Brief Multi-Strategy: The Week that Was in [email protected] – PAP Retains Power, Rising Sea Ltd, and Cratering Credit Risk and more

In this briefing:

  1. The Week that Was in [email protected] – PAP Retains Power, Rising Sea Ltd, and Cratering Credit Risk
  2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing
  3. Chinese Airlines and Airports: Industry Loss Narrowed 10.1% QoQ in 2Q20 as Traffic Resumed
  4. CTG Duty Free Corp (601888 CH): Encouraging Initial Jul Duty Free Figures from New Hainan Policy
  5. SPX Buy Summer Weakness – 3,220 and 3,080 Direction Break Points – 3,200 Short Target

1. The Week that Was in [email protected] – PAP Retains Power, Rising Sea Ltd, and Cratering Credit Risk

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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 PAP Retains Power, but Faces the Largest Opposition Contingent Since Independence, Cross ASEAN Cheif Economist Prasenjit K. Basu comments on last week’s election in Singapore. 

In Singapore’s Twin Surpluses: How Much Is Too Much?, CrossASEAN’s Cheif Economist Prasenjit K. Basu comments on Singapore’s standout current account and fiscal surpluses. 

Equity Bottom-Up Insights

In Sea Ltd (SE US) – Gaming Its Way to the Top, Crossasean insight Provider Angus Mackintosh zeros in on South East Asia’s leading e-commerce and gaming player as the company continues to hit new highs. 

In BCA – Most ROA to Claw Back, banking specialist Daniel Tabbush revisits Indonesia’s leading private bank and assesses the impact of COVID-19 so far with a focus on Bank Central Asia (BBCA IJ) versus its local and regional peers. 

In Company Visits: KTC, Taokaenoi (Treading Water),Athaporn Arayasantiparb, CFA provides feedback from recent company visits to Krungthai Card (KTC TB) and Taokaenoi Food & Marketing (TKN TB).

In EPG: One of the Most Solid Polymer Convertor in the Downstream Sector, our friends at Country Group zero in on Eastern Polymer Group (EPG TB).

In DOHOME: Fastest Growing Home-Improvement Player in Thailand,Country Group initiate coverage on Dohome PCL (DOHOME TB) with a HOLD rating based on a target price of Bt12.5. 

In RBF: Recent Jump in Share Price Leads to OvervaluationDr Andrew Stotz, CFA initiates coverage on RBF with a SELL recommendation based on a target price of Bt8.70, implying a downside of 13% from the current price. 

In Valuation Is Approaching an Expensive Zone our friends at Country Group downgrade Com7 PCL (COM7 TB) to a HOLD rating after rolling over 2021E target price to Bt29.30.

In TFG: Weak 2Q20E but Strong Outlook in Medium to Long Term,Country Group maintain a BUY rating on Thai Foods Group Public Company (TFG TB) with a new 2021E target price at Bt5.95.

Sector and Thematic Insights

In this thematic insight, Banks – Credit Risk, Cratering, banking specialist Daniel Tabbush zeros in on credit risk for banks across the region. 

2. ME2ZEN IPO: Absence of Local Pension Funds Vs. Market Friendly Pricing

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First, here is an overview of ME2ZEN’s second IPO attempt.

It plans to offer 3.2M shares (52% primary and 48% secondary). The total offering represents 28.74% of the total shares at a 14.94% capital increase rate.

Mirae is working as a sole banker with a firm commitment.

The indicative price band is at ₩21,000~27,000, which gives an implied market cap of ₩289.9~372.7bil.

July 30~31 will be for book-building, followed by the allotment on August 4. The following day will be a subscription. The payment date is August 7.

Once again, the float will be tight on this one. A total of 72.48% shares will be in a lock-up for one month to three years. Of those, 65.26% is for more than six months.

3. Chinese Airlines and Airports: Industry Loss Narrowed 10.1% QoQ in 2Q20 as Traffic Resumed

The Civil Aviation Administration of China (CAAC) announced that the overall loss of the aviation industry was Rmb34.3bn in 2Q20, a reduction of Rmb3.8bn, or 10.1%, QoQ. Since the record loss of Rmb24.6bn for the industry in Feb, the monthly loss has reduced for every consecutive month.  For Jun, the loss was Rmb7.6bn, a reduction of Rmb3.8bn or 33.3%, MoM. We take the loss reduction positively as this indicated the continued recovery of the airlines industry – losses for airlines have trimmed by Rmb1.5bn MoM in Jun. 

Our key takeaways are: 1.) the continued MoM trimming of loss is encouraging, and with the peak seasons in Jul and Aug, we believe financial performance will further improve; 2.) the COVID-19 cases related to the Xinfadi Agricultural Trading Market in Beijing since 11-Jun have limited impact on the traffic and profitability nationally; 3.) solid freighter traffic will stay as a partial mitigation to lower passenger traffic in the near term. We uphold our preference for China Southern Airlines (1055 HK) among the Chinese airlines due to its domestic exposure and for Shanghai International Airport Co, Ltd. (600009 CH) among the Chinese airports, partly due to its good exposure to cargo traffic.  

4. CTG Duty Free Corp (601888 CH): Encouraging Initial Jul Duty Free Figures from New Hainan Policy

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The average of Rmb64m daily duty free sales in Hainan Island for 1-7 Jul, as released by the China Customs, is 72% higher than the daily sales of the Hainan outlets of China Tourism Group Duty Free Corp Ltd (601888 CH) (CTGDF) in FY19. In our view, this is a positive reflection of the outlook of the company’s duty free business as driven by the favourable duty free policy put into effect on 1 Jul. The increase in the number of categories of high-valued duty free items will also have positive impact to CTGDF’s margin going forward.

Our forecasts suggested that CTGDF’s core EPS will reach a CAGR of 26% between FY19 and FY22. We believe that such projections, as based on the 1-7 Jul figures, are likely to be conservative as during such period: 1.) visitors from Beijing are still significantly affected by travel restriction due to the capital’s COVID-19 cases; 2.) most schools have not yet started the summer vacation; and 3.) the average spending of ~Rmb10,000 is still far from the new quota of Rmb100,000 annually.

5. SPX Buy Summer Weakness – 3,220 and 3,080 Direction Break Points – 3,200 Short Target

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S&P 500 (SPX INDEX) is teetering on a more bullish break point that will define a wave 5 thrust higher or secondary pullback within the summer flat corrective range with support near 2,950.

3,220 and 3,080 will act as key break points for a continued rally or second part of a summer pullback cycle (the later is the favored sequence for a pullback from 3,200).

July cycle peak should align with increased virus cases/concerns and overshadow liquidity over the summer.

ISM, demand and growth data spikes have come off of low bases but due to deteriorate as US re opening faces significant speed bumps.

Macro remains bullish on weakness until liquidly support fades.

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