Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Weak Numerics: Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and*Credit Risk Remains Elevated: We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.

*Weak Numerics: Bangkok Bank (BBL.TB) [BBL] reported 2Q21 bottom-line results of THB 6.4 bn, declining THB 566 mn (8.2%) on a linked quarter basis. Core operating results were far worse, however, coming in at THB 553 mn or down 86.2% over the same period; and*Credit Risk Remains Elevated: We find that BBL’s annualized net new NPLs during the period are THB 4.2 bn or 8.3% annualized. Given the increase in net new NPLs, moratorium credits are unknown and remain a wild card, and that COVID-19 continues to wreak havoc, we find that while loss reserves are hefty, the aggressive push to build reserves and de minimis NCOs despite the consistently high NPLs may suggest a big clean-up is coming.

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

Thailand plans to fully reopen to foreign visitors in 120 days, given it aims to give at least one dose of vaccine to the majority of residents by early October.
The country aims for some tourist destinations to be open to fully vaccinated visitors without any quarantine requirement before this time. Phuket is seen as the “pilot” for the new scheme.
Thailand's economy is highly dependent on tourism with around 12% of GDP officially from tourism but the true exposure is closer to 20% given all the related industries outside travel and hotels from retail to banks. 
These most recent plans were unveiled in an address by Prime Minister Prayuth Chan-Ocha in a National address yesterday, which included a number of important concessions, which can be seen in the detailed section.
We recommend increasing weightings in Thai hotels, hospitals, selective retailers, and banks to play this tourism recovery theme. Please see below for details.

Thailand plans to fully reopen to foreign visitors in 120 days, given it aims to give at least one dose of vaccine to the majority of residents by early October.
The country aims for some tourist destinations to be open to fully vaccinated visitors without any quarantine requirement before this time. Phuket is seen as the “pilot” for the new scheme.
Thailand's economy is highly dependent on tourism with around 12% of GDP officially from tourism but the true exposure is closer to 20% given all the related industries outside travel and hotels from retail to banks. 
These most recent plans were unveiled in an address by Prime Minister Prayuth Chan-Ocha in a National address yesterday, which included a number of important concessions, which can be seen in the detailed section.
We recommend increasing weightings in Thai hotels, hospitals, selective retailers, and banks to play this tourism recovery theme. Please see below for details. 

Thailand - 120 Days Later - Fully Vaccinated Tourism to Resume

CEO, A. Stotz Investment Research

Dr. Andrew Stotz, CFA

Quantamental Investing to beat Benchmarks

A. Stotz Investment Research

We pick stocks. We construct portfolios. All our effort is focused on how to better pick stocks and construct portfolios. We serve fund management companies, family offices, and high net worth individuals.

We maintain our SELL recommendation on CHAYO but raise our target price to Bt13.70 (previously Bt8.70), implying a downside of 20% from the current price. We derive our target price from a 30% premium to the 2022E PB of Thai Diversified Financials, giving a 2022E 4x target PB.
Investment thesis:
<ul>
<li>Rising level of bad loans in Thailand can boost core business</li>
<li>Economic uncertainty helps to expand the customer base for debt collection</li>
<li>Capital injection for new subsidiary helps to boost business</li>
<li>Debt collection to further benefit from increasing mobile usage</li>
<li>Joining the hemp hype supposed to bring additional income</li>
</ul>
Interim: The 1Q21 results were strong, and we revise our loan growth and loan yield slightly upward. However, we still think that the stock trades too expensive.
Risks: Increased competition in acquiring non-performing loans, loss from unsecured debt management, adverse regulatory changes, and potential litigation issues arising from debt collection service.

We maintain our SELL recommendation on CHAYO but raise our target price to Bt13.70 (previously Bt8.70), implying a downside of 20% from the current price. We derive our target price from a 30% premium to the 2022E PB of Thai Diversified Financials, giving a 2022E 4x target PB.
Investment thesis:

Rising level of bad loans in Thailand can boost core business
Economic uncertainty helps to expand the customer base for debt collection
Capital injection for new subsidiary helps to boost business
Debt collection to further benefit from increasing mobile usage
Joining the hemp hype supposed to bring additional income

Interim: The 1Q21 results were strong, and we revise our loan growth and loan yield slightly upward. However, we still think that the stock trades too expensive.
Risks: Increased competition in acquiring non-performing loans, loss from unsecured debt management, adverse regulatory changes, and potential litigation issues arising from debt collection service.

CHAYO: No Cheap Opportunity to Participate in High Growth

Private Capital Markets

GoTo Gojek Tokopedia Tbk PT / Private Capital Markets

<a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek</a> and <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia</a> have finally announced that they will merge to form GoTo Group, in what will be Indonesia's largest-ever business deal to date. The new GoTo Group will also seek a dual listing both in Jakarta and the US but it is yet unclear what shape the listing will take at this stage. 
This will create an Indonesia-focused digital powerhouse with exposure to Ride-Hailing, Food Delivery, Digital Payments, Digital Finance, and e-commerce, making it a formidable player in Indonesia's booming digital economy.
The merged entity will present a challenge, not just to <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> and its Shopee platform but more pertinently for <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab,</a> which is in the process of seeking a listing in the US through the largest SPAC listing to date.
<div>
One key area of overlap between <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek</a> and <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia</a> is on digital payments, where GoPay and OVO compete head-on. Given that Tokopedia holds a 36.1% stake in OVO, it is unclear what comes next although it is likely Tokopedia will look to migrate its customers to GoPay and sell its stake in OVO.
<a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek </a>has already stepped up its move into the digital banking space through the recent increase in its stake in <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago (ARTO IJ)</a> to 22% but it also has strong backers for GoPay in the shape of <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> and <a href="https://www.smartkarma.com/entities/paypal-holdings-inc" target="_blank" data-smartkarma-citation="entities:4747:1" rel="noopener">Paypal Holdings (PYPL US).</a>
</div>
<div>
The combined entity will be a huge enabler for MSMEs from food providers to small businesses and as a result, will likely get significant support from the Indonesian government. 
</div>
<div>
There will be significant synergies between the two companies in areas such as deliveries, payments, and financial services, with an ever-increasing use-case for GoPay.
<a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener"></a>The combined size of the two companies would be around US$18bn under the latest valuations but it is suggested that it could command a valuation of US$40bn with a US listing, although it is not yet sure what shape or form that listing will take although its looks likely it will be a dual listing by the end of this year.
</div>
<div>
A straight IPO rather than a SPAC listing would be the most straightforward and the preferred option, even if it takes a bit longer to execute. The merged entity will be a more formidable adversary for other digital players and especially <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a> but also for Shopee (<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US))</a>,  <a href="https://www.smartkarma.com/entities/lazada-group" target="_blank" data-smartkarma-citation="entities:26148:1" rel="noopener">Lazada Group (LAZADA SP)</a>, and Bukalapak.
</div>

Gojek and Tokopedia have finally announced that they will merge to form GoTo Group, in what will be Indonesia's largest-ever business deal to date. The new GoTo Group will also seek a dual listing both in Jakarta and the US but it is yet unclear what shape the listing will take at this stage. 
This will create an Indonesia-focused digital powerhouse with exposure to Ride-Hailing, Food Delivery, Digital Payments, Digital Finance, and e-commerce, making it a formidable player in Indonesia's booming digital economy.
The merged entity will present a challenge, not just to Sea Ltd (SE US) and its Shopee platform but more pertinently for Grab, which is in the process of seeking a listing in the US through the largest SPAC listing to date.

One key area of overlap between Gojek and Tokopedia is on digital payments, where GoPay and OVO compete head-on. Given that Tokopedia holds a 36.1% stake in OVO, it is unclear what comes next although it is likely Tokopedia will look to migrate its customers to GoPay and sell its stake in OVO.
Gojek has already stepped up its move into the digital banking space through the recent increase in its stake in Bank Jago (ARTO IJ) to 22% but it also has strong backers for GoPay in the shape of Facebook Inc A (FB US) and Paypal Holdings (PYPL US).


The combined entity will be a huge enabler for MSMEs from food providers to small businesses and as a result, will likely get significant support from the Indonesian government. 


There will be significant synergies between the two companies in areas such as deliveries, payments, and financial services, with an ever-increasing use-case for GoPay.
The combined size of the two companies would be around US$18bn under the latest valuations but it is suggested that it could command a valuation of US$40bn with a US listing, although it is not yet sure what shape or form that listing will take although its looks likely it will be a dual listing by the end of this year.


A straight IPO rather than a SPAC listing would be the most straightforward and the preferred option, even if it takes a bit longer to execute. The merged entity will be a more formidable adversary for other digital players and especially Grab (0967655D SP) but also for Shopee (Sea Ltd (SE US)),  Lazada Group (LAZADA SP), and Bukalapak.


Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Executive Summary: Friday’s jobs report shocker capped off a week which included US Treasury Secretary Janet Yellen needing to be Mirandized. This was followed by the Fed stating the obvious in its financial stability report. Unmentioned in this report is that the role of this Fed is no longer to take away the punchbowl, but instead it is the bartender. The week ended with a jobs report that was the biggest miss in nominal terms, ever.The report was at odds with recent PMI surveys in which respondents stated that it was difficult to hire. This may be the result of frictions in hiring as unemployment benefits as well as child-care needs and postponed school re-openings delay employee re-entry. The truth serum for the US economy may occur around September when extended unemployment payments expire.The market impact was an immediate 10 basis point (bp) drop in the 10-year Treasury while the 2-year note even fell 1bp. Prices on the 10-year gave up these gains as the day progressed, but the smart money, that is the bond market, may be correct with the recent dampening of interest rates suggesting a longer time period to a less accommodative Fed.  The US Treasury bond curve ended the week flatter with short-end yields falling by much less than the longer part of the curve.With rates continuing to push credit spreads, Asia- and European-headquartered banks generated negative total returns in all but the lowest duration notes. There was a clear preference for Additional Tier 1 (AT1) bond issuance over the past week while over US$11 billion equivalent was raised by financial institutions globally in USD and Euros. In what may have been the busiest AT1 bond issuance weeks of the year, five institutions brought over US$6.5 billion in six securities.Nonetheless, this is a great credit environment and spreads which could go even tighter into year-end. A single piece of data, such as April’s non-farm payroll figure, is unlikely to change investor positioning. It may be a little too early to fade the market as fundamentals catch-up.Next week we will get a record-matching $126 billion slate of Treasury auctions. We may also see a robust serving of corporate and financials debt issuance. US consumer-price data is set to be published on Tuesday, 12 May. A sharp annual acceleration is forecast, although the market is likely to dismiss the figure as resulting from a comparison to depressed levels of a year earlier.With peak Q1 earnings season now behind us, Japanese banks will deliver their year-end results over the next week while several other stragglers pepper the remainder of the month. US banks signaled that they anticipate significantly higher interest rates by raising record breaking amounts in the debt capital markets following their Q1 earnings announcements. Other banks may follow with material debt issuance over the next few weeks after reporting earnings.Market Outlook: The question is whether the over-heating narrative will make a comeback and bring rate and tapering expectations closer. Financial stability risks appear binary from here. Either the Fed is over-accommodative, and it sits on its hands too long while asset bubbles over-inflate so that it gets nasty when it moves, or the Fed gets impatient, and it lowers accommodation unexpectedly which creates a risk off reaction. In both cases, curves flatten in a risk-off environment. We suspect the former is more likely, and for now, the Fed remains the bartender.

Bank Credit Weekly: Jobs Report Shocker Flattens Curves

Thailand

SCB X Public Company Limited provides banking services. The Bank offers accounts, loans, cards, deposits, insurance, investment, payment, digital banking, and other related services. SCB X serves customers worldwide.

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Siam Commercial Bank (SCB TB)

Bangkok Bank – Rotten To The Core

BANGKOK BANK: BBL reported a 2Q21 QOQ core operating results decline of 86.2%. The increase in net new NPLs, unknown moratorium credits, and COVID...

Thomas J. Monaco

Thailand - 120 Days Later - Fully Vaccinated Tourism to Resume

Thailand plans reopen to reopen its borders to the fully vaccinated in 120 days without quarantine restrictions, which will be a boon for the...

Angus Mackintosh

CHAYO: No Cheap Opportunity to Participate in High Growth

We maintain our SELL recommendation on CHAYO but raise our target price to Bt13.70 (previously Bt8.70), implying a downside of 20% from the current...

A. Stotz Investment Research

GoTo - Enter the Green Dragon

The confirmation of the merger between Gojek and Tokopedia creates an Indonesian digital powerhouse under GoTo Group, which will seek a dual...

Angus Mackintosh

Bank Credit Weekly: Jobs Report Shocker Flattens Curves

Job data raises uncertainty as the Fed continues to act as bartender. Financial stability risks appear binary while rates push credit spreads. Can...

Hank Calenti, CFA

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