Brief Equities Bottom-Up: Travelsky (696): A Safe Way to Fly and more

In this briefing:

  1. Travelsky (696): A Safe Way to Fly
  2. CHG: Impeded by Covid-19 in 1H20 but Will Recover in 2H20
  3. BCPG: Hydro Power Plant to Drive 2Q20 Earnings
  4. Alternative Data: Fast Retailing’s E-Commerce Growth Suggests Limited Downside
  5. Aozora Bank  (8304 JP):  When Blue Skies Turn to Grey

1. Travelsky (696): A Safe Way to Fly


Tourism activities have started to pick up again in China and airports have started to reopen again, increasing the air traffic volume from a low base. The number of domestic flights processed has rebounded in March 2020 by 98% MoM and another 13% on April MoM. 

The China Tourism day, which falls on May 19th each year, witnessed alternative efforts from operators to deal with the restrictions amidst the pandemic. The Shanghai Disneyland theme park reopened to visitors with reduced capacity on May 11, the first Disneyland theme park in the world that has resumed operations since the outbreak of COVID-19. 

Foreign airlines such as Asiana and Korea Air have stated that they plan to start providing flights to China again by the end of June, hinting that demand for air travel has started to come back.  

There are so many unknowns on how the airlines are going to operate given the measures to cope with the “new normal”.  Given the low share price base for Chinese airlines in general, the risk/reward ratio for going long Travelsky and short some Chinese airlines is not that attractive. 

At 15x earnings, 22% discount to the level right before the COVID-19 outbreak, and 50% lower than in FY 2017 while it is also worth highlighting that currently, the company is trading at the lowest PE multiples in 3 years, Travelsky trades at an undemanding valuation and a continuous share price recovery should be expected. 

source: Capital IQ

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2. CHG: Impeded by Covid-19 in 1H20 but Will Recover in 2H20


We maintain HOLD rating on CHG with a 2020E target price at Bt2.65, derived from a discounted cash flow valuation (WACC of 6.0% and terminal growth of 2.0%). We attended an analyst meeting yesterday and came up with key information as followed;

•CHG net profit in 1Q20 was Bt186m (+4%YoY, +39%QoQ).
•Covid-19 would affect CHG performance in 1H20E. But it will strongly recover in 2H20E.
•Management targeted double-digit growth in 2020E, and, to breakeven two new hospitals for yearly figures.
•New project in Mae Sot, which is 100 IPD bed hospital, was expected to start operation in early 2022.

We like CHG for its hospital location in some of the country’s strongest economic areas, and, it is on track of net profit expansion, thanks to better utilization of new hospitals. However, with demanding valuation and limited upside to our target price, we maintain our HOLD rating.

Background: Chularat Hospital Public Company Limited (CHG) was founded in 1986. The company provides hospital and healthcare services through nine hospitals and four clinics located in five areas covering Suvarnabhumi Airport, eastern Bangkok along Bangna-Trad Road, and extending to Chachoengsao, Prachin Buri, Chonburi, and Rayong. The company provides services to two main types of customers: general patients and social security customers and patients under the National Health Security Office (NHSO).

3. BCPG: Hydro Power Plant to Drive 2Q20 Earnings


Yesterday analyst meeting came out in a positive tone. 2Q20 earnings outlooks looks solid from improved contribution from 114MW hydro power plants added in 4Q19-1Q20.


  • 2Q20 and 2020E earnings looks bright backed by partial and full year earnings recognition from 114MWe hydro power plants added In Laos (Nam San 3A and 3B).
  • BCPG is our top pick among renewables given 1) the firm’s strong near-term 2020-24E earnings outlook backed by 391 MWe projects in pipeline and 2) solid expansion plans with budget allocation of Bt45bn to support long term growth, and fill the EBITDA gap from solar adder expiration of 3 projects in Thailand during 2022-24.

We maintain the BUY rating with a target price of Bt22.8 derived using discounted cash flow methodology (WACC 5.1% and TG 1%). Our valuation implies 20xPE’20E.

4. Alternative Data: Fast Retailing’s E-Commerce Growth Suggests Limited Downside

Image 86834407551590078453822

Fast Retailing (9983 JP) (Uniqlo) has faced a number of challenges over the last 10 months:-

  • From October 2019, South Koreans began boycotting Japanese goods – South Korea is the company’s third-largest market, after Japan and China.
  • From January this year, China began its COVID-19 lockdowns severely restricting sales in Uniqlo’s fastest-growing market.
  • Lastly, as COVID-19 has become a global pandemic, almost all of the company’s markets have come under some form of lockdown.

Fast Retailing shares have declined by 43% from the peak of 25Th October 2019, but have recovered by 33% from their 19th March low.

We expect the Uniqlo brand to emerge from COVID-19 in a stronger position relative to peers than before, as the crisis has forced the company to address its previous weakness in E-commerce. We expect the shares to outperform TOPIX as the market’s perception of this weak link changes.

5. Aozora Bank  (8304 JP):  When Blue Skies Turn to Grey

8304 aozora 2020 0515 core%20profits

CY2020 has not been a good year for embattled Aozora Bank Ltd (8304 JP).  FY3/2020 actual results were well short of guidance, with falling net interest and fee income, rising General Administrative Expenses (GAE) and an 11-fold increase in credit costs all contributing to the disappointing performance.  FY3/2021 management guidance bravely calls for a modest improvement over FY3/2020 actual results, which we think represents a very challenging target in the current operating environment.  To add fuel to the flames, management has slashed the forecast dividend from ¥155/share to ¥122/share, the effect of which has been to send the share price tumbling.  The stock price has fallen 38.7% in the last three months alone, and is by far the worst-performing of the major bank stocks to date.  There are ominous signs scattered throughout the balance-sheet and financial statements that FY3/2021 will be a challenging year for the bank, yet foreign investors still own in aggregate a significant proportion of Aozora Bank’s outstanding shares.

Caveat Emptor!  (May the Buyer Beware!)

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