In this briefing:
- Snippets #18: Naughty CEOs, Southern Crusades
- TAL Education (TAL): Online Courses Improved Margin in 3Q19, Parents Returning, 44% Upside
- US Speciality Lenders – Worse Credit Metrics, Especially Personal Loans
- Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick
- CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)
1. Snippets #18: Naughty CEOs, Southern Crusades
In this review, we highlight five new unrelated developments that might impact the Thai stock market if you happen to hold the affected stocks.
- Skeletons in the closet. CIMB’s Thai CEO went on voluntary leave to clear his name regarding a legacy case back in his KTB days, while one of Thailand’s highest profile tycoon Dr. Prasert has been implicated in a stock manipulation case of Bangkok Airways from way back in 2015.
- Religious wars? As the southern insurgency spreads to economically vibrant province of Songkhla, insurgents attack a Buddhist temple and kill two monks, possibly in an effort to turn the crisis into a religious war. Doesn’t sound great for overall stability.
- A rare bump in the Baht. Despite QE unwinding, the Baht has risen almost 3% against the greenback. Bad news for exporters (eg. TUF, DELTA) good news for serial acquirers (think Thai Beverage, Banpu).
- Government-inspired deals. Is the government driving M&A in Thailand these days? They certainly had a hand in the TMB-Thanachart deal and now are rumored to be buying Thaicom, the country’s only satellite operator.
- Air quality takes a dive thanks to diesel and aggressive skytrain construction programs. Stores selling face mask and companies that substitute ethanol to diesel are set to benefit, while BTS might hit headwinds as government forces them to slow down construction.
2. TAL Education (TAL): Online Courses Improved Margin in 3Q19, Parents Returning, 44% Upside
- We believe that parents of primary school children will bring their children back to tutoring schools when they become aware of the competition in junior high schools.
- The expansion of online business and the change towards small classes are improving both the revenue growth and the margins.
- We believe that the requirement of educator license is not a concern.
- The 5-year P/E band suggests an upside of 44% for the share of TAL Education.
3. US Speciality Lenders – Worse Credit Metrics, Especially Personal Loans
We look at credit metrics of three specialty lenders in the US, for newly announced results. Discover Financial Services (DFS US) mostly provides credit card loans, but additionally it provides student loans and personal loans. The last category is where there is the most deterioration in the just-reported 4Q18 results, and it goes to our concerns about the reported ‘robustness’ of the US economy. The company’s charge off rate in personal loans rose to 4.49% in 4Q18. The figure was 3.62% in 4Q17 and 2.70% in 4Q16. This is considerable deterioration. Even where some of the credit metrics in credit card loans is not as dire, the direction is of concern. All said, perhaps this is one reason that DFS falls into our growing bucket of financial companies with declining QoQ profit in 4Q18? Credit metrics at Sallie Mae and Synchrony Financial, do not leave us sanguine about the US consumer either.
4. Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick
Over the past three years, an aggressive price war has pushed Indonesian data prices down 80% to unsustainable levels. With the exception of India, and Jio’s moves there, Indonesia now has the cheapest data in markets we track globally. However, there have been signs recently of tariff stability, with Telkomsel’s tariff rising 7%. Investors’ main concern, and the key risk to being bullish on the sector in Indonesia, is the risk a price war breaks out again. We think that is unlikely. The smaller telcos are not making sufficient returns to cover capex and finance costs and market share gains alone will not save them. Something needs to give: either prices rise and/or smaller players consolidate. Rumors swirling around Indosat (ISAT IJ) in recent days suggest consolidation may be under consideration again.
Our view is that the price cycle has turned in Indonesia and consolidation is likely. That underpins our positive view on Indonesian telcos. We look for Telkom Indonesia (TLKM IJ) to deliver strong growth from its two major engines: mobile through Telkomsel and fixed line (broadband). The stock has done reasonably well since mid-2018, but we see upside and rate the shares a Buy with a raised target price of IDR5,250. We continue to like the re-rating story at XL Axiata (EXCL IJ), and remain Buyers with a price target of IDR5,200. Indosat’s share price has soared in recent days and we have now cut the stock to a Sell with the target price retained at IDR2,040.
5. CStone Pharma (基石药业) IPO: Strong Assembly and Backing (Part 1)
CStone Pharma is raising up to USD 400 million via a listing on the Hong Kong Stock Exchange. In this insight, we will discuss the following topics:
- The company’s background
- Details of pipeline drug candidates
- Potential market size for the key products
- Shareholders and investors
- Summary of our likes and concerns
- Questions for management meetings
We will leave the discussion of valuation for our next insight.
Our coverage on healthcare and biotech listing
- Hansoh Pharma (翰森制药) IPO: A Leading Generic Player with Regulatory Overhang (Part 1)
- WuXi Apptec (药明康德) IPO: This A+H Listing Will Be Different
- Frontage Holding (方达控股) IPO: More Disclosure Needed to Understand Moat and Growth Prospect
- Ascentage Pharma (亚盛医药) IPO: Too Early for an IPO
- Junshi Bioscience (君实医药) IPO: Thoughts on Valuation (Part 2)
- Junshi Bioscience (君实医药) IPO: Early in Application but Behind in Key Indications (Part 1)
- CanSino Biologics (康希诺) IPO: Promising Pre-Clinical Results but Vaccine Scandal Weighs (Part 1)
- AOBiome Therapeutics IPO: Hope for Natural Therapeutic Treatment
- Stealth Biotherapeutics IPO: Cure the Symptoms but Not the Cause (Part 1)
- Innovent Biologics (信达生物) IPO: Pricing the PD-1 and Biosimilars Competition (Part 2)
- Innovent Biologics (信达生物) IPO: A Major PD-1 MAb Competitor Might Have Just Emerged (Part 1)
- MicuRx Pharma (盟科医药) IPO: Betting on Single Drug in the Not so Attractive Antibiotic Segment
- Hua Medicine (华领医药) IPO: Thoughts on Valuation
- Hua Medicine (华领医药) IPO: Reviving Roche’s Failed Attempt?
- BeiGene (百济神州) IPO: Dual-Listing with Upside Capped in the Near Term
- Ascletis Pharma (歌礼制药) IPO: Valuation Not Justified by Ganovo and Ravidasvir NPV (Part 3)
- Ascletis Pharma (歌礼制药) IPO: Three Valuation Risk Factors (Part 2)
- Ascletis Pharma (歌礼制药) IPO: Emerging Player in the Crowded HCV Drug Market
- China Isotope & Radiation IPO: Oligopoly, Visible Growth and High Barrier to Entry
- Zai Lab IPO: Thoughts on Valuation, Risks and Upsides (Part 2)
- Zai Lab IPO: Experienced Team, Promising In-Licensing Drug Pipeline (Part 1)
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