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Thailand

Brief Thailand: Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help and more

By | Daily Briefs, Thailand

In this briefing:

  1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help
  2. BEM: Leading Mass Transit Operator Is About to Get Huge
  3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  4. The Guerrilla War Against The PBOC
  5. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

1. Central Retail Corp Trading – Robins Trading Is Not a Good Look but Passive Buying Should Help

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Central Retail (CRC TB) raised about US$2.32bn at THB42 per share, just above the mid point of its IPO price range. We have covered the IPO in our previous two notes:

In this insight, we will look at the IPO deal dynamics and updated valuation.

2. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%204

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

3. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

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Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

4. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

5. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

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Brief Thailand: WICE: Promising Earnings Growth in 2020 and more

By | Daily Briefs, Thailand

In this briefing:

  1. WICE: Promising Earnings Growth in 2020
  2. Double Divergence: Malaysia and Thailand Mixed Signals
  3. China Outbreak Theme: Winners and Losers
  4. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO

1. WICE: Promising Earnings Growth in 2020

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We came out from WICE’s analyst meeting on 20th January with positive tone given the company’s earnings recovery that expect to kick in by 1Q20 driven by cross boarder transportation business that started to turn profit and easing concern over trade war dilemma support freight unit. We forecast 2020 earnings to grow 34% a strong recovery from low base in 2019 (-35%YoY)

The Story:

• Cross broader is the key earnings growth in 2020
• We cut our 2019-20E earnings forecast by 26%-38% to reflect lower -than-expected gross margin for freight forwarding business.

WICE is currently trading at 23x trailing PE, the lowest level since IPO in mid 2015. Meanwhile, we maintain our BUY rating with a new target price of Bt3.20 (previous TP at Bt4.70) derived from 0.9xPEG’20E, Asia ex-Japan transportation sector or equivalent to 24.4xPE’20E or 40% discount to Thai peers.

2. Double Divergence: Malaysia and Thailand Mixed Signals

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In an earlier Insight, Malaysia and Thailand Divergence, 30 Sep, we drew attention to diverging trends in two of Southeast Asia’s more mature economies, Malaysia and Thailand. At that time second quarter headline GDP numbers showed Malaysia on a rising trend and Thailand on a declining trend. But when investment was examined Thailand was still growing while Malaysia was contracting. Have the third quarter releases changed the picture any? Yes and no…

3. China Outbreak Theme: Winners and Losers

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Not all stocks are losers for the China coronavirus contagion, Health And Happiness (H&H) (1112 HK) is a potential winner due to potential higher demand from its adult nutrition care. Surgical gloves producers such as Top Glove Corp (TOPG MK) and Hartalega Holdings (HART MK) will also benefit from higher turnover.

Tourism-related names such as Airports Of Thailand (AOT TB) , Beijing Capital International Airport (BCIA) (694 HK) , Air China Ltd (H) (753 HK) and Travelsky Technology Ltd H (696 HK) will suffer during this contagion period due to softer revenue growth. Hotel Shilla (008770 KS) is very popular with Chinese tourists hence a less number of Chinese going out to Korea due to potential travel ban may hurt their sales. 

4. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected]

Macro Insights

In Outlook Factors Turning Positive, Save Governance / UAE Fund Hyped / Step Towards Fuel Reform, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.

In Catalyst Calendar for Thai Equities 2020, our Thai Guru Athaporn Arayasantiparb, CFA lays out his thoughts on the potential catalysts for the Thai stock market in the coming 12 months.

In Thai Equities: Five Things That Changes in 2020,Athaporn Arayasantiparb, CFA highlights five different issues that will affect the Thai Equity market in 2020.

Equity Bottom-Up Insights

In Astra International (ASII IJ) – A Dawning Recovery Is Afoot, CrossASEAN Insight Provider Angus Mackintosh revisits the company following a conversation with management on the outlook for 2020. 

In Telkom Indonesia (TLKM IJ) – The Emperor of Data, CrossASEAN Insight Provider Angus Mackintosh zeros in on Indonesia’s leading telco after a meeting with management and returns with a positive view on the outlook.

In Blue Bird (BIRD IJ) And GoJek – An Alliance of Champions,Angus Mackintosh revisits Indonesia’s largest taxi operator in light of the decision to sell a stake to GoJek and find plenty to cheer about.

In Procurri (PROC SP): Failed Park Place Sale = Focus Back on How Undervalued Procurri Remains, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits the company following a failed asset sale. 

In Starhub (STH): Not as Bad as People Thought, CrossASEAN Insight Provider Henry Soediarko takes a close look at the company in the context of its earnings.

In Asia United Bank: Strong Fundamental Momentum, banking specialist Paul Hollingworth takes a look at this smaller cap Philippine bank.

In Central Retail Group IPO Is Set to Become the Biggest IPO in Thailand,Oshadhi Kumarasiri comments on this upcoming Thai retail IPO.

In Central Retail IPO and Potential Changes to the SET50 Index,Brian Freitas zeros in on this upcoming Thai Retail IPO and the consequences for the SET50. 

In Amverton: Game Over For Minorities,David Blennerhassett zeros in on this ill-fated property developer.

In TCB: Subpar Trends and Valuation Leave Us Unconvinced banking specialist Paul Hollingworth zeros in on one of Vietnam’s most popular banks amongst foreign investors but he remains underwhelmed.

Sector and Thematic Insights

In Aequitas 2020 Asia IPO Pipeline – Busy Year Ahead,Sumeet Singh summarises the most important up-and-coming IPOs this year, with a specific section on SE Asia. 

Credit Insights

In Barito Pacific – New Issue Assessment – Lucror Analytics,Trung Nguyen circles back to Indonesia’s biggest chemical and renewable energy player in light of the announcement of a new bond issue.

In Bayan Resources – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a close look at Bayan Resources (BYAN IJ) given an upcoming bond issue. 

in Buana Lintas Lautan – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a look at Buana Lintas Lautan (BULL IJ), an Indonesian shipping company that serves the domestic oil & gas sector, is conducting a roadshow with a view to issuing USD Notes with a tenor of 3-5 years.

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground Insights on companies, economies and stock markets across South East Asia exclusive to Smartkarma. Our research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long-term vision and strategy of the companies we cover. We offer bespoke work, company visits and tailor-made trips across South East Asia to our clients through Premium Services on Smartkarma. Please feel free to show your appreciation for any of our insights you find useful using the like button. It makes a difference!

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Brief Thailand: BEM: Leading Mass Transit Operator Is About to Get Huge and more

By | Daily Briefs, Thailand

In this briefing:

  1. BEM: Leading Mass Transit Operator Is About to Get Huge
  2. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  3. The Guerrilla War Against The PBOC
  4. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  5. BTS Group W5 Warrants Trading Imminent

1. BEM: Leading Mass Transit Operator Is About to Get Huge

Bem%20story%206

We initiate coverage of BEM with a HOLD rating, based on a target price of Bt11.70 derived from a sum-of-the-parts methodology, which implies 45xPE’20E, or a 10% premium to the Thailand transportation sector

The story:

• Extensive transportation network in metropolitan areas
• Growth phase for MRT is just around the corner
• Upside from Orange and South Purple MRT lines
• Steady cash flow from toll businesses
• Plenty of opportunities for commercial development business
• Potential upside from airport-linked fast track 

Risks:  Concession termination, interest rate fluctuation and legal disputes

2. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Sensitivity

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

3. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

4. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

5. BTS Group W5 Warrants Trading Imminent

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As discussed in BTS Group W5 Warrants Coming published in mid-December, the W5 warrants would start trading sometime in the new year of 2020. The discussion point on the insight a week later noted that the first day of trading would be 17 February. 

Helpfully, because you know the strike, you had a 14-month option at the time – not a 12-month option. The shares reacted. The rights went ex- on the 13th of December (the big red candle dropping from the high in mid-December), and for whatever reason, the stock actually rose on the open before falling almost 10% that week. 

source: tradingview.com, Quiddity

Since then, economic figures and forecasts have been non-salutary, and the onset of the novel-coronavirus-2019 has sharply curtailed Chinese outbound tourism, which has dampened the outlook further. The interim dividend for the Apr-Sep 2019 fiscal half went ex- on 28 January, and Q3 earnings released Friday. 

The important part isn’t all that though. The important part is the BTS W5 warrants. 

More below.

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Brief Thailand: SPRC: Back to a Profitable Cycle in 2020 and more

By | Daily Briefs, Thailand

In this briefing:

  1. SPRC: Back to a Profitable Cycle in 2020

1. SPRC: Back to a Profitable Cycle in 2020

Picture4

We initiate coverage of SPRC with a BUY rating and a 2020E target price of Bt11.60, derived from 1.3xPBV’20E, which represents a 13% premium to the Thailand energy average of 1.15x.

The story:

  • Superior GRM as a result of partnership with Chevron
  • To benefit from several turnaround projects including expansion
  • IMO regulation to support refinery margin in 2020E

Risks:

  • Raw material price fluctuation
  • Foreign currency exchange rate fluctuation
  • Unplanned shutdown of refinery

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Brief Thailand: Thai Equities: Five Things That Changes in 2020 and more

By | Daily Briefs, Thailand

In this briefing:

  1. Thai Equities: Five Things That Changes in 2020

1. Thai Equities: Five Things That Changes in 2020

In Thai Strategy 2020 (Part 1): Key Themes , we explained our increasingly bullish stance on Thai equities. In this review, we focus on just five things that change the investment environment in 2020. Some, but not all, of these are game-changing and will carry beyond this year. Others will only have short-term impacts.

  • the crusade against plastics bags. the government pressured most retailers to stop issuing plastic bags to patron for environmental reasons. This is likely to cut into demand for companies such as PTTGC.
  • the American re-election is important catalyst for trade deals and Iranian conflict. The former is generally positive for the Thai economy, especially exporters. The latter, however, benefits PTT Group at the expense of energy-intensive companies.
  • 5G technology. In the short to medium term, 5G is a big financial burden for the telecom sector and a boom for network contractors. In the longer run, however, it could pay off due to demand from new devices, such as autonomous driven cars and IoT.
  • Fallout and Mutation of Future Forward. The dissolution of the Future Forward Party initially strengthens the government but also introduces a new dimension of political risk as Tanatorn can stir problem outside the Parliamentary system.
  • A year of deal renaissance. The largest IPO and domestic takeover in Thailand could happen this year and prove to be a great deal for investment bankers.

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Brief Thailand: Central Retail IPO: Trading Debut, Valuation Scenario Analysis and more

By | Daily Briefs, Thailand

In this briefing:

  1. Central Retail IPO: Trading Debut, Valuation Scenario Analysis
  2. The Guerrilla War Against The PBOC
  3. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  4. BTS Group W5 Warrants Trading Imminent
  5. IPO Radar: NR Instant Produce, Beyond Meat Wannabe

1. Central Retail IPO: Trading Debut, Valuation Scenario Analysis

Sensitivity

Central Retail (CRC TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail will commence trading on Thursday, 20 February. Central Retail set the offer price at THB42.00 per share, which is around the mid-point of the indicative price range of THB40-43 per share.

In our valuation note, we grudgingly noted that we would participate at most at the low-end of the IPO price range due to an undemanding rating. However, in a follow-on note, we stated that recent events have tipped the balance in favour of giving the IPO a pass. Our DCF analysis supports this view and our DCF-based scenario analysis suggests that the IPO price is unattractive.

2. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

3. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

4. BTS Group W5 Warrants Trading Imminent

Screenshot%202020 02 14%20at%203.07.06%20pm

As discussed in BTS Group W5 Warrants Coming published in mid-December, the W5 warrants would start trading sometime in the new year of 2020. The discussion point on the insight a week later noted that the first day of trading would be 17 February. 

Helpfully, because you know the strike, you had a 14-month option at the time – not a 12-month option. The shares reacted. The rights went ex- on the 13th of December (the big red candle dropping from the high in mid-December), and for whatever reason, the stock actually rose on the open before falling almost 10% that week. 

source: tradingview.com, Quiddity

Since then, economic figures and forecasts have been non-salutary, and the onset of the novel-coronavirus-2019 has sharply curtailed Chinese outbound tourism, which has dampened the outlook further. The interim dividend for the Apr-Sep 2019 fiscal half went ex- on 28 January, and Q3 earnings released Friday. 

The important part isn’t all that though. The important part is the BTS W5 warrants. 

More below.

5. IPO Radar: NR Instant Produce, Beyond Meat Wannabe

Img 2855

MCorp Review recently took a swing at NRF (NR Instant Produce), a manufacturer of myriad food products ranging from seasoning to plant-based foods, which sounds a lot like America’s now much hyped up Beyond Meat. While that really caught our attention, those checking out this IPO should look at the following as well:

  • The IPO details. The IPO will take place on the small cap MAI bourse and is good for 340m shares. It is firmly underwritten by their main banker SCB.
  • Business and Outlook. 70% of NRF’s sales are conducted in US$, so they are largely an exporter of products ranging from seasoning, condiments, ready-to-eat meals, fruit juices, snacks (sounds familiar), and beverages. Plant-based foods make up 8% of revenues today but will be the fastest-growing segment given the joint venture with Brecks. As their core business today is OEM (making foods for other brands), margin pressure is prevalent.
  • Valuations. We estimate a valuation range of Bt0.54 (using DCF) and Bt0.63 (using relative valuation) for this IPO. As IPOs are rarely priced below Bt1/sh, we are unlikely to participate in this IPO.
  • Key Risks includes: 1) customer retention in the OEM business; 2) raw materials price fluctuations; 3) food safety hazards; 4) customer concentration risks; 5) exchange rate risks; and 6) debt-related risks.

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Brief Thailand: The Guerrilla War Against The PBOC and more

By | Daily Briefs, Thailand

In this briefing:

  1. The Guerrilla War Against The PBOC
  2. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  3. BTS Group W5 Warrants Trading Imminent
  4. IPO Radar: NR Instant Produce, Beyond Meat Wannabe
  5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

1. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

2. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

3. BTS Group W5 Warrants Trading Imminent

Screenshot%202020 02 15%20at%203.46.35%20pm

As discussed in BTS Group W5 Warrants Coming published in mid-December, the W5 warrants would start trading sometime in the new year of 2020. The discussion point on the insight a week later noted that the first day of trading would be 17 February. 

Helpfully, because you know the strike, you had a 14-month option at the time – not a 12-month option. The shares reacted. The rights went ex- on the 13th of December (the big red candle dropping from the high in mid-December), and for whatever reason, the stock actually rose on the open before falling almost 10% that week. 

source: tradingview.com, Quiddity

Since then, economic figures and forecasts have been non-salutary, and the onset of the novel-coronavirus-2019 has sharply curtailed Chinese outbound tourism, which has dampened the outlook further. The interim dividend for the Apr-Sep 2019 fiscal half went ex- on 28 January, and Q3 earnings released Friday. 

The important part isn’t all that though. The important part is the BTS W5 warrants. 

More below.

4. IPO Radar: NR Instant Produce, Beyond Meat Wannabe

Img 2855

MCorp Review recently took a swing at NRF (NR Instant Produce), a manufacturer of myriad food products ranging from seasoning to plant-based foods, which sounds a lot like America’s now much hyped up Beyond Meat. While that really caught our attention, those checking out this IPO should look at the following as well:

  • The IPO details. The IPO will take place on the small cap MAI bourse and is good for 340m shares. It is firmly underwritten by their main banker SCB.
  • Business and Outlook. 70% of NRF’s sales are conducted in US$, so they are largely an exporter of products ranging from seasoning, condiments, ready-to-eat meals, fruit juices, snacks (sounds familiar), and beverages. Plant-based foods make up 8% of revenues today but will be the fastest-growing segment given the joint venture with Brecks. As their core business today is OEM (making foods for other brands), margin pressure is prevalent.
  • Valuations. We estimate a valuation range of Bt0.54 (using DCF) and Bt0.63 (using relative valuation) for this IPO. As IPOs are rarely priced below Bt1/sh, we are unlikely to participate in this IPO.
  • Key Risks includes: 1) customer retention in the OEM business; 2) raw materials price fluctuations; 3) food safety hazards; 4) customer concentration risks; 5) exchange rate risks; and 6) debt-related risks.

5. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

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Brief Thailand: Central Retail Corp IPO Initiation: Trouble at Till and more

By | Daily Briefs, Thailand

In this briefing:

  1. Central Retail Corp IPO Initiation: Trouble at Till

1. Central Retail Corp IPO Initiation: Trouble at Till

Fashion%201

Central Retail (192323Z TB), the retail arm of Central Group, is the leading multi-format, multi-category retailing platform in Thailand, Italy and Vietnam. Central Retail has set its IPO price range at THB40-43 per share to raise a total of THB67.6-72.7 billion ($2.2-2.4 billion). 

The IPO has got off to a good start with strong cornerstone support. However, we believe that Central Retail’s fundamentals are less than inspiring and characterised by pressure on the top-line and bottom-line along with low returns. We believe the IPO valuation needs to be a discount to the sector as a bare minimum to warrant any participation. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Thailand: The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World and more

By | Daily Briefs, Thailand

In this briefing:

  1. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  2. BTS Group W5 Warrants Trading Imminent
  3. IPO Radar: NR Instant Produce, Beyond Meat Wannabe
  4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  5. Bangkok Bank: Deal or No Deal, Shares Are Too Depressed

1. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

2. BTS Group W5 Warrants Trading Imminent

Screenshot%202020 02 15%20at%205.07.27%20pm

As discussed in BTS Group W5 Warrants Coming published in mid-December, the W5 warrants would start trading sometime in the new year of 2020. The discussion point on the insight a week later noted that the first day of trading would be 17 February. 

Helpfully, because you know the strike, you had a 14-month option at the time – not a 12-month option. The shares reacted. The rights went ex- on the 13th of December (the big red candle dropping from the high in mid-December), and for whatever reason, the stock actually rose on the open before falling almost 10% that week. 

source: tradingview.com, Quiddity

Since then, economic figures and forecasts have been non-salutary, and the onset of the novel-coronavirus-2019 has sharply curtailed Chinese outbound tourism, which has dampened the outlook further. The interim dividend for the Apr-Sep 2019 fiscal half went ex- on 28 January, and Q3 earnings released Friday. 

The important part isn’t all that though. The important part is the BTS W5 warrants. 

More below.

3. IPO Radar: NR Instant Produce, Beyond Meat Wannabe

Img 2855

MCorp Review recently took a swing at NRF (NR Instant Produce), a manufacturer of myriad food products ranging from seasoning to plant-based foods, which sounds a lot like America’s now much hyped up Beyond Meat. While that really caught our attention, those checking out this IPO should look at the following as well:

  • The IPO details. The IPO will take place on the small cap MAI bourse and is good for 340m shares. It is firmly underwritten by their main banker SCB.
  • Business and Outlook. 70% of NRF’s sales are conducted in US$, so they are largely an exporter of products ranging from seasoning, condiments, ready-to-eat meals, fruit juices, snacks (sounds familiar), and beverages. Plant-based foods make up 8% of revenues today but will be the fastest-growing segment given the joint venture with Brecks. As their core business today is OEM (making foods for other brands), margin pressure is prevalent.
  • Valuations. We estimate a valuation range of Bt0.54 (using DCF) and Bt0.63 (using relative valuation) for this IPO. As IPOs are rarely priced below Bt1/sh, we are unlikely to participate in this IPO.
  • Key Risks includes: 1) customer retention in the OEM business; 2) raw materials price fluctuations; 3) food safety hazards; 4) customer concentration risks; 5) exchange rate risks; and 6) debt-related risks.

4. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

5. Bangkok Bank: Deal or No Deal, Shares Are Too Depressed

Bangkok%20bank%20fy19 page 21

Bangkok Bank Public (BBL TB) reported encouraging headline trends at FY19, materialised in a strong PH Score™ of 8.5. There were positive changes in Efficiency, in Capitalisation, in liquidity, in Asset Quality, and in Provisioning. 

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

Scores were well better than at Kasikornbank PCL (KBANK TB) especially but also at Siam Commercial Bank Pub Co (SCB TB) and Kiatnakin Bank (KKP TB) though illiquid Bank Of Ayudhya (BAY TB) came top.

There were though, under the hood, some concerns. While the NPL ratio was essentially stable, we note a virulent jump in “substandard loans” and a worrying increase in Special Mention Loans. With regards Earnings Quality, there was an outsized contribution of “other non-interest Income” which flattered the bottom-line and boosted Profitability ratios which have been under some downward pressure across Thailand for sometime.

We are not over-enthused about the Thai economy with rock-bottom rates amidst recessionary strains, exacerbated by the Wuhan Virus and trade dislocations, budget delays, high household debt, and unsustainable baht overvaluation despite recent softness. But one must look beyond the clouds and to a time in the not-so-distant future, when Chinese tourists return to Thailand and exports reinvigorate.

However, we believe that shares in Bangkok Bank Public (BBL TB) are undervalued and have some way to progress on the back of a successful deal for Permata. See Thinking About Bangkok Bank’s Buy of Permata by Travis Lundy who convincingly makes the case for a trade on Bank Permata (BNLI IJ) . We agree with Daniel Tabbush too that turnaround Permata adds value to BBL’s franchise though the market is not so sanguine about the deal, very probably influenced by recent transactions such as Danamon. We believe BBL offers strong relative performance upside based on Permata synergies and ASEAN diversification/opportunity while its own domestic business is not in bad shape. This may not be consensus given BBL’s languishing share price.

While the median P/B gap between Permata and BBL stands at 42bps over the last 12 months, today the difference is 79bps. If Permata re-rates towards the acquisition price of 1.77x P/Book, shares of BBL should rise from the current P/Book of 0.66x by at least 20% (based on median P/B) or towards Book Value (maybe optimistic) to maintain the current gap. Shares have a tailwind of both a high PH Score™ and the Permata acquisition price. Caveat is that the transaction does not get regulatory and shareholder approval. If that were to pass, BBL shares might move higher towards its median P/B as the market is hardly enthused with the deal and price while shares of Permata would sell-off. Either way, BBL shares seem protected by a deal or no deal. This may be a more conservative risk-adjusted bet than a pure punt on Permata.

You are currently reading Executive Summaries of Smartkarma Insights.

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Brief Thailand: BTS Group W5 Warrants Trading Imminent and more

By | Daily Briefs, Thailand

In this briefing:

  1. BTS Group W5 Warrants Trading Imminent
  2. IPO Radar: NR Instant Produce, Beyond Meat Wannabe
  3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  4. Bangkok Bank: Deal or No Deal, Shares Are Too Depressed
  5. Market Monitor: A Corona Hangover

1. BTS Group W5 Warrants Trading Imminent

Screenshot%202020 02 15%20at%205.07.27%20pm

As discussed in BTS Group W5 Warrants Coming published in mid-December, the W5 warrants would start trading sometime in the new year of 2020. The discussion point on the insight a week later noted that the first day of trading would be 17 February. 

Helpfully, because you know the strike, you had a 14-month option at the time – not a 12-month option. The shares reacted. The rights went ex- on the 13th of December (the big red candle dropping from the high in mid-December), and for whatever reason, the stock actually rose on the open before falling almost 10% that week. 

source: tradingview.com, Quiddity

Since then, economic figures and forecasts have been non-salutary, and the onset of the novel-coronavirus-2019 has sharply curtailed Chinese outbound tourism, which has dampened the outlook further. The interim dividend for the Apr-Sep 2019 fiscal half went ex- on 28 January, and Q3 earnings released Friday. 

The important part isn’t all that though. The important part is the BTS W5 warrants. 

More below.

2. IPO Radar: NR Instant Produce, Beyond Meat Wannabe

Img 2855

MCorp Review recently took a swing at NRF (NR Instant Produce), a manufacturer of myriad food products ranging from seasoning to plant-based foods, which sounds a lot like America’s now much hyped up Beyond Meat. While that really caught our attention, those checking out this IPO should look at the following as well:

  • The IPO details. The IPO will take place on the small cap MAI bourse and is good for 340m shares. It is firmly underwritten by their main banker SCB.
  • Business and Outlook. 70% of NRF’s sales are conducted in US$, so they are largely an exporter of products ranging from seasoning, condiments, ready-to-eat meals, fruit juices, snacks (sounds familiar), and beverages. Plant-based foods make up 8% of revenues today but will be the fastest-growing segment given the joint venture with Brecks. As their core business today is OEM (making foods for other brands), margin pressure is prevalent.
  • Valuations. We estimate a valuation range of Bt0.54 (using DCF) and Bt0.63 (using relative valuation) for this IPO. As IPOs are rarely priced below Bt1/sh, we are unlikely to participate in this IPO.
  • Key Risks includes: 1) customer retention in the OEM business; 2) raw materials price fluctuations; 3) food safety hazards; 4) customer concentration risks; 5) exchange rate risks; and 6) debt-related risks.

3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

4. Bangkok Bank: Deal or No Deal, Shares Are Too Depressed

Bangkok%20bank%20fy19 page 21

Bangkok Bank Public (BBL TB) reported encouraging headline trends at FY19, materialised in a strong PH Score™ of 8.5. There were positive changes in Efficiency, in Capitalisation, in liquidity, in Asset Quality, and in Provisioning. 

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 

Scores were well better than at Kasikornbank PCL (KBANK TB) especially but also at Siam Commercial Bank Pub Co (SCB TB) and Kiatnakin Bank (KKP TB) though illiquid Bank Of Ayudhya (BAY TB) came top.

There were though, under the hood, some concerns. While the NPL ratio was essentially stable, we note a virulent jump in “substandard loans” and a worrying increase in Special Mention Loans. With regards Earnings Quality, there was an outsized contribution of “other non-interest Income” which flattered the bottom-line and boosted Profitability ratios which have been under some downward pressure across Thailand for sometime.

We are not over-enthused about the Thai economy with rock-bottom rates amidst recessionary strains, exacerbated by the Wuhan Virus and trade dislocations, budget delays, high household debt, and unsustainable baht overvaluation despite recent softness. But one must look beyond the clouds and to a time in the not-so-distant future, when Chinese tourists return to Thailand and exports reinvigorate.

However, we believe that shares in Bangkok Bank Public (BBL TB) are undervalued and have some way to progress on the back of a successful deal for Permata. See Thinking About Bangkok Bank’s Buy of Permata by Travis Lundy who convincingly makes the case for a trade on Bank Permata (BNLI IJ) . We agree with Daniel Tabbush too that turnaround Permata adds value to BBL’s franchise though the market is not so sanguine about the deal, very probably influenced by recent transactions such as Danamon. We believe BBL offers strong relative performance upside based on Permata synergies and ASEAN diversification/opportunity while its own domestic business is not in bad shape. This may not be consensus given BBL’s languishing share price.

While the median P/B gap between Permata and BBL stands at 42bps over the last 12 months, today the difference is 79bps. If Permata re-rates towards the acquisition price of 1.77x P/Book, shares of BBL should rise from the current P/Book of 0.66x by at least 20% (based on median P/B) or towards Book Value (maybe optimistic) to maintain the current gap. Shares have a tailwind of both a high PH Score™ and the Permata acquisition price. Caveat is that the transaction does not get regulatory and shareholder approval. If that were to pass, BBL shares might move higher towards its median P/B as the market is hardly enthused with the deal and price while shares of Permata would sell-off. Either way, BBL shares seem protected by a deal or no deal. This may be a more conservative risk-adjusted bet than a pure punt on Permata.

5. Market Monitor: A Corona Hangover

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The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.

COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.

We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).

We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.

Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.

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