Thailand remains the only Asian economy in which fixed investment spending has yet to return to the pre-AFC peak of 1996. The only years in which GFCF has grown in double-digits since 1996 are in years when “populist” governments were in power (those headed by Thaksin Shinawatra and his sister Yingluck, and in 2010 when Abhisit Vejjajiva implemented similar policies). During the 5 years that the current military junta has run Thailand, GFCF has grown at a meagre annual average rate of 2.13%. So the election is a straight choice between stronger growth (if Pheu Thai wins a plurality, and is able to form a coalition with Future Forward) and anaemic growth under a government led by current PM Prayuth Chan-ocha.
Having written the election rules to suit himself, PM Prayuth remains in pole position to remain Prime Minister after the election (on Sunday March 24th). Not only are all 250 members of the Senate appointed by the military, a larger share (150 of 500 seats) in the elected House will be determined by proportional representation — and only the other 350 will be allocated to winners of the vote count in each constituency. All this, plus the banishment of Thaksin and Yingluck, is aimed at hamstringing their political party, Pheu Thai, which still leads in all the polls — and which has come out on top of every election since 2001 (when Thaksin’s became the first party to ever win a majority of seats in parliament on its own). Given that a joint sitting of both Senate and House will choose the PM, Prayuth still remains likeliest to remain prime minister.
We expect that the election will be “won” by Pheu Thai and Thanathorn-led Future Forward — the “red shirt” successors — who will together win 300-320 seats in the House. But this will not suffice to enable them to win a majority in the joint setting of the House and Senate. The “yellow shirt” parties — Democrats (led by Abhisit) and Prayuth’s Palang Pracharat — will together have about 180-200 seats in the House (clearly “losing” the election), but should still command a majority of the joint sitting of House and Senate. If King Vajiralongkorn goes along with this outcome, Thailand is likely to continue to have persistently sluggish growth in 2019 and 2020, with private investment spending remaining especially anaemic. However, the King could choose to intervene in favour of the “winners” of the election, which would prolong the period of political instability, but otherwise generate substantially faster economic growth in the medium term. The upshot, however, is that the election will not immediately alter the pattern of sluggish economic growth that Thailand has been stuck in over the past 5 years. We recommend being Underweight Thailand.
The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
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An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.
A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK)made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).
So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.
This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.
After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier – alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.
Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU)announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
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An activist has come forward, and the external statutory auditor and lead shareholder (wife of founder) are against the offer, but Kosaido Co Ltd (7868 JP) situation still fits pretty cleanly in the “Too Hard” bucket for now.
Since announcing its foray into the deeper waters of being the fourth Type I Mobile Network Operator in Japan, Rakuten’s shares have taken a mighty hit. But the focus in this insight is on ride-sharing company Lyft. In March 2015, Rakuten CEO Hiroshi Mikitani announced that Rakuten had invested US$300mn in Lyft, giving it a 11.9% stake after Series E round in May 2015. Recent articles suggest that Rakuten remains the top investor.
As best as Travis Lundy can tell, from sources who track this, Rakuten is the single largest shareholder in Lyft, with a holding in the 10.4-12.0% range. That would suggest a position value of US$900mn-$1.2bn based on the last funding round in June 2018. At a $25bn pre-money IPO valuation, that would be worth US$1.5-2.0bn for a likely pre-tax IPO uplift of US$590-800mn.
A report late Thursday Asia time suggested the Lyft roadshow would start the week of March 18th, which would mean the S-1 will be available two weeks before that. Investors will know more about Rakuten’s ownership of Lyft by the end of next week or very early the following week. Travis would want to be long for now.
DHICO announced a larger-than-expected ₩608.4bn rights offer. ₩543bn is expected to be raised through common shares at a preliminary price of ₩6,390; and ₩65bn via RCPS at a preliminary price of ₩6,970. This is a combined 72.56% capital increase a 42.05% share dilution. Concurrently, Doosan E&C announced a ₩420bn rights offer at a preliminary price of ₩1,255, a 15% discount to last close.
For DHICO, Mar 27 is the ex-rights day for both Common and RCPS. Subscription rights (for the Common) will be listed and trade on Apr 19~25. May 2 is final pricing. May 8 is subscription and May 16 is payment. New Common shares will be listed on May 29.
For E&C, the final price will be fixed on Apr 30. Whichever is higher – ₩1,255 or Apr 26~30 VWAP at a 40% discount – will be the final offering price. Mar 27 will be the ex-rights day. Subscription rights will be listed and traded on Apr 18~24. New shares will be listed on May 24.
₩1,255 is a lot more aggressive than generally viewed. DHICO owns nearly two thirds of E&C. With a 20% oversubscription, nearly ₩300bn will likely come from DHICO, essentially buttressing E&C at an even heftier price. Which is probably why the market is being less harsh on E&C relative to DHICO.
The 247-4 Form is out with a tender offer period between 26 Feb-1 April, and payment on the 4th April. The frustrating part is how Delta’s FY18 dividend of Bt2.30 is treated. On one hand, it says the Bt71 Offer price is final unless there is a MAC. Further into the Offer doc, it mentions the Offeror “reserves the right” to reduce the offer price if a dividend is paid. DELTA’s IR believes the dividend will be added, but it is not crystal clear.
Furthermore, there is no minimum acceptance condition, as potentially flagged earlier, which means there is no possibility of fast-tracking payment. Some precedent voluntary offers included a minimum acceptance, which provides an expedited payment should investors who tender shares AND revoke their right to withdraw – provided that minimum is fulfilled.
Shares traded up after the document came out, shrugging off the ambiguity in the document. Currently trading at a gross/annualised return of 1.1%/11%. The dividend is subject to a 10% tax for non-residents.
The previous Friday, the Offerors for M1 announced that their Offer had been declared Unconditional In All Respects as the tendered amount was 57.04% and the total held by concert parties was 76.35%. Axiata Group (AXIATA MK)made an announcement to the Bursa Malaysia that it had accepted the Offer as required because it was a significant asset disposal. Going unconditional has triggered an extension of the Closing Date to 4 March 2019.
If you want to fight this with an appraisal, you can. Travis doesn’t see the point. If you want to hold on to the stock in order to block full squeezeout and play chicken with the big boys, you can, but it requires a relatively big ticket (roughly 6.73% of the shares out).
So Travis recommends taking the money. It was better to take the money in early January and re-deploy, rather than wait for the close of the offer. He would accept now and sees no upside from waiting.
When the Tender Offer / MBO for Kosaido was announced last month, Travis’ first reaction was that this was wrong, concluding this was a virtual asset strip in progress, and suggested that the only way this was likely to not get done is if some brave activist came forward.
Shortly afterwards, an activist did come forward. Yoshiaki Murakami’s bought 5% through his entity Reno KK, and later lifted his stake (combined with affiliates) to 9.55%. Travis thought the stock had run too far at that point (¥775/share). While still cheap, he did not expect Bain to lift its price by 30+%, nor a white knight to arrive quickly enough.
This week a media article suggested longstanding external statutory auditor Mr. Nakatsuji and lead shareholder Sakurai Mie were against the takeover.
The possibility this deal fails because the “put protection” of the deal price at ¥610 is no longer solid has gone up. Conversely, the probability that Bain and the MBO have to come in with a price adjustment higher has gone up. Travis is inclined to remain bearish in the medium-term as there is a significant likelihood there is no alternative solution during the Tender Offer period itself.
After announcing earlier this month a number of indicative non-binding bids were received for a “whole of company transaction”, the AFR is now reporting (paywalled) that Lone Star has also joined the battle for Aveo Group (AOG AU). (A Case for Privatising Aveo)
Saputo Inc (SAP CN) and Dairy Crest announced an all-cash deal where Saputo will buy Dairy Crest for 620p/share, to be implemented through a Scheme of Arrangement with an expected close in Q2 2019. This appears to tick all the necessary boxes. Friendly, horizontal integration, and limited job losses. Shares are trading through terms early (he published at 628.5p), perhaps on expectations the wide open register means shareholders can try to hold out for a higher price.
At almost 14x EV/EBITDA on a TTM basis and a bit lower on a March 2019 FY-end basis, it is a high enough multiple to not be insulting for a dairy company, and may keep other suitors away.
Dairy Crest’s directors have given irrevocable notice to accept, and the directors’ advisors (Greenhill & Co) have deemed the Offer “fair and reasonable.”
One extra turn of EV/EBITDA would lift the takeover price just under 10%. That would clear out most of the naysayers who bought in the frothier “we’re going to be an asset-light branded goods company” days of 2015-2017. Doable, but as it is an agreed deal, Travis doesn’t see the need to push it.
In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco, with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis. It also argued that Ophir should negotiate with the Equatorial Guinea ministry (the regulator that terminated the Fortuna license, resulting in write-offs of US$610mn) to be compensated for its $700mn investment and the unfair seizure of the license, otherwise it would set a precedent for other international operators doing business in EG.
Petrus has now rounded on Schrader over perceived mismanagement of the EG licence, and a lack of professionalism in not soliciting and considering offers for Ophir from other buyers. Petrus’ beef is not an outlier – alternative hedge fund Sand Grove has increased its exposure, via cash-settled derivatives, to 17.28% (as at 13 February); while Ian Hannam, who advised Ophir’s board on its 2013 right issue, is understood to have also written to Ophir’s interim CEO Alan Booth and the board saying Medco’s offer is too low.
Overall, Petrus’ assertions that Ophir is being sold at “sub optimal terms” appear valid, most notably on the EG compensation and the illogical operations update earlier this month. The alternative push to sell the SEA assets separately, as that has been Medco’s core focus, not international operations, also makes sense.
Last month, DSV A/S (DSV DC) made a public proposal of a takeover for cash and scrip valued at CHF 170/share, which came at a 24% premium to last and +31% vs 1-month VWAP. The #2, #3, and long-time #4 shareholders are firmly and publicly in the camp of trying to get something done. 45.9%-shareholder Ernst Göhner Foundation is sending mixed signals – do they want a higher price? Or do they want to wait and let Panalpina grow by its own consolidator strategy?
Panalpina has now confirmed that it in preliminary talks with Kuwait-listed logistics company Agility Public Warehouse. A Bloomberg report suggested a deal could be reached as early as this past week for Agility’s logistics business. The same article suggested the Göhner Foundation is supportive of the new talks. Agility’s press release was much more non-committal.
DSV has also announced a new all cash CHF 180/share offer for Panalpina; although the original cash and scrip offer was then worth CHF 184.5/share, which is an even better premium to pre-offer terms. One wonders whether cash-only would suit the Foundation; the DSV press release seemed to respond to that.
It is not clear what would drive the Foundation to give up its control. And Panalpina’s measly share price reaction to the all-cash offer suggest there is considerable skepticism out there. But at some price, Panalpina’s board looks pretty stupid to not accept the cash.
If you do not think a deal with DSV has any chance of getting up, Panalpina shares are a sell here. If they overpay for Agility and cannot improve their own margins well past historical highs in a market trending weaker, then the shares could drop.
Using Curtis’ figures, the implied stub is at its lowest level since a brief downward spike in February 2015, and you would have to go back to April 2014 to find a lower level.
The push back on this setup is that the auto operations have recorded marginally, yet sequential profit declines in FY16 and FY17; while recording three sequential quarterly declines up to December 2018. The big question is whether Mahindra can regain market share as it kick-starts a new model cycle.
In contrast, Sanghyun believes the Holdco is still undervalued relative to the Sub by about 10%. Plugging in Sanghyun’s numbers, I back out a discount to NAV of 45% against a one-year average of 30%, with a 12-month range of -51.5% to 15.5% (premium).
Back on the 13 December 2018, Can One announced a proposed MGO for Kian Joo at RM3.10/share, a 52.7% premium to last close. This required Can One shareholders’ approval which was received on the 14 February. Can One’s current 33% stake in Kian Joo accounts for ~86% of its market cap. The offer doc should be out, on or before the 7 March, with payment either late March (along with the first close of the Offer), or early April, depending on when the offer turns unconditional. The offer is conditional on 50% acceptance. Both sides are illiquid.
This looks like a decent exit for Kian Joo shareholders. Apart from EPF with 10.1%, former NED Teow China See is the only other shareholder with >5% with 8.9%.
For Can One, this is an aggressive pitch to make Kian Joo a subsidiary amidst an uncertain economic backdrop, while potential synergies may be offset via higher interest costs.
There are still two schools of thought on the HMG restructuring. One is that Glovis/Mobis are merged into a holdco entity. Or Glovis becomes the holdco with Mobis→ HM→ Kia Motors Corp (000270 KS) below. Since late 3Q18, there has been increased speculation on the latter. This has pushed up Glovis’ price relative to Mobis.
Each outcome is beset with its own set of issues. For Glovis to be the sole holdco, it has to come up with nearly ₩2tn to buy Kia’s Mobis stake, probably through new, and burdensome, debt. Glovis may also face the risk of forced holdco conversion, creating an issue with Kia as a “great grandson” subsidiary.
This speculation pushing up Glovis relative to Mobis has yet to be substantiated/justified, suggesting Glovis is overbought. Sanghyun expects a mean reversion, and recommends a long Mobis and short Glovis.
Navitas Ltd (NVT AU) has agreed to extend the exclusivity period granted to the BGH consortium to 1 March (from 18 Feb), in order to allow additional time for BGH to complete a limited set of remaining due diligence investigations.
Netcomm Wireless (NTC AU) has received $1.10 cash offer (53% premium to last close) from Casa Systems (CASA US) via a Scheme. The deal values Netcomm at ~US$114m. The scheme is subject to FIRB and shareholder approval. Stewart David Paul James, a NED, holds 12.3% and is the major shareholder. The announcement states that each Netcomm director intends to vote the Netcomm shares held by them in favour of the scheme – subject to a +ve IFA opinion and in the absence of a competing offer. This includes Stewart’s stake.
MYOB Group Ltd (MYO AU)announced no superior proposal emerged after concluding its ’go shop’ period for rival offers to KKR’s takeover proposal. At a gross/annualised spread of 0.9%/4.8%, assuming early May payment, this looks to be trading a bit tight.
CCASS
My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions. These may be indicative of share pledges. Or potential takeovers. Or simply help understand volume swings.
Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.
NextDecade Corp (NEXT US) recently announced that it started offering long-term contracts indexed to the crude Brent in order to attract more LNG buyers. This follows the agreement reached by Tellurian Inc (TELL US) with Vitol back in December to index a long term contract with the Asian LNG price benchmark JKM. While typically US LNG projects are indexed to the Henry Hub, declining crude oil and LNG prices seem to have diminished the appeal of the Henry Hub pricing compared to the oil indexation. This insight takes a look at the latest trends in the LNG markets to assess which companies are taking the lead in the race to bring to FID in 2019 their proposed LNG projects.
Exhibit 1: NextDecade adds Brent indexation to its commercial offering
Source: NextDecade Corporate Presentation February 2019
London-based investors are turning cautiously optimistic on China’s growth outlook amid the latest easing measures in January
There is still little awareness about the rising deflation risk
Interest in the trade war has subsided
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TWPC 4Q18 recurring profit was Bt86m (+135%YoY, +975%QoQ). The easing in cassava supply help supporting TWPC both selling volume and profitability.
The strong revenue at Bt2.1bn (+12%YoY, +25%QoQ) and GPM at 17.2% (+0.7ppts YoY, +3.2ppts QoQ) should reflect the easing cassava supply and mark its earnings bottom out.
TWPC FY2018 recurring profit was Bt197m (-48% YoY), largely eroded by starch industry downturn.
TWPC announced a dividend payment of Bt0.32 (XD on 07-May-19), which is equivalent to 4.0% dividend yield.
We maintain our BUY rating with 2019E target price of Bt10.0, derived from 16.5x PE. We believe 2019 will be turnaround year for TWPC as the starch business down-cycle should have already ended. We like TWPC for its scalability with its strong brands in large markets both starch and food (Vermicelli and noodles).
PLAT reported 4Q18 net profit of Bt198m (-3%YoY, +6%QoQ) and in-line with our expectation.
Slow sales growth (+3%YoY) due to the delay in opening The Market Bangkok project from Dec 18 to 14 Feb 2019 caused a YoY drop in 4Q18 performance. In summary, 2018 earnings grew 2%YoY driven by 5%YoY in sales growth. We also believe current share price already priced in this delay.
Despite a drop in 4Q18 earnings YoY, we expect strong recovery in 1H19 earnings driven by opening The Market Bangkok (70% booked).
We maintain our positive view toward its outlook back by the rise in average rental rate trend after long term contracts expiration in 2020-2021E.
Announced an annual dividend payment of Bt0.2 (XD on 4 Mar), which is equivalent to 2.6% upcoming dividend yield.
We maintain BUY rating with a target price of Bt9.4 based on DCF (10.8%WACC, 0% TG)*.
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TWPC 4Q18 recurring profit was Bt86m (+135%YoY, +975%QoQ). The easing in cassava supply help supporting TWPC both selling volume and profitability.
The strong revenue at Bt2.1bn (+12%YoY, +25%QoQ) and GPM at 17.2% (+0.7ppts YoY, +3.2ppts QoQ) should reflect the easing cassava supply and mark its earnings bottom out.
TWPC FY2018 recurring profit was Bt197m (-48% YoY), largely eroded by starch industry downturn.
TWPC announced a dividend payment of Bt0.32 (XD on 07-May-19), which is equivalent to 4.0% dividend yield.
We maintain our BUY rating with 2019E target price of Bt10.0, derived from 16.5x PE. We believe 2019 will be turnaround year for TWPC as the starch business down-cycle should have already ended. We like TWPC for its scalability with its strong brands in large markets both starch and food (Vermicelli and noodles).
PLAT reported 4Q18 net profit of Bt198m (-3%YoY, +6%QoQ) and in-line with our expectation.
Slow sales growth (+3%YoY) due to the delay in opening The Market Bangkok project from Dec 18 to 14 Feb 2019 caused a YoY drop in 4Q18 performance. In summary, 2018 earnings grew 2%YoY driven by 5%YoY in sales growth. We also believe current share price already priced in this delay.
Despite a drop in 4Q18 earnings YoY, we expect strong recovery in 1H19 earnings driven by opening The Market Bangkok (70% booked).
We maintain our positive view toward its outlook back by the rise in average rental rate trend after long term contracts expiration in 2020-2021E.
Announced an annual dividend payment of Bt0.2 (XD on 4 Mar), which is equivalent to 2.6% upcoming dividend yield.
We maintain BUY rating with a target price of Bt9.4 based on DCF (10.8%WACC, 0% TG)*.
China implements coal import caps specifically targeting Australian producers
Unclear as to how widespread these restrictions will eventually be
Thermal and metallurgical coal exports affected
Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP
Actions appear to be a response to blocking Huawei bidding for the 5G network
Recent Chinese cyber-attacks harden Australian Government’s resolve
Expect similar Chinese measures (in time) to be applied to other commodities and industries
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Thailand remains the only Asian economy in which fixed investment spending has yet to return to the pre-AFC peak of 1996. The only years in which GFCF has grown in double-digits since 1996 are in years when “populist” governments were in power (those headed by Thaksin Shinawatra and his sister Yingluck, and in 2010 when Abhisit Vejjajiva implemented similar policies). During the 5 years that the current military junta has run Thailand, GFCF has grown at a meagre annual average rate of 2.13%. So the election is a straight choice between stronger growth (if Pheu Thai wins a plurality, and is able to form a coalition with Future Forward) and anaemic growth under a government led by current PM Prayuth Chan-ocha.
Having written the election rules to suit himself, PM Prayuth remains in pole position to remain Prime Minister after the election (on Sunday March 24th). Not only are all 250 members of the Senate appointed by the military, a larger share (150 of 500 seats) in the elected House will be determined by proportional representation — and only the other 350 will be allocated to winners of the vote count in each constituency. All this, plus the banishment of Thaksin and Yingluck, is aimed at hamstringing their political party, Pheu Thai, which still leads in all the polls — and which has come out on top of every election since 2001 (when Thaksin’s became the first party to ever win a majority of seats in parliament on its own). Given that a joint sitting of both Senate and House will choose the PM, Prayuth still remains likeliest to remain prime minister.
We expect that the election will be “won” by Pheu Thai and Thanathorn-led Future Forward — the “red shirt” successors — who will together win 300-320 seats in the House. But this will not suffice to enable them to win a majority in the joint setting of the House and Senate. The “yellow shirt” parties — Democrats (led by Abhisit) and Prayuth’s Palang Pracharat — will together have about 180-200 seats in the House (clearly “losing” the election), but should still command a majority of the joint sitting of House and Senate. If King Vajiralongkorn goes along with this outcome, Thailand is likely to continue to have persistently sluggish growth in 2019 and 2020, with private investment spending remaining especially anaemic. However, the King could choose to intervene in favour of the “winners” of the election, which would prolong the period of political instability, but otherwise generate substantially faster economic growth in the medium term. The upshot, however, is that the election will not immediately alter the pattern of sluggish economic growth that Thailand has been stuck in over the past 5 years. We recommend being Underweight Thailand.
The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
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PLAT reported 4Q18 net profit of Bt198m (-3%YoY, +6%QoQ) and in-line with our expectation.
Slow sales growth (+3%YoY) due to the delay in opening The Market Bangkok project from Dec 18 to 14 Feb 2019 caused a YoY drop in 4Q18 performance. In summary, 2018 earnings grew 2%YoY driven by 5%YoY in sales growth. We also believe current share price already priced in this delay.
Despite a drop in 4Q18 earnings YoY, we expect strong recovery in 1H19 earnings driven by opening The Market Bangkok (70% booked).
We maintain our positive view toward its outlook back by the rise in average rental rate trend after long term contracts expiration in 2020-2021E.
Announced an annual dividend payment of Bt0.2 (XD on 4 Mar), which is equivalent to 2.6% upcoming dividend yield.
We maintain BUY rating with a target price of Bt9.4 based on DCF (10.8%WACC, 0% TG)*.
China implements coal import caps specifically targeting Australian producers
Unclear as to how widespread these restrictions will eventually be
Thermal and metallurgical coal exports affected
Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP
Actions appear to be a response to blocking Huawei bidding for the 5G network
Recent Chinese cyber-attacks harden Australian Government’s resolve
Expect similar Chinese measures (in time) to be applied to other commodities and industries
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PLAT reported 4Q18 net profit of Bt198m (-3%YoY, +6%QoQ) and in-line with our expectation.
Slow sales growth (+3%YoY) due to the delay in opening The Market Bangkok project from Dec 18 to 14 Feb 2019 caused a YoY drop in 4Q18 performance. In summary, 2018 earnings grew 2%YoY driven by 5%YoY in sales growth. We also believe current share price already priced in this delay.
Despite a drop in 4Q18 earnings YoY, we expect strong recovery in 1H19 earnings driven by opening The Market Bangkok (70% booked).
We maintain our positive view toward its outlook back by the rise in average rental rate trend after long term contracts expiration in 2020-2021E.
Announced an annual dividend payment of Bt0.2 (XD on 4 Mar), which is equivalent to 2.6% upcoming dividend yield.
We maintain BUY rating with a target price of Bt9.4 based on DCF (10.8%WACC, 0% TG)*.
Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.
The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.
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PLAT reported 4Q18 net profit of Bt198m (-3%YoY, +6%QoQ) and in-line with our expectation.
Slow sales growth (+3%YoY) due to the delay in opening The Market Bangkok project from Dec 18 to 14 Feb 2019 caused a YoY drop in 4Q18 performance. In summary, 2018 earnings grew 2%YoY driven by 5%YoY in sales growth. We also believe current share price already priced in this delay.
Despite a drop in 4Q18 earnings YoY, we expect strong recovery in 1H19 earnings driven by opening The Market Bangkok (70% booked).
We maintain our positive view toward its outlook back by the rise in average rental rate trend after long term contracts expiration in 2020-2021E.
Announced an annual dividend payment of Bt0.2 (XD on 4 Mar), which is equivalent to 2.6% upcoming dividend yield.
We maintain BUY rating with a target price of Bt9.4 based on DCF (10.8%WACC, 0% TG)*.
Plans regarding Samsung and Huawei’s foldable smartphones are out. The companies, which happen to be two of the largest contenders in the smartphone landscape are expected to unveil their foldable smartphone prototypes this month. In 4Q2018, Samsung, coming in first place, held a market share of 18.7% while Huawei, in third place, held a market share of 16.1%. Both companies are following different strategies when it comes to their foldable phone models.
The concept of foldable phones revolves around devices that can be folded into the size of a smartphone or opened up in to the size of a tablet. Huawei is said to be planning to introduce their foldable smartphone with 5G compatibility while Samsung is planning to release their foldable model with 4G compatibility. The market leader aims to leverage the expertise it has gained on its display technologies in its foldable smartphones.
MAJOR 4Q18 net profit was Bt259m (+247%YoY, +26%QoQ). The impressive earnings was driven by solid guests admission (+97%YoY).
4Q18 revenue was Bt3.0bn (+59%YoY, +44% QoQ). Interesting movies lineup was the factor, pushing admission revenue (+88%YoY) and concession revenue (+70%YoY).
Gross profit margin was strong at 37.6% from 28.7% in 4Q17 and 30.8% in 3Q18, thank to the higher contribution of concession revenue, which has decent margin.
SG&A to sales was under control at 27.0%, compared to 34.3% in 4Q17 and 26.7% in 3Q18.
We maintain a BUY rating on MAJOR with 2019E target price of Bt31.00, derived from a PER of 24.2x, which is +1 SD of its 3-year trading average. We expect MAJOR to continuously deliver robust earnings in 2019E, given the fascinating movies lineup and advertising sales model changing from direct selling to selling through agencies.
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The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.
US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.
These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks:
Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base.
Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.
The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand. As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.
With the elections this week, the Bank of Thailand (BoT) held rates steady at its March MPC meeting. We are eagerly awaiting the outcome of the election. We won’t place any bets on which party(ies)/coalition(s) will form the new government, but once the political fog clears, the growth story is positioned to continue.
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