Brief Thailand: PSL: Another Opportunity at the Bottom of Dry Bulk Cycle and more

In this briefing:

  1. PSL: Another Opportunity at the Bottom of Dry Bulk Cycle
  2. Double Bubble, Double Trouble?
  3. Revisiting Mitr Phol Group: Erawan and Banpu
  4. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment
  5. TFG: Weak 2Q20E but Strong Outlook in Medium to Long Term

1. PSL: Another Opportunity at the Bottom of Dry Bulk Cycle


We initiate coverage of PSL with a BUY rating, based on a target price of Bt7.10, which is derived from 1.0xPBV’21E, its 10-year average.

The Story:

• Solid position in bloodied industry
• Expected TC rate recovery in 2021
• Effective cost management is its core competency


• Charter rate fluctuation
• Exchange rate fluctuation
• Outcome of arbitration with Chinese shipyard

2. Double Bubble, Double Trouble?

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A review of U.S. and global markets reveals that market leadership has narrowed to NASDAQ and Chinese stocks. If this is the start of a new bull, or a continuation of the old bull, can it rest on the narrow leadership of a handful of NASDAQ stocks and the Chinese market?

Is this just a double bubble, and does that imply double trouble ahead?

We are not sure. We are torn between Bob Farrell’s Rule No. 4:

Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.

And Rule No. 7.

Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.

Investors need to be aware of the tension between Rule No. 4, which raises the possibility of a stock bubble, and the risks posed by the narrow leadership warned by Rule No. 7. Tail-risk is high in both directions. In this environment, it is worthwhile to return to basics and re-visit investment objectives and risk tolerances in order to balance risk and reward. There are no perfect answers and each will be different.

Regardless of what direction the market takes, investors can count on a climate of high volatility in the near future.

3. Revisiting Mitr Phol Group: Erawan and Banpu


We visited three companies in the Mitr Phol Group, namely hotel chain Erawan, the  and Thailand’s largest coal producer Banpu. This is a quick run-down.

  • Erawan reported net loss of Bt77m in Q1’20 and EBITDA contraction of 63% to Bt224m. The company closed its Thai hotels since April and Manila-based ones since May 19.
  • Cost cutting: The company plans to cut lease payments by 20-30% and also postpone debt repayments to the banks. They also plan to cut investments by 50%.
  • Banpu Power reported healthy EBITDA of Bt1.77bn (up 10% YoY) on the back of Bt1.84bn  (+5% YoY) buoyed by stronger demand for power and steam in China needed to operate hospitals. However, its one-time core power plant BLCP contributed a loss of Bt70m due to translation losses. The hidden crown jewel is Banpu NEXT, the renewable business, which just needs time to appreciated.
  • The parent company Banpu reported an EBITDA of US$134m, down 42% YoY, and earnings of Bt55m. The coal business, just like other energy segments (oil, gas), performed poorly, but Banpu made the most of it by negotiating down the price of Barnett in the United States, a deal that will be concluded towards the end of this year.

4. 6G: Still a Remote Concept; Capable of Overcoming 5G Disappointment

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In our previous insight, we spoke about 5G being a disappointment, a possible delay in 5G adoption, and how WiFi-6 could take its place. In this insight, we look at 6G, which is still a developing technology. 6G is the sixth generation of wireless technologies, with extreme coverage and capacity. 6G network systems are expected to support data rates at a speed of 1 terabit per second (Tbps), 8000 times faster than 5G, with an end-to-end latency of one microsecond. The increase in IoT applications triggered the expansion of 5G, and it is now stimulating the demand for the 6G networks as well. Our key points based on the first look at 6G, are:

  • 6G is still a remote concept and will take another 15 years to be fully deployed (i.e. by 2035) since there are many necessary technological and technical advancements to be made before a 6G product is introduced to the market.
  • Most developments and the initiation of projects come from the South Korean and Chinese players. In our opinion, South Korea could take the lead, as China is currently focusing on developing its 5G networks, and China’s Huawei is also having issues with the expansion of its 5G networks.
  • South Korean mobile manufacturers like Samsung and LG are likely to benefit due to their increased initial commitments focusing on 6G, and this might give them an edge over Chinese and U.S. manufacturers like Apple or Huawei.
  • The U.S. manufacturers have a head start in 6G semiconductor technology. However, given the reduced size requirement for base stations and, eventually, for mobile phones, we believe that Japanese MLCC players could closely compete with the U.S. chip manufacturers.

Previous related insights:

5G for the Next Big Turn of a New Decade 

Will 2020 See Successful Deployment of 5G? 

Lockdown To Accelerate WiFi 6: A Threat to Anticipated 5G Deployment? 

5G Delay and Disappointment – Will Murata Suffer? 

5. TFG: Weak 2Q20E but Strong Outlook in Medium to Long Term


We maintain BUY rating on TFG with a new 2021E target price at Bt5.95, from Bt4.70, derived from 17.2xPE’21E, which is -0.5SD of its 3-years trading average. We attended analyst meeting yesterday and came up with key information as followed;

• TFG performance in 2Q20E was affected by Covid-19.
• We estimate TFG net profit in 2Q20E at Bt236m (-55%YoY, -64%QoQ). While, excluding FX losses, the recurring profit should be Bt386m (-21%YoY, -5%QoQ).
• The adversity in 2Q20E will fully recover from 3Q20E onwards.
• The company’s selling volume and price in 2H20E-2021 will be supported by promising export outlook
• The capacity expansion plan is intact with CAPEX budget of Bt2.5-3.0bn/year.

We think the stock price retreat on the concern over 2Q20E performance will be an investment opportunity for the livestock industry up-cycle.

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