In this briefing:
- IPO Radar: CRC (Part 2), Valuation and Risks
- EV Batteries Monthly: CVs Draw Attention; On HEVS- CATL/Bosch Teams Similar to Panasonic/Toyota
- IPO Radar: CRC (Part I), Thai Department Store Behemoth
- Kazakhstan: National Bank Needs More Independence to Keep KZT Volatility in Check
- BGRIM: Thai SPP Leader with Consistent Growth Prospects
Primarily, we value CRC at Bt58/sh, implying a fair swap ratio of 1.15 CRC share to each ROBINS share. Our alternate valuation based on EV/EBITDA is Bt91. We are already invested in this stock via ROBINS.
- We value their three business lines (fashion, hardline, and food), and despite its lower growth, fashion is by far the most significant segment, accounting for 44% of its EV for the primary method (SOTP with DCF). We expect CRC to be on par with SCB in market value, making it one of Thailand’s top 10 companies…a very rare IPO indeed.
- The company is investing Bt18.4bn in 2020. The bulk of this money will go to the food business and systems improvement.
- Foremost amongst the key risks identified are: 1) threats from e-commerce; 2) events risk; 3) continued ability to attract top brands; and 4) inventory-related risks.
The highlights for September are as follows:
- Panasonic-Toyota alliance intensifies: The JV (planned in Jan this year: Panasonic Is Bonding with Toyota- A JV Plan for 2020) gets European Commission approval while Panasonic Corp (6752 JP) decides to sell Tesla-style batteries to Toyota Motor (7203 JP) as well ( Panasonic Uses Tesla’s Battery Type for Toyota’s HEVs: A Nice Move).
- CATL (A) (300750 CH) Secures battery deals in Europe for electric trucks, plans expansion in NA, and collaborates with Bosch for battery cells for hybrids.
- Samsung Sdi (006400 KS) also appears ready for growth in heavy vehicle battery business upon receiving approval for its marine li-on battery system via its group company- Shipbuilder Samsung Heavy Industries (SHI).
- Northvolt, a relatively new player in Europe, also looks upstream similar to battery leaders like CATL ( EV Batteries Monthly: Battery Makers Look Upstream While Panasonic/Toyota Target Hybrids ).
- LG Chem Ltd (051910 KS) decides to prolong feud with SK Innovation (files a new suit against SK), while its other rivals are busy fighting real competition in the industry.
- The Chinese and Korean players saw a relatively low stock performance last month. Panasonic, however, started recovering as expected, performing relatively better than other players.
*Note: CVs- Commercial Vehicles
Central Retail Corp (CRC) looks set to steal the IPO crown from either AWC (if set in 2019) or PTTOR (if set in 2020). In this review, we explore the business side of the IPO before diving into the valuations.
- The IPO is underwritten by Phatra and is good for 1.73bn shares and will take place alongside the Robinson tender offer (at Bt66.5/sh).
- The Business includes Central Dept Store, the country’s largest chain by revenues, which also owns a majority stake in Robinsons (53.83% pre-tender) and non-listed subsidiaries in other formats, such as convenience store (Family Mart), construction materials (Thai Watsadu), supermarkets (Tops). It is run by the Chirathivat family, Thailand’s third richest family.
- Foreign operations include La Renasciente, Italy’s largest department store chain, and Big C Vietnam. We note that the foreign operations enjoy better sales growth than the domestic one.
- Business lines: CRC categorizes itself into three key business lines (fashion, hard-line, and food). The fashion business has the largest revenue and highest margin, though it seems very saturated in Thailand.
President Tokayev and the government view maintaining political stability in the aftermath of the managed presidential succession as their primary goal. Instead of enhancing democratic freedoms, the new leadership concentrates on poverty reduction. This year’s moderate relaxation of fiscal policy gave a fillip to GDP growth, which accelerated to 4.3% in the eight months to August.
However, there are signs that the accelerating household demand is fuelling an adverse trend in the current account. We expect further KZT depreciation in the coming months, especially if Brent continues to decline. This, in turn, could fuel inflationary pressures, which are already rising. The NBK’s commitment to inflation targeting may face a new serious test in the coming month.
Kazakhstan’s National Bank hiked its policy rate by 25bps in September. However, a single hike may be insufficient to counterbalance the inflationary effects of fiscal relaxation. Unfortunately, in addition to its conventional functions, the central bank is expected to participate in the government’s efforts to stimulate the economy, by extending mortgages and car loans to the population. This “double mandate” is an obstacle to proper inflation targeting. We believe that it increases the likelihood of a rise in KZT volatility in the coming months.
We initiate coverage of BGRIM with a BUY rating, based on a 2020E target price of Bt48, derived from discounted cash flow valuation (6.9% WACC and 1% TG). Our valuation implies 34.3xPE’20, which is equivalent to 0.82x PEG for 2019-21E, lower than its peers’ 1.6x PEG.
- Expect 25% CAGR EPS growth during 2019-22E
- Promising domestic and overseas outlooks
- Secured earnings through SPP extension and replacement scheme
- Poised to be a leader in solar power business in Vietnam
- Exchange rate fluctuation
- Delay in construction period of committed projects
- Fuel price fluctuation