Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Event-Driven

The Stock Exchange of Thailand (SET) has commenced a market consultation on changing the <a href="https://www.smartkarma.com/entities/stock-exchange-of-thailand-set-50-index" target="_blank" data-smartkarma-citation="entities:31493:1" rel="noopener">Stock Exchange of Thailand SET 50 Index (SET50 INDEX)</a>, SET100 and SETHD indices to free float market cap weighted indices from the upcoming rebalance in June.The market consultation document is short on detail, but the main points are the change in index calculation from full market cap weighted to free float market cap weighted, implementation of the changes in two tranches at the June and December reviews, and implementation of quarterly changes in free float for moves of +/-5%.The biggest uncertainty for us is whether the selection of the stocks for inclusion/exclusion will use the full market cap or the free float market cap.Using the full market cap for stock selection could see 3 changes at the upcoming June review, while using free float market cap for stock selection could result in up to 6 changes at the review. The two step implementation of the free float changes will dampen the index turnover but it will still be relatively high, ranging from a one-way turnover of 7.8% for changes in free float only to 9.52% if the stock selection methodology uses free float market cap.In this Insight, we look at the proposed changes and enumerate three scenarios, the changes they will entail, the impact on the stocks and the turnover for each scenario.

The Stock Exchange of Thailand (SET) has commenced a market consultation on changing the Stock Exchange of Thailand SET 50 Index (SET50 INDEX), SET100 and SETHD indices to free float market cap weighted indices from the upcoming rebalance in June.The market consultation document is short on detail, but the main points are the change in index calculation from full market cap weighted to free float market cap weighted, implementation of the changes in two tranches at the June and December reviews, and implementation of quarterly changes in free float for moves of +/-5%.The biggest uncertainty for us is whether the selection of the stocks for inclusion/exclusion will use the full market cap or the free float market cap.Using the full market cap for stock selection could see 3 changes at the upcoming June review, while using free float market cap for stock selection could result in up to 6 changes at the review. The two step implementation of the free float changes will dampen the index turnover but it will still be relatively high, ranging from a one-way turnover of 7.8% for changes in free float only to 9.52% if the stock selection methodology uses free float market cap.In this Insight, we look at the proposed changes and enumerate three scenarios, the changes they will entail, the impact on the stocks and the turnover for each scenario.

SET50 Index - Proposed Methodology Changes: Scenarios, Names Affected & Impact

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.

Equity Bottom-Up

We change our recommendation on CHAYO to SELL from HOLD but raise our target price to Bt8.70 (previously Bt7.30), implying a downside of 22% from the current price. We derive our target price from a 30% premium to the 2021E PB of Thai Diversified Financials and apply a 15% small-cap discount, giving a 2021E 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>Joining the hemp hype supposed to bring additional income</li>
<li>Debt collection to further benefit from increasing mobile usage</li>
<li>High growth is priced in, warrant exercise to fund growth</li>
</ul>
Interim: The 4Q20 results were strong, and we revise our loan-growth and loan yield slightly upward. However, we still think that CHAYO lags its huge potential.
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 change our recommendation on CHAYO to SELL from HOLD but raise our target price to Bt8.70 (previously Bt7.30), implying a downside of 22% from the current price. We derive our target price from a 30% premium to the 2021E PB of Thai Diversified Financials and apply a 15% small-cap discount, giving a 2021E 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
Joining the hemp hype supposed to bring additional income
Debt collection to further benefit from increasing mobile usage
High growth is priced in, warrant exercise to fund growth

Interim: The 4Q20 results were strong, and we revise our loan-growth and loan yield slightly upward. However, we still think that CHAYO lags its huge potential.
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: High Growth Expectations Make It Hard to Outperform

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

Thai banks are leveraged to re-opening the country to tourism. They are also leveraged to a newly proposed NPL warehouse scheme.  Where re-opening and NPL warehouse move in tandem, Thai banks can be golden.

Thai banks are leveraged to re-opening the country to tourism. They are also leveraged to a newly proposed NPL warehouse scheme.  Where re-opening and NPL warehouse move in tandem, Thai banks can be golden.

We upgrade our recommendation to HOLD from SELL on CHAYO with a revised target price of Bt7.30 (previously Bt6.90), implying a downside of 3% from the current price. We derive our target price from a 30% premium to the 2021E PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
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>Debt collection to further benefit from increasing mobile usage</li>
<li>High growth is priced in, warrant exercise to fund growth</li>
</ul>
Interim: The 3Q20 results were below our expectations, and we still think that CHAYO lags on enormous growth opportunities. We revise down our loan-growth assumptions.
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. A risk to our recommendation is that sentiment drives the share price considerably higher.

We upgrade our recommendation to HOLD from SELL on CHAYO with a revised target price of Bt7.30 (previously Bt6.90), implying a downside of 3% from the current price. We derive our target price from a 30% premium to the 2021E PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
Investment thesis:

Rising level of bad loans in Thailand can boost core business
Economic uncertainty helps to expand the customer base for debt collection
Debt collection to further benefit from increasing mobile usage
High growth is priced in, warrant exercise to fund growth

Interim: The 3Q20 results were below our expectations, and we still think that CHAYO lags on enormous growth opportunities. We revise down our loan-growth assumptions.
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. A risk to our recommendation is that sentiment drives the share price considerably higher.

CHAYO: Still Lags on Enormous Growth Opportunities

We have a SELL recommendation on CHAYO with our target price of Bt6.90, implying a downside of 16% from the current price. We derive our target price from the PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
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>Debt collection to further benefit from increasing mobile usage</li>
<li>High growth is priced in, warrant exercise to fund growth</li>
</ul>
Interim: The 2Q20 results were mainly in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.
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. A risk to our recommendation is that sentiment drives the share price considerably higher.

We have a SELL recommendation on CHAYO with our target price of Bt6.90, implying a downside of 16% from the current price. We derive our target price from the PB/ROE of Thai Diversified Financials and apply a 15% small-cap discount.
Investment thesis:

Rising level of bad loans in Thailand can boost core business
Economic uncertainty helps to expand the customer base for debt collection
Debt collection to further benefit from increasing mobile usage
High growth is priced in, warrant exercise to fund growth

Interim: The 2Q20 results were mainly in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.
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. A risk to our recommendation is that sentiment drives the share price considerably higher.

CHAYO: Remarkable Growth, but Would Need More

Thailand

Kiatnakin Bank Public Company Limited provides commercial banking services including commercial, developmental, consumer, hire-purchase, and mortgage financing to its customers in Thailand. The Company also provides securities brokerage and investment advisory services.

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Kiatnakin Bank (KKP TB)

SET50 Index - Proposed Methodology Changes: Scenarios, Names Affected & Impact

The SET has commenced a market consultation on the proposed changes to make its indices free float market cap weighted. We look at the impact on...

Brian Freitas

CHAYO: High Growth Expectations Make It Hard to Outperform

We change our recommendation on CHAYO to SELL from HOLD but raise our target price to Bt8.70 (previously Bt7.30), implying a downside of 22% from...

A. Stotz Investment Research

Thai Banks – Golden

Thai banks are leveraged to a re-opening of the country to tourism and can benefit at the same time from a newly proposed NPL warehouse scheme.

Daniel Tabbush

CHAYO: Still Lags on Enormous Growth Opportunities

We upgrade our recommendation to HOLD from SELL on CHAYO with a revised target price of Bt7.30, implying a downside of 3%. We derive our target...

A. Stotz Investment Research

CHAYO: Remarkable Growth, but Would Need More

The 2Q20 results were in line with our expectations, slightly higher provisioning. We still think that CHAYO lags on enormous growth opportunities.

A. Stotz Investment Research

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