

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.



Brief Thailand: COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand and more

By | Daily Briefs, Thailand

In this briefing:

  1. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand
  2. The Next Liquidity Crisis
  3. Share Classifications: A Year In Review
  4. Trade War Takes Its Toll
  5. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine

1. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand

Com7%20revenue%20breakdown

We maintain BUY rating for COM7 and roll over our target price in 2020 to Bt27.80 derived from 27xPE’20E, Thai consumer discretionary sector.

  • The stock price has rallied 33%QTD and 23% since our initial coverage launched on 3th May 2019. This mostly reflects the announcement on 8th May that BTS Group Holdings PCL (BTS TB) acquired 5% lot of total COM7’s shares and ranked fifth among shareholders.
  • This implies potential synergy created between these parties in near-term such as more aggressive branch expansion plan, improvement in marketing activities via VGI (72.4% holding by BTS) and other sharing cost programme.
  • In long-term, we believe the company will still benefit from promising branch expansion plan (estimated 700 units as of 1H19), 5G network initiative in 2020, upcoming launches for flagship smartphone brands in 2H19, and potential synergy with BTS Group.

2. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

3. Share Classifications: A Year In Review

Thai%20july

This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region over a 12-month period, and comprises five sets of data:

1.  81 ADRs 
2.  102 Korean Prefs 
3.  23 Regional Dual Classes
4.  7 Foreign/Local Thai shares 
5.  109 A/Hs

The average premium/discount for each set over a one-year period is graphed below.

Source: CapIQ

For a granular breakdown of each set, PDFs are attached at the bottom of this insight.

4. Trade War Takes Its Toll

Capture%201

The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

5. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine

Ukraine8july19

Ukraine is gearing up for a snap parliamentary election scheduled for Sunday 21 July. Given the high approval rating of President Volodymyr Zelensky’s Servant of the People Party, it could win the election in a landslide. Otherwise, it should still be able to form a coalition representing more than half of the Rada MPs. Markets seem to have priced in a positive outcome of the election and would be disappointed if Servant of the People fails to quickly secure the parliamentary approval of the new PM and his cabinet.

The IMF has effectively frozen its assistance to Ukraine until the latter has formed a new government. The timing of the resumption of the negotiations with the IMF depends on the approval of the PM and his cabinet by the new Rada. We think that realistically, talks with the IMF could resume in September. As before, the issue of energy tariffs is likely to feature on the agenda.  Zelensky is busy meeting with international donors and Western leaders gathering support for a new privatisation programme and an infrastructure development plan. However, the latter is hardly feasible without a settlement of the Donbas conflict. So far, we have not seen any signs of convergence in Russia and Ukraine’s positions on the ways of resolving the conflict.

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.



Brief Thailand: USD/Thai Baht Macro Cycle Low and more

By | Daily Briefs, Thailand

In this briefing:

  1. USD/Thai Baht Macro Cycle Low
  2. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm
  3. Are Risky Assets Overvalued?
  4. Taking Off: Vietnamese Exports Are Rocking and Rolling
  5. VGI: OOH Media, Digital Payments and E-Commerce in One Basket

1. USD/Thai Baht Macro Cycle Low

THB (USDTHB CURNCY) below 31 is flagging valuation concerns with high conviction chart bottoming signals. The macro cycle is due to bottom near the 30.50 level with risk toward the lower 30 area as the risk limit area. 

Micro and macro cycle bull divergence is maturing in the daily and weekly charts and forms when the trend is near a terminal point stemming from diminishing USD sell volumes and momentum (THB tends to spike into a low however) as the market finds itself very long the THB.

USD/THB macro cycle is etching out a cycle low at a time when intervention risk is rising to stem the Baht’s strength.

A USD cycle low will provide headwinds for the SET rally and front run an equity peak. Exports plays on our radar.

2. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm

Tour%20growth

Singha Group plans to launch the IPO of its hotel arm SHR in Q3’19. Interestingly, they have more rooms and higher room rates than Erawan. These are some observations we make about this upcoming IPO:

  • Structure. The IPO will be firmly underwritten by CIMB and includes 70m warrants for executives and subsidiaries and staggered lock-up periods and expected free float of 40%. Singha Group already has four other listed entities we know of, namely S, NVD, SPRIME, and BGC.
  • Business. Over the past 3 years, SHR has grown revenues and earnings by 63% and 53% respectively. Their portfolio includes 39 hotel properties spread over 5 countries and 3 continents. They include several international brands (Hilton, Hard Rock, Holiday Inns) as well as a few in-house brands (Santiburi, Outrigger).
  • Valuation. We conservatively value SHR at Bt5.3/sh using DCF valuation and Bt10.5/sh using relative valuation. Depending on the market sentiment during the IPO period, we would expect the stock to be closer to one end of this spectrum.
  • Risk. The company/underwriter identifies many risks, most notably competitive risks. Others mentioned include those linked to branding, events risk, Brexit (since they have 29 in UK), and economic risks.

3. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

4. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

5. VGI: OOH Media, Digital Payments and E-Commerce in One Basket

Vgi%20story%203.1

We initiate coverage of VGI with a BUY rating, based on a target price of Bt10.80 derived from a sum-of-the-parts methodology and implying a 2.1x relative PE to the Thai communication services sector, or 60xPE’FY20E.

The story:

  • Solid business portfolio supports long-term sustainability
  • Five-year expansion plan for transit media capacity has been secured
  • Broadest out-of-home media network in Thailand
  • Riding e-commerce wave via 23% stake in Kerry Express
  • Leveraging behavioral data from millions of Rabbit subscribers

Risks: Obstacles to renewing concession contracts with state-owned enterprises, falling consumer spending, which has resulted in lower-than-expected marketing and advertising spending, and dilution effect from exercise of VGI W2.

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.



Brief Thailand: The Best of May/June 2019 Company Visits and more

By | Daily Briefs, Thailand

In this briefing:

  1. The Best of May/June 2019 Company Visits
  2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. The Best of May/June 2019 Company Visits

During this period, we visited around 10 companies. These were the two we liked best of the pack.

  • Osotspa, one of the country’s oldest conglomerates, pointed to passing of overhangs and all-rounded strong growth in smaller businesses such as Vitamin C, canned coffee, and childcare products.
  • Chaiyo, the country’s second largest debt collector but the better performer. They’ve almost doubled their earnings and expanded their gross margins by a whopping 13%.

2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

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.



Brief Thailand: IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm and more

By | Daily Briefs, Thailand

In this briefing:

  1. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm
  2. Are Risky Assets Overvalued?
  3. Taking Off: Vietnamese Exports Are Rocking and Rolling
  4. VGI: OOH Media, Digital Payments and E-Commerce in One Basket
  5. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand

1. IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm

Sing%20hotel%20main

Singha Group plans to launch the IPO of its hotel arm SHR in Q3’19. Interestingly, they have more rooms and higher room rates than Erawan. These are some observations we make about this upcoming IPO:

  • Structure. The IPO will be firmly underwritten by CIMB and includes 70m warrants for executives and subsidiaries and staggered lock-up periods and expected free float of 40%. Singha Group already has four other listed entities we know of, namely S, NVD, SPRIME, and BGC.
  • Business. Over the past 3 years, SHR has grown revenues and earnings by 63% and 53% respectively. Their portfolio includes 39 hotel properties spread over 5 countries and 3 continents. They include several international brands (Hilton, Hard Rock, Holiday Inns) as well as a few in-house brands (Santiburi, Outrigger).
  • Valuation. We conservatively value SHR at Bt5.3/sh using DCF valuation and Bt10.5/sh using relative valuation. Depending on the market sentiment during the IPO period, we would expect the stock to be closer to one end of this spectrum.
  • Risk. The company/underwriter identifies many risks, most notably competitive risks. Others mentioned include those linked to branding, events risk, Brexit (since they have 29 in UK), and economic risks.

2. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

3. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

4. VGI: OOH Media, Digital Payments and E-Commerce in One Basket

Vgi%20story%203.1

We initiate coverage of VGI with a BUY rating, based on a target price of Bt10.80 derived from a sum-of-the-parts methodology and implying a 2.1x relative PE to the Thai communication services sector, or 60xPE’FY20E.

The story:

  • Solid business portfolio supports long-term sustainability
  • Five-year expansion plan for transit media capacity has been secured
  • Broadest out-of-home media network in Thailand
  • Riding e-commerce wave via 23% stake in Kerry Express
  • Leveraging behavioral data from millions of Rabbit subscribers

Risks: Obstacles to renewing concession contracts with state-owned enterprises, falling consumer spending, which has resulted in lower-than-expected marketing and advertising spending, and dilution effect from exercise of VGI W2.

5. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand

Com7%20revenue%20breakdown

We maintain BUY rating for COM7 and roll over our target price in 2020 to Bt27.80 derived from 27xPE’20E, Thai consumer discretionary sector.

  • The stock price has rallied 33%QTD and 23% since our initial coverage launched on 3th May 2019. This mostly reflects the announcement on 8th May that BTS Group Holdings PCL (BTS TB) acquired 5% lot of total COM7’s shares and ranked fifth among shareholders.
  • This implies potential synergy created between these parties in near-term such as more aggressive branch expansion plan, improvement in marketing activities via VGI (72.4% holding by BTS) and other sharing cost programme.
  • In long-term, we believe the company will still benefit from promising branch expansion plan (estimated 700 units as of 1H19), 5G network initiative in 2020, upcoming launches for flagship smartphone brands in 2H19, and potential synergy with BTS Group.

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.



Brief Thailand: The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World and more

By | Daily Briefs, Thailand

In this briefing:

  1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

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Brief Thailand: Share Classifications: A Year In Review and more

By | Daily Briefs, Thailand

In this briefing:

  1. Share Classifications: A Year In Review
  2. Trade War Takes Its Toll
  3. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine
  4. Active GEM Funds Trounce Passive in H1
  5. Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times

1. Share Classifications: A Year In Review

Thai%20july

This share class monitor provides a snapshot of the premium/discounts for various share classifications around the region over a 12-month period, and comprises five sets of data:

1.  81 ADRs 
2.  102 Korean Prefs 
3.  23 Regional Dual Classes
4.  7 Foreign/Local Thai shares 
5.  109 A/Hs

The average premium/discount for each set over a one-year period is graphed below.

Source: CapIQ

For a granular breakdown of each set, PDFs are attached at the bottom of this insight.

2. Trade War Takes Its Toll

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The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

3. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine

Ukraine8july19

Ukraine is gearing up for a snap parliamentary election scheduled for Sunday 21 July. Given the high approval rating of President Volodymyr Zelensky’s Servant of the People Party, it could win the election in a landslide. Otherwise, it should still be able to form a coalition representing more than half of the Rada MPs. Markets seem to have priced in a positive outcome of the election and would be disappointed if Servant of the People fails to quickly secure the parliamentary approval of the new PM and his cabinet.

The IMF has effectively frozen its assistance to Ukraine until the latter has formed a new government. The timing of the resumption of the negotiations with the IMF depends on the approval of the PM and his cabinet by the new Rada. We think that realistically, talks with the IMF could resume in September. As before, the issue of energy tariffs is likely to feature on the agenda.  Zelensky is busy meeting with international donors and Western leaders gathering support for a new privatisation programme and an infrastructure development plan. However, the latter is hardly feasible without a settlement of the Donbas conflict. So far, we have not seen any signs of convergence in Russia and Ukraine’s positions on the ways of resolving the conflict.

4. Active GEM Funds Trounce Passive in H1

Aweber10

Actively managed GEM funds had a fantastic first half of 2019.  Year to date absolute returns for the average GEM fund stand at 13.06% compared to 10.24% for the iShares MSCI Emerging Markets (EEM US).  Moreover, 77% of funds outperformed.

Outperformance was generated through strong stock selection in China & HK, underweights in South Korea and stock selection in Brazil.  Overweights in AIA Group Ltd (1299 HK), MercadoLibre Inc (MELI US)and Sberbank Of Russia Pjsc (SBER LI) generated the most outperformance for managers, on average.

5. Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times

Thailand%20household%20debt page 1

The 140 billion Baht combination between Thanachart Capital (TCAP TB) and TMB Bank PCL (TMB TB) carries risks and opportunities and may divide opinion. The Thai government certainly wanted this to happen, providing tax incentives curiously to itself. (MOF is a key shareholder at TMB). We cannot but feel that a deal of this kind had to be done, mitigating risks in the overall credit market and to both standalone franchises. In addition, the medium-sized nature of the two players involved inhibits the top players from getting too far away from the pack.

TCAP has been over recent years a relatively profitable operation with a niche (HP) specialisation. Management has managed to report remarkably benign trends year after year (as measured by our PH Score). There would be concerns that the merged entity may see a dilution in this profitability along with core brand and management strengths, responsible for delivering such positive change. Having said that, a glance at both ROAs reveals not a huge difference. (1.5% vs 1.25%). TCAP has better margins but, again, not so much higher. (NIM at 3.15% vs 2.94%). 

The merger may actually reduce risk at TCAP. The capital base at TMB is more robust. Perhaps, TCAP was reaching a saturation point given the toppy state of the retail market and needed a change of direction and risk diversification. The combination will broaden the proposition and create a more diversified, better-funded, and capitalised operation with a balanced business model, more fit to compete with the market leaders. TCAP will no longer be a consumer finance company with a bit of SME and corporate credit, too small to be a big bank, but part of the sixth largest lender by Assets. TMB will no longer be a corporate credit provider with a shallow retail presence. TCAP gains from TMB’s corporate and SME focus while TMB gains from TCAP’s consumer specialisation. The combined entity thus moves towards a 50:50 entity balancing credit segments, and one assumes that management expertise from both respective banks will be utilised as it would make little sense for TMB to do HP given TCAP’s track record or for TCAP to major in SMEs. 

The main attraction would be on the funding side given TMB’s low-cost CASA and hybrid deposit base versus TCAP’s dependence on time deposits. TCAP also gains from TMB’s higher-rated mutual fund and asset management offering. TMB gains from TCAP’s brokerage/securities business. Naturally, there are scale benefits and efficiencies from synergies and rooting out duplication. The combined entity will command 12% of the credit market, especially in mortgages, doubling the client-base to >10mm. 

As always, the success will depend on people. Mergers, if poorly executed, can lead to poor allocation of human resources and cultural breakdown. TCAP and TMB will need to pool very different cultures and find a refreshed common ground. How will the new bank be branded? The size of the two banks is not hugely different: this means good people can come to the fore from both operations. The question though inevitably will be, at least from the start, who is taking over who and who will call the shots? The appointment of key executives and directors will signal where the bank is headed. There are five strategic players : Bank of Nova Scotia, TBank and TCAP on one side, and ING and MOF on the other. European shareholders at the helm with the MOF, Canadian investors, and private Thai interests. There is plenty of space here for debate.

There is the Thai economy to think about too. Athaporn Arayasantiparb, CFA , who like me has written about Thanachart Capital (TCAP TB), would provide a better steer on the domestic macro picture. From what I can glean, growth (as elsewhere) is going through a somewhat softer patch with tourism below target and exports (such a key component) impacted by trade disputes and a moderation in Chinese expansion. Of course, Thailand could benefit from the trade dispute. Maybe there will be a breakthrough on the investment side. The EEC is vital to kickstart infra-fuelled growth to offset softness elsewhere. Projects related to China have the potential to support expansion.

Elsewhere, the tax-base needs to be broadened without draconian measures. Government debt needs to be reined in somewhat. Despite inflation (swayed by drought-sensitive food and energy prices) reaching the lower end of target, the Central Bank raised rates last December to 1.75% though real rates are well behind levels in Indonesia and Malaysia.  While not targeted by the Central Bank, given its floating identity, the Baht remains disconcertingly overbought. The Central Bank is keen to stress its Financial Stability credentials and has taken macroprudential measures to enhance underwriting standards and dampen excessive exuberance with credit cards and consumer credit especially. In hindsight, greater restraint should have marked the last decade as risks have accumulated in an especially low real rate environment. Similar to Malaysia and South Korea, the system is weighed down by excessive household debt to such an extent that flags are now red. 

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Brief Thailand: Are Risky Assets Overvalued? and more

By | Daily Briefs, Thailand

In this briefing:

  1. Are Risky Assets Overvalued?
  2. Taking Off: Vietnamese Exports Are Rocking and Rolling
  3. VGI: OOH Media, Digital Payments and E-Commerce in One Basket
  4. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand
  5. The Next Liquidity Crisis

1. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

2. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

3. VGI: OOH Media, Digital Payments and E-Commerce in One Basket

Vgi%20story%203.1

We initiate coverage of VGI with a BUY rating, based on a target price of Bt10.80 derived from a sum-of-the-parts methodology and implying a 2.1x relative PE to the Thai communication services sector, or 60xPE’FY20E.

The story:

  • Solid business portfolio supports long-term sustainability
  • Five-year expansion plan for transit media capacity has been secured
  • Broadest out-of-home media network in Thailand
  • Riding e-commerce wave via 23% stake in Kerry Express
  • Leveraging behavioral data from millions of Rabbit subscribers

Risks: Obstacles to renewing concession contracts with state-owned enterprises, falling consumer spending, which has resulted in lower-than-expected marketing and advertising spending, and dilution effect from exercise of VGI W2.

4. COM7: Potential Synergy with the Largest Mass Transit Operator in Thailand

Com7%20revenue%20breakdown

We maintain BUY rating for COM7 and roll over our target price in 2020 to Bt27.80 derived from 27xPE’20E, Thai consumer discretionary sector.

  • The stock price has rallied 33%QTD and 23% since our initial coverage launched on 3th May 2019. This mostly reflects the announcement on 8th May that BTS Group Holdings PCL (BTS TB) acquired 5% lot of total COM7’s shares and ranked fifth among shareholders.
  • This implies potential synergy created between these parties in near-term such as more aggressive branch expansion plan, improvement in marketing activities via VGI (72.4% holding by BTS) and other sharing cost programme.
  • In long-term, we believe the company will still benefit from promising branch expansion plan (estimated 700 units as of 1H19), 5G network initiative in 2020, upcoming launches for flagship smartphone brands in 2H19, and potential synergy with BTS Group.

5. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

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Brief Thailand: This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans and more

By | Daily Briefs, Thailand

In this briefing:

  1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

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.