Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Guangzhou Baiyun International Airport / Equity Bottom-Up

Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The <a href="https://www.bloomberg.com/quote/280456Z:CN" target="_blank" rel="noopener">International Air Transport Association</a> said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, <a href="https://www.icao.int/Newsroom/Pages/2020-passenger-totals-drop-60-percent-as-COVID19-assault-on-international-mobility-continues.aspx" target="_blank" rel="noopener">according</a> to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. <a href="https://www.smartkarma.com/entities/shenzhen-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:15522:1" rel="noopener">Shenzhen Airport Co A (000089 CH)</a> (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a> all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.
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What's Original?
This insight presents a comprehensive view of the key Chinese airports (<a href="https://www.smartkarma.com/entities/beijing-capital-international-airport-bcia" target="_blank" data-smartkarma-citation="entities:10626:1" rel="noopener">Beijing Capital International Airport (BCIA) (694 HK)</a>, Shenzhen Airport, <a href="https://www.smartkarma.com/entities/shanghai-international-airport-co-ltd" target="_blank" data-smartkarma-citation="entities:6511:1" rel="noopener">Shanghai International Airport (600009 CH)</a>, and <a href="https://www.smartkarma.com/entities/guangzhou-baiyun-international-airport" target="_blank" data-smartkarma-citation="entities:10819:1" rel="noopener">Guangzhou Baiyun International Airport (600004 CH)</a>, together with <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a>, <a href="https://www.smartkarma.com/entities/malaysia-airports-hldgs-bhd" target="_blank" data-smartkarma-citation="entities:117:1" rel="noopener">Malaysia Airports Hldgs (MAHB MK)</a>, <a href="https://www.smartkarma.com/entities/japan-airport-terminal-co" target="_blank" data-smartkarma-citation="entities:18034:1" rel="noopener">Japan Airport Terminal Co (9706 JP)</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> and <a href="https://www.smartkarma.com/entities/auckland-intl-airport-ltd" target="_blank" data-smartkarma-citation="entities:597:1" rel="noopener">Auckland Intl Airport (AIA NZ)</a>.
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Within the hospitality-affected complex, the airline industry garners the lion's share of the negative news from the Covid fall-out. The International Air Transport Association said last month it estimates losses in 2021 of US$48bn, up from $38bn previously. And that's on top of an estimated $370bn of losses to the industry in FY20, according to the International Civil Aviation Organization.
But spare a thought for the airports which facilitate the arrival and departure of these airlines, as this crisis becomes increasingly protracted, and in many ways, deeper than many anticipated 18 months ago.
Amid the doom and gloom, there are parking bays of good news. April's domestic air passenger traffic in China was ~96% of December 2019 levels. Shenzhen Airport Co A (000089 CH) (SZAC) is at level pegging with overall traffic numbers in 2019, and domestic flow into SZAC, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH) all exceed 2019 levels. 
Yet outside of the Chinese airport space, where international passenger throughput has historically commanded &gt;40%+ of total throughput - up to 80% for Airports of Thailand (AOT TB) -  the outlook remains subdued, and largely uncertain.
Just this week, Thailand recorded its highest level of Covid-related fatalities, Taiwan is facing its first serious outbreak, and Australia's state of Victoria entered its fourth lockdown. 
Provided airports have sufficient funds to ride out the tough times to the other side of the valley, all will undergo a major re-rate when international travel restarts. Yet the vaccine rollout - and uptake - and when international borders will reopen, remain indeterminate.

What's Original?
This insight presents a comprehensive view of the key Chinese airports (Beijing Capital International Airport (BCIA) (694 HK), Shenzhen Airport, Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport (600004 CH), together with Airports of Thailand (AOT TB), Malaysia Airports Hldgs (MAHB MK), Japan Airport Terminal Co (9706 JP), Sydney Airport (SYD AU) and Auckland Intl Airport (AIA NZ).


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

*Lower Tax Rate Offset By Massive Provisions: CIMB Group (CIMB.MK) [CIMB] reported 4Q20 results of MYR 195.8 mn, increasing MYR 16.7 mn (9.3%) linked quarter. During the period, we noted a  massive reduction in its tax rate from 60.6% in 3Q20 to 18.0% which was additive to bottom-line performance by MYR 70.8 mn. However, this was offset by an enormous increase in loss provisions reflecting a breakdown in credit quality; and   *Credit Risk Now Accelerating: With NCOs of MYR 1.9 bn (accelerating from the MYR 1.2 bn posted in 3Q20), we find that net new NPLs increased MYR 2.6 bn or a whopping 83.5% on an annualized basis. We continue to believe that reserve cover is too light by MYR 12.0 bn (versus MYR 1.5 bn in 3Q20) – which nearly six years of profit before tax or 21.1% of 4Q20 capital.

*Lower Tax Rate Offset By Massive Provisions: CIMB Group (CIMB.MK) [CIMB] reported 4Q20 results of MYR 195.8 mn, increasing MYR 16.7 mn (9.3%) linked quarter. During the period, we noted a  massive reduction in its tax rate from 60.6% in 3Q20 to 18.0% which was additive to bottom-line performance by MYR 70.8 mn. However, this was offset by an enormous increase in loss provisions reflecting a breakdown in credit quality; and   *Credit Risk Now Accelerating: With NCOs of MYR 1.9 bn (accelerating from the MYR 1.2 bn posted in 3Q20), we find that net new NPLs increased MYR 2.6 bn or a whopping 83.5% on an annualized basis. We continue to believe that reserve cover is too light by MYR 12.0 bn (versus MYR 1.5 bn in 3Q20) – which nearly six years of profit before tax or 21.1% of 4Q20 capital. 

CIMB Group – Heading Deeper Into the Woods

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

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

If the country were to change its target to the wealthy clients then the question is whether <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> going to be a good proxy for tourism's sweet spot in Thailand? Before COVID-19 break, Thailand's tourism scene was popular with the Chinese middle class and tons of backpackers from all over the world thanks, partly to a couple of Hollywood movies such as The Beach and Hangover Part II that presented the world with the opposite views of what the country has to offer for tourists. 
The Civil Aviation Authority of Thailand (CAAT) recently mentioned that the ban on commercial international flights might not be lifted on July 1st as previously planned, and if at some point the ban will be lifted, business travelers will likely be the first allowed to travel. 
Concession service (26% contribution) will be reduced by 20% and 50% EBITDA followed by 15 ppts EBITDA margin reduction as the company extended rent holiday to its tenants. 
The bigger question is whether AOT is still a good proxy for Thai tourism given the predictably muted growth in the tourist arrival and the Tourism Ministry's aim to focus on the quality rather than quantity? It is likely that peers such as <a href="https://www.smartkarma.com/entities/minor-international-pcl" target="_blank" data-smartkarma-citation="entities:2154:1" rel="noopener">Minor International (MINT TB)</a> , <a href="https://www.smartkarma.com/entities/central-plaza-hotel-pcl" target="_blank" data-smartkarma-citation="entities:18213:1" rel="noopener">Central Plaza Hotel (CENTEL TB)</a> , <a href="https://www.smartkarma.com/entities/central-pattana-pcl-0b7fb113-16e1-4535-be8b-02dce5bbcd92" target="_blank" data-smartkarma-citation="entities:17188:1" rel="noopener">Central Pattana Pub (CPN TB)</a>, or <a href="https://www.smartkarma.com/entities/bangkok-dusit-med-service" target="_blank" data-smartkarma-citation="entities:875:1" rel="noopener">Bangkok Dusit Medical Services (BDMS TB)</a> to benefit from the shift in focus in the short run. In addition to that, AOT is trading at 50%, 97%, and 65% premium in PER, PBR, and EV/EBITDA multiples to the Thai Tourism stock peers. No rush on having AOT in my portfolio.

If the country were to change its target to the wealthy clients then the question is whether Airports of Thailand (AOT TB) going to be a good proxy for tourism's sweet spot in Thailand? Before COVID-19 break, Thailand's tourism scene was popular with the Chinese middle class and tons of backpackers from all over the world thanks, partly to a couple of Hollywood movies such as The Beach and Hangover Part II that presented the world with the opposite views of what the country has to offer for tourists. 
The Civil Aviation Authority of Thailand (CAAT) recently mentioned that the ban on commercial international flights might not be lifted on July 1st as previously planned, and if at some point the ban will be lifted, business travelers will likely be the first allowed to travel. 
Concession service (26% contribution) will be reduced by 20% and 50% EBITDA followed by 15 ppts EBITDA margin reduction as the company extended rent holiday to its tenants. 
The bigger question is whether AOT is still a good proxy for Thai tourism given the predictably muted growth in the tourist arrival and the Tourism Ministry's aim to focus on the quality rather than quantity? It is likely that peers such as Minor International (MINT TB) , Central Plaza Hotel (CENTEL TB) , Central Pattana Pub (CPN TB), or Bangkok Dusit Medical Services (BDMS TB) to benefit from the shift in focus in the short run. In addition to that, AOT is trading at 50%, 97%, and 65% premium in PER, PBR, and EV/EBITDA multiples to the Thai Tourism stock peers. No rush on having AOT in my portfolio. 

<a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> share price has rallied post the initial sell-off in the back of COVID-19 yet the key revenue driver, tourists' arrival, has not shown any sign of improvement as no vaccine has been found and governments are taking a very cautious stance on cross border travel fearing a second outbreak. 
Thailand's Ministry of Finance, a major shareholder of AOT, may need to sell some stake in AOT as they have to deal with Thai Airway's bankruptcy proceeding and difficult economic environment due to lack of tourists' arrival (17% of GDP).
AOT is still trading at 41x PER, 6x PBR, and 27x EV/EBITDA - a 75% PER premium, 164% PBR premium, and 107% EV/EBITDA premium to its peers.  The valuations clearly do not reflect the gloomy outlook of the tourism industry in Thailand that <a href="https://www.smartkarma.com/entities/airports-of-thailand-pcl" target="_blank" data-smartkarma-citation="entities:239:1" rel="noopener">Airports of Thailand (AOT TB)</a> is in. Still Negative...

Airports of Thailand (AOT TB) share price has rallied post the initial sell-off in the back of COVID-19 yet the key revenue driver, tourists' arrival, has not shown any sign of improvement as no vaccine has been found and governments are taking a very cautious stance on cross border travel fearing a second outbreak. 
Thailand's Ministry of Finance, a major shareholder of AOT, may need to sell some stake in AOT as they have to deal with Thai Airway's bankruptcy proceeding and difficult economic environment due to lack of tourists' arrival (17% of GDP).
AOT is still trading at 41x PER, 6x PBR, and 27x EV/EBITDA - a 75% PER premium, 164% PBR premium, and 107% EV/EBITDA premium to its peers.  The valuations clearly do not reflect the gloomy outlook of the tourism industry in Thailand that Airports of Thailand (AOT TB) is in. Still Negative...

Airport of Thailand (AOT): No Sign of Improvement Yet

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

<a href="https://www.smartkarma.com/entities/sats-ltd" target="_blank" data-smartkarma-citation="entities:19962:1" rel="noopener">SATS Ltd (SATS SP)</a> is a Singapore travel monopoly that has rarely been cheap given its great dividend track record. SATS controls 80% of flight service operations around Changi Airport, one of the top-20 airports in the world. Its most important client <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">Singapore Airlines (SIA SP)</a> has been saved by Temasek and retail shareholders.
According to IATA data Changi flight operations were down -99.5% in April. We expect the same in May. June will see some improvement with travel lines re-opening between China/SG and <a href="https://www.smartkarma.com/entities/singapore-airlines-ltd" target="_blank" data-smartkarma-citation="entities:74:1" rel="noopener">Singapore Airlines (SIA SP)</a> starting more routes globally next week.
While we continue to wait for FY20 earnings (FY ends 31/3/20) all bad news might be priced in already. With Singapore elections approaching in July and pressure from other global capitals which are re-opening, Singapore can't afford to have its air-links closed for much longer. Things are set to get incrementally better from here, not worse.
Timing a bottom is always difficult but risk/reward on a long-term basis could be attractive even after a 25% rally from the recent 2.6 SGD low in the past ten days. Read below for more details.

SATS Ltd (SATS SP) is a Singapore travel monopoly that has rarely been cheap given its great dividend track record. SATS controls 80% of flight service operations around Changi Airport, one of the top-20 airports in the world. Its most important client Singapore Airlines (SIA SP) has been saved by Temasek and retail shareholders.
According to IATA data Changi flight operations were down -99.5% in April. We expect the same in May. June will see some improvement with travel lines re-opening between China/SG and Singapore Airlines (SIA SP) starting more routes globally next week.
While we continue to wait for FY20 earnings (FY ends 31/3/20) all bad news might be priced in already. With Singapore elections approaching in July and pressure from other global capitals which are re-opening, Singapore can't afford to have its air-links closed for much longer. Things are set to get incrementally better from here, not worse.
Timing a bottom is always difficult but risk/reward on a long-term basis could be attractive even after a 25% rally from the recent 2.6 SGD low in the past ten days. Read below for more details.

SATS: Traffic -99.5% in April and May; How Much Worse Can It Get?

Malaysia

Malaysia Airports Holdings Berhad is an investment holding company.  The Company, through its subsidiaries, provides management, maintenance, and operation of designated airports.  Malaysia Airports also operates duty-free and non-duty free stores as well as provides food and beverage outlets at the airports.

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Malaysia Airports Holdings (MAHB MK)

Asia-Pac Airports: Ups, But Mostly Downs

Domestic passenger flow into Shenzhen Airport (000089 CH), Shanghai International Airport (600009 CH), and Guangzhou Baiyun International Airport...

David Blennerhassett

CIMB Group – Heading Deeper Into the Woods

CIMB GROUP: CIMB reported 4Q20 results improved 9.3% linked quarter, and highlighted by a massive reduction in its tax rate and an enormous...

Thomas J. Monaco

AOT: Still a Valid Proxy for Tourism?

If the country were to change its target to the wealthy clients then the question is whether Airports of Thailand (AOT TB) going to be a good proxy...

Henry Soediarko

Airport of Thailand (AOT): No Sign of Improvement Yet

Airports of Thailand (AOT TB) share price has rallied post the initial sell-off in the back of COVID-19 yet the key revenue driver, tourists'...

Henry Soediarko

SATS: Traffic -99.5% in April and May; How Much Worse Can It Get?

SATS Ltd (SATS SP) is a Singapore travel monopoly that has rarely been cheap given its great dividend track record. SATS controls 80% of flight...

Nicolas Van Broekhoven

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