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

Thematic (Sector/Industry)

<div>The vaccine announcement by <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer Inc (PFE US)</a> and <a href="https://www.smartkarma.com/entities/moderna-inc" target="_blank" data-smartkarma-citation="entities:28744:1" rel="noopener">Moderna Inc (MRNA US), </a>
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<div>the laggard Singapore equities market all of a sudden leaped to joy and pushed travel-related names up, playing catch up with the rest of the world.</div>
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<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> and <a href="https://www.smartkarma.com/entities/sats-ltd" target="_blank" data-smartkarma-citation="entities:19962:1" rel="noopener">SATS Ltd (SATS SP)</a> are the go-to stock for Singapore’s reopening air travel that started with the travel bubble with Hong Kong and other low-risk countries to follow. <a href="https://www.smartkarma.com/entities/comfortdelgro-corp-ltd" target="_blank" data-smartkarma-citation="entities:497:1" rel="noopener">Comfortdelgro Corp (CD SP)</a>  is the key beneficiary to the reopening of the Singapore economy, through the switching of work-from-home to work-in-office (higher ridership in the MRTs and buses that contributes to 60% of the company’s revenues), and also from the reopening of the restaurants and malls that increases mobility in the country. The low or non-existent community COVID-19 cases also help to boost the confidence in Comfort Delgro.</div>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/615/original/image_5285658631606463283499.png?1606463282" class="editor-image img-responsive" data-smartkarma-image-id="174615"></figure>
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<p>source: Capital IQ</p>
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<p>The trade is to buy ComfortDelgro as it has less risk to the increase in pandemic and less exposure to the cross border travel unlike Singapore Airlines and SATS (whose valuations have run ahead despite the ongoing concern of the industry) that has most of their revenues exposed to the risk of the cross border travel.</p>
</div>

The vaccine announcement by Pfizer Inc (PFE US) and Moderna Inc (MRNA US), 

the laggard Singapore equities market all of a sudden leaped to joy and pushed travel-related names up, playing catch up with the rest of the world.


Singapore Airlines (SIA SP) and SATS Ltd (SATS SP) are the go-to stock for Singapore’s reopening air travel that started with the travel bubble with Hong Kong and other low-risk countries to follow. Comfortdelgro Corp (CD SP)  is the key beneficiary to the reopening of the Singapore economy, through the switching of work-from-home to work-in-office (higher ridership in the MRTs and buses that contributes to 60% of the company’s revenues), and also from the reopening of the restaurants and malls that increases mobility in the country. The low or non-existent community COVID-19 cases also help to boost the confidence in Comfort Delgro.




source: Capital IQ

The trade is to buy ComfortDelgro as it has less risk to the increase in pandemic and less exposure to the cross border travel unlike Singapore Airlines and SATS (whose valuations have run ahead despite the ongoing concern of the industry) that has most of their revenues exposed to the risk of the cross border travel.


2021 High Conviction: Singapore Travel Names in Bumpy Recovery

Equity Bottom-Up

<p>The Thai government is in talks with China to exempt Chinese tourists from the required 14-day quarantine by 2021. The exemption may push through if the limited reopening of Thailand for international tourism will be a success. The current14-day quarantine will be replaced by coronavirus testing and mobile tracking app.</p>
<p>Chinese tourists accounted for more than 25% of Thailand’s international tourists and maybe the first low-risk country that will sign up for quarantine-free travel. Most Chinese visitors come to Thailand for a week, so being quarantined would not be worth the trip for many. </p>
<p>The protest in Thailand has not subsided therefore the high pent-up demand from Chinese tourists may have to be reallocated somewhere else. Historically, however, any protests in Thailand did not last long and mostly peaceful thus it may create some opportunity to <strong>accumulate </strong><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> stock. </p>

The Thai government is in talks with China to exempt Chinese tourists from the required 14-day quarantine by 2021. The exemption may push through if the limited reopening of Thailand for international tourism will be a success. The current14-day quarantine will be replaced by coronavirus testing and mobile tracking app.
Chinese tourists accounted for more than 25% of Thailand’s international tourists and maybe the first low-risk country that will sign up for quarantine-free travel. Most Chinese visitors come to Thailand for a week, so being quarantined would not be worth the trip for many. 
The protest in Thailand has not subsided therefore the high pent-up demand from Chinese tourists may have to be reallocated somewhere else. Historically, however, any protests in Thailand did not last long and mostly peaceful thus it may create some opportunity to accumulate Airports of Thailand (AOT TB) stock. 

Airport of Thailand (AOT): Soon or Later?

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

Cross Asset Strategy

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<p>The week that was in ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.</p>
<p>Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a></p>
</div><h3>Macro Insights</h3><p>In <a href="https://www.smartkarma.com/insights/thai-macro-watch-august-the-new-tech-wars-chinese-flood" target="_blank" data-smartkarma-citation="insights:42012" rel="noopener">Thai Macro Watch (August): The New Tech Wars, Chinese Flood</a>, our Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> five global events and their impact on Thai equities.</p><h3>Equity Bottom-Up Insights</h3><p>In <a href="https://www.smartkarma.com/insights/ace-hardware-indonesia-aces-ij-building-a-road-to-recovery" target="_blank" data-smartkarma-citation="insights:42520" rel="noopener">Ace Hardware Indonesia (ACES IJ) - Building A Road to Recovery,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits one of Indonesia's leading retailers after a call with management.</p><p>In <a href="https://www.smartkarma.com/insights/akr-corporindo-akra-ij-the-landed-logistics-player" target="_blank" data-smartkarma-citation="insights:42569" rel="noopener">AKR Corporindo (AKRA IJ) - The Landed Logistics Player,</a><a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> revisits this Indonesian chemical and fuel distributor with an increasing contribution coming from its JIIPE industrial estate. </p><p>In <a href="https://www.smartkarma.com/insights/sats-from-serving-22-5m-pax-in-1q20-to-serving-200k-pax-in-1q21-houston-we-have-a-problem" target="_blank" data-smartkarma-citation="insights:42488" rel="noopener">SATS: From Serving 22.5M Pax in 1Q20 -&gt; To Serving 200K Pax in 1Q21. Houston We Have a Problem.</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> revisits Singapore airport maintenance leader post its recent numbers. </p><p>In <a href="https://www.smartkarma.com/insights/permata-bank-mandatory-takeover-launched-finally" target="_blank" data-smartkarma-citation="insights:42577" rel="noopener">Permata Bank Mandatory Takeover Launched. Finally.</a><a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> revisits the <a href="https://www.smartkarma.com/entities/bank-permata-tbk-pt" target="_blank" data-smartkarma-citation="entities:728:1" rel="noopener">Bank Permata (BNLI IJ)</a> deal as it enters its final stage.</p><p>In <a href="https://www.smartkarma.com/insights/sprime-good-point-of-entry-singha-connection-could-add-further-upside" target="_blank" data-smartkarma-citation="insights:42589" rel="noopener">SPRIME: Good Point of Entry, Singha Connection Could Add Further Upside,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/aimirt-good-growth-outlook-but-already-priced-in" target="_blank" data-smartkarma-citation="insights:42639" rel="noopener">AIMIRT: Good Growth Outlook, but Already Priced In</a> initiates coverage on <a href="https://www.smartkarma.com/entities/aim-industrial-growth-freehold-and-leasehold-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:29180:1" rel="noopener">AIM Industrial Growth Freehold and Leasehold Real Estate Investment Trust (AIMIRT TB)</a> with a HOLD recommendation based on a target price of Bt14.30, implying an upside of 6% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/teamg-cost-savings-and-government-stimulus-to-drive-profit" target="_blank" data-smartkarma-citation="insights:42628" rel="noopener">TEAMG: Cost-Savings and Government Stimulus to Drive Profit,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> revisits <a href="https://www.smartkarma.com/entities/team-consulting-engineering-and-management-public-company-limited" target="_blank" data-smartkarma-citation="entities:29175:1" rel="noopener">TEAM Consulting Engineering and Management (TEAMG TB)</a> and maintains a BUY recommendation on the company as he increases the target price to Bt2.81 from Bt2.42, implying an upside of 17% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/sisb-good-entry-point-for-investment-in-private-schools" target="_blank" data-smartkarma-citation="insights:42632" rel="noopener">SISB: Good Entry Point for Investment in Private Schools,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price.</p><p>In <a href="https://www.smartkarma.com/insights/sflex-staying-behind-key-players-in-the-market" target="_blank" data-smartkarma-citation="insights:42679" rel="noopener">SFLEX: Staying Behind Key Players in the Market,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on <a href="https://www.smartkarma.com/entities/starflex-pcl" target="_blank" data-smartkarma-citation="entities:29172:1" rel="noopener">Starflex PCL (SFLEX TB)</a> with a SELL recommendation based on a target price of Bt8.90, implying a downside of 28% from the current price. </p><p>In <a href="https://www.smartkarma.com/insights/boffice-asset-expansion-motivates-the-upside" target="_blank" data-smartkarma-citation="insights:42678" rel="noopener">BOFFICE: Asset Expansion Motivates the Upside,</a><a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> initiates coverage on <a href="https://www.smartkarma.com/entities/bhiraj-office-leasehold-reit" target="_blank" data-smartkarma-citation="entities:29173:1" rel="noopener">Bhiraj Office Leasehold REIT (BOFFICE TB)</a> with a BUY recommendation based on a target price of Bt14.10, implying an upside of 18% from the current share price. </p><p>In <a href="https://www.smartkarma.com/insights/all-valuation-remains-undemanding-expect-further-upside" target="_blank" data-smartkarma-citation="insights:42635" rel="noopener">ALL: Valuation Remains Undemanding, Expect Further Upside</a>, <a href="https://www.smartkarma.com/profiles/dr-andrew-stotz-cfa" target="_blank" data-smartkarma-citation="accounts:756" rel="noopener">Dr Andrew Stotz, CFA</a> revisits <a href="https://www.smartkarma.com/entities/all-inspire-development-pcl" target="_blank" data-smartkarma-citation="entities:29177:1" rel="noopener">All Inspire Development PCL (ALL TB),</a> where he has a Buy recommendation based on a target price of Bt4.39, implying an upside of 31% from the current price. </p><p>In <a href="https://www.smartkarma.com/insights/m-rapid-sssg-recovery-with-potential-growth-from-seafood-restaurant" target="_blank" data-smartkarma-citation="insights:42578" rel="noopener">M: Rapid SSSG Recovery with Potential Growth from Seafood Restaurant,</a> our friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> circle back to <a href="https://www.smartkarma.com/entities/mk-restaurants-group-pcl" target="_blank" data-smartkarma-citation="entities:17689:1" rel="noopener">MK Restaurants Group (M TB)</a> after attending the recent analyst briefing, where they came away more positive with signs of an SSSG recovery post lockdown easing.</p><p>In <a href="https://www.smartkarma.com/insights/egco-positive-2h20-earnings-outlook-from-better-overseas-performance" target="_blank" data-smartkarma-citation="insights:42634" rel="noopener">EGCO: Positive 2H20 Earnings Outlook from Better Overseas Performance,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisit <a href="https://www.smartkarma.com/entities/electricity-generating-pcl" target="_blank" data-smartkarma-citation="entities:6149:1" rel="noopener">Electricity Generating (EGCO TB)</a> after the company's positive analyst briefing. </p><p>In <a href="https://www.smartkarma.com/insights/wice-expect-earnings-to-continue-growing-yoy-in-2h20" target="_blank" data-smartkarma-citation="insights:42537" rel="noopener">WICE: Expect Earnings to Continue Growing YoY in 2H20,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> circle back to <a href="https://www.smartkarma.com/entities/wice-logistics-pcl" target="_blank" data-smartkarma-citation="entities:26172:1" rel="noopener">Wice Logistics (WICE TB)</a> after going to the company's analyst briefing. </p><p>In <a href="https://www.smartkarma.com/insights/hana-covid-19-impact-has-passed" target="_blank" data-smartkarma-citation="insights:42575" rel="noopener">HANA: Covid-19 Impact Has Passed,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisits one of Thailand's leading electronics manufacturing services companies. </p><h3>Sector and Thematic Insights</h3><p>In <a href="https://www.smartkarma.com/insights/indonesia-banks-most-to-recover" target="_blank" data-smartkarma-citation="insights:42493" rel="noopener">Indonesia Banks – Most To Recover?,</a> banking specialist <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> zooms in on the potential recovery to come for Indonesian Banks. </p><div><div><div id="ember9100"><div><section><div id="ember9112"><div><p>In <a href="https://www.smartkarma.com/insights/asia-banks-oversized-dividends" target="_blank" data-smartkarma-citation="insights:42535" rel="noopener">Asia Banks – Oversized Dividends,</a><a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> zeros in on dividend payments for Asian banks during the pandemic period. </p></div></div></section></div></div></div></div><h3>Credit Insights</h3><p>In <a href="https://www.smartkarma.com/insights/bank-rakyat-indonesia-pondering-pricing-on-a-promised-new-issue" target="_blank" data-smartkarma-citation="insights:42524" rel="noopener">Bank Rakyat Indonesia: Pondering Pricing on a Promised New Issue</a><a href="https://www.smartkarma.com/profiles/hank-calenti-cfa" target="_blank" data-smartkarma-citation="accounts:5194" rel="noopener">Hank Calenti, CFA</a> takes a look at the proposed US$1bn bond issue from <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> and finds it appealing. <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> could price a potential five-year senior unsecured </p>


The week that was in ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.
Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week's relevant discussions in ASEAN@Smartkarma
Macro InsightsIn Thai Macro Watch (August): The New Tech Wars, Chinese Flood, our Thai guru Athaporn Arayasantiparb, CFA five global events and their impact on Thai equities.Equity Bottom-Up InsightsIn Ace Hardware Indonesia (ACES IJ) - Building A Road to Recovery, CrossASEAN Insight Provider Angus Mackintosh revisits one of Indonesia's leading retailers after a call with management.In AKR Corporindo (AKRA IJ) - The Landed Logistics Player,Angus Mackintosh revisits this Indonesian chemical and fuel distributor with an increasing contribution coming from its JIIPE industrial estate. In SATS: From Serving 22.5M Pax in 1Q20 -&gt; To Serving 200K Pax in 1Q21. Houston We Have a Problem. CrossASEAN Insight Provider Nicolas Van Broekhoven revisits Singapore airport maintenance leader post its recent numbers. In Permata Bank Mandatory Takeover Launched. Finally.Travis Lundy revisits the Bank Permata (BNLI IJ) deal as it enters its final stage.In SPRIME: Good Point of Entry, Singha Connection Could Add Further Upside,Dr Andrew Stotz, CFA initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price. In AIMIRT: Good Growth Outlook, but Already Priced In initiates coverage on AIM Industrial Growth Freehold and Leasehold Real Estate Investment Trust (AIMIRT TB) with a HOLD recommendation based on a target price of Bt14.30, implying an upside of 6% from the current share price. In TEAMG: Cost-Savings and Government Stimulus to Drive Profit,Dr Andrew Stotz, CFA revisits TEAM Consulting Engineering and Management (TEAMG TB) and maintains a BUY recommendation on the company as he increases the target price to Bt2.81 from Bt2.42, implying an upside of 17% from the current share price. In SISB: Good Entry Point for Investment in Private Schools,Dr Andrew Stotz, CFA initiates coverage on SPRIME with a BUY recommendation based on a target price of Bt11.20, implying an upside of 21% from the current share price.In SFLEX: Staying Behind Key Players in the Market,Dr Andrew Stotz, CFA initiates coverage on Starflex PCL (SFLEX TB) with a SELL recommendation based on a target price of Bt8.90, implying a downside of 28% from the current price. In BOFFICE: Asset Expansion Motivates the Upside,Dr Andrew Stotz, CFA initiates coverage on Bhiraj Office Leasehold REIT (BOFFICE TB) with a BUY recommendation based on a target price of Bt14.10, implying an upside of 18% from the current share price. In ALL: Valuation Remains Undemanding, Expect Further Upside, Dr Andrew Stotz, CFA revisits All Inspire Development PCL (ALL TB), where he has a Buy recommendation based on a target price of Bt4.39, implying an upside of 31% from the current price. In M: Rapid SSSG Recovery with Potential Growth from Seafood Restaurant, our friends at Country Group circle back to MK Restaurants Group (M TB) after attending the recent analyst briefing, where they came away more positive with signs of an SSSG recovery post lockdown easing.In EGCO: Positive 2H20 Earnings Outlook from Better Overseas Performance,Country Group revisit Electricity Generating (EGCO TB) after the company's positive analyst briefing. In WICE: Expect Earnings to Continue Growing YoY in 2H20,Country Group circle back to Wice Logistics (WICE TB) after going to the company's analyst briefing. In HANA: Covid-19 Impact Has Passed,Country Group revisits one of Thailand's leading electronics manufacturing services companies. Sector and Thematic InsightsIn Indonesia Banks – Most To Recover?, banking specialist Daniel Tabbush zooms in on the potential recovery to come for Indonesian Banks. In Asia Banks – Oversized Dividends,Daniel Tabbush zeros in on dividend payments for Asian banks during the pandemic period. Credit InsightsIn Bank Rakyat Indonesia: Pondering Pricing on a Promised New IssueHank Calenti, CFA takes a look at the proposed US$1bn bond issue from Bank Rakyat Indonesia Persero (BBRI IJ) and finds it appealing. Bank Rakyat Indonesia Persero (BBRI IJ) could price a potential five-year senior unsecured 

The Week that Was in ASEAN@Smartkarma - Ace Hardwear, Thai Macro, and Indonesian Banks

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

<p><a href="https://www.smartkarma.com/entities/sats-ltd" target="_blank" data-smartkarma-citation="entities:19962:1" rel="noopener">SATS Ltd (SATS SP)</a> reported 1Q21 figures (1 April to 30 June 2020) which highlighted the recovery process to be long and slow. Mainland China operations were the only green shoot.</p>
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<p>Political statements in some countries (Thailand, Singapore) are being made that travel lines need to open but restrictive rules (7-14 day quarantine) make any travel recovery science fiction. Campaigns to stimulate domestic spending will only work briefly as locals are outnumbered 3x to 10x by foreign tourists (depending country by country).</p>
<div class="content-highlight">
<p>Asian governments, where SATS mostly operates, continue to prioritize the lives of less than 10K over the livelihoods of billions. Second-order effects are ignored.</p>
<p>Since there are no precedents of such behavior in either 1957 (H2N2), 1968 (HK flu), 2003 (SARS), or 2012 (MERS) pandemic responses investors in tourism/travel are in unchartered territory.</p>
</div>
<p>In June <a href="https://www.smartkarma.com/insights/sats-traffic-99-5-in-april-and-may-how-much-worse-can-it-get" target="_blank" data-smartkarma-citation="insights:40142" rel="noopener">SATS: Traffic -99.5% in April and May; How Much Worse Can It Get?</a> we assumed travel restrictions could not get worse but in some countries (Australia, NZ) they have deteriorated. In today's <a href="https://www.ft.com/content/9cbbc348-12c0-4d16-8f3e-0b118c392abc" target="_blank" rel="noopener">FT</a> Australians now compare its restrictive travel policies to North Korea.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/154/547/original/image_60022252141598239462159.png?1598239462" class="editor-image img-responsive" data-smartkarma-image-id="154547"></figure>
<h2>When Incinerating Cash...More $$$ are needed To Keep Lights On</h2>
<p>In some ways, this reminds us of the Global Financial Crisis in 2008-2009: the banks who raised capital first, or got strategic investments from Buffett &amp; co, all survived... the ones who waited were forced to merge at unfavorable terms or went bust. <strong>Hotel/Aviation/Airport/Event Hall owners better see the similarities.</strong></p>
<p>The travel industry all assumes things will get better <em>"soon"</em>. The playbook better comes out "<em>what if things do not improve fast"</em> and <a href="https://www.smartkarma.com/entities/sats-ltd" target="_blank" data-smartkarma-citation="entities:19962:1" rel="noopener">SATS Ltd (SATS SP)</a> 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> should lead the charge. As we highlighted last week there are non-dilutive ways for Singapore Airlines to raise a lot of cash, we are less sure SATS can do something non-dilutive.</p>
<p>Given how policymakers are handling this pandemic one better prepare for adverse scenarios and raise large sums of cash while you can.</p>
<p><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 paddling hard in non-aviation (revenue +73%) but this is from a small base and overall investors should realize revenues are smashed (group revenue -55%) and EBITDA is deeply negative (-34M SGD). The aviation business accounts for 82% of revenues. The balance sheet still looks OK now but a few more quarters like 1Q21 and below picture will deteriorate at the speed of light.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/154/553/original/image_44961682951598240021160.png?1598240021" class="editor-image img-responsive" data-smartkarma-image-id="154553"></figure>
<p><strong>Bottom line</strong>: we remain long-term fans of the SATS monopoly at Changi Airport and like the fact that insiders are buying. These insiders are however dependent solely on governments to open up travel lines without restrictions and while some political statements have signaled improvements, these proposals are insufficient for leisure travel to recover in earnest. <strong>SATS should prepare for this travel coma to last longer than we anticipated in June. </strong></p>

SATS Ltd (SATS SP) reported 1Q21 figures (1 April to 30 June 2020) which highlighted the recovery process to be long and slow. Mainland China operations were the only green shoot.

Political statements in some countries (Thailand, Singapore) are being made that travel lines need to open but restrictive rules (7-14 day quarantine) make any travel recovery science fiction. Campaigns to stimulate domestic spending will only work briefly as locals are outnumbered 3x to 10x by foreign tourists (depending country by country).

Asian governments, where SATS mostly operates, continue to prioritize the lives of less than 10K over the livelihoods of billions. Second-order effects are ignored.
Since there are no precedents of such behavior in either 1957 (H2N2), 1968 (HK flu), 2003 (SARS), or 2012 (MERS) pandemic responses investors in tourism/travel are in unchartered territory.

In June SATS: Traffic -99.5% in April and May; How Much Worse Can It Get? we assumed travel restrictions could not get worse but in some countries (Australia, NZ) they have deteriorated. In today's FT Australians now compare its restrictive travel policies to North Korea.

When Incinerating Cash...More $$$ are needed To Keep Lights On
In some ways, this reminds us of the Global Financial Crisis in 2008-2009: the banks who raised capital first, or got strategic investments from Buffett &amp; co, all survived... the ones who waited were forced to merge at unfavorable terms or went bust. Hotel/Aviation/Airport/Event Hall owners better see the similarities.
The travel industry all assumes things will get better "soon". The playbook better comes out "what if things do not improve fast" and SATS Ltd (SATS SP) and Singapore Airlines (SIA SP) should lead the charge. As we highlighted last week there are non-dilutive ways for Singapore Airlines to raise a lot of cash, we are less sure SATS can do something non-dilutive.
Given how policymakers are handling this pandemic one better prepare for adverse scenarios and raise large sums of cash while you can.
SATS Ltd (SATS SP) is paddling hard in non-aviation (revenue +73%) but this is from a small base and overall investors should realize revenues are smashed (group revenue -55%) and EBITDA is deeply negative (-34M SGD). The aviation business accounts for 82% of revenues. The balance sheet still looks OK now but a few more quarters like 1Q21 and below picture will deteriorate at the speed of light.

Bottom line: we remain long-term fans of the SATS monopoly at Changi Airport and like the fact that insiders are buying. These insiders are however dependent solely on governments to open up travel lines without restrictions and while some political statements have signaled improvements, these proposals are insufficient for leisure travel to recover in earnest. SATS should prepare for this travel coma to last longer than we anticipated in June. 

SATS: From Serving 22.5M Pax in 1Q20 -> To Serving 200K Pax in 1Q21. Houston We Have a Problem.

<p>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 <strong>The Beach</strong> and <strong>Hangover Part II</strong> that presented the world with the opposite views of what the country has to offer for tourists. </p>
<p>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. </p>
<p>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. </p>
<p><strong>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?</strong> 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% <strong>premium</strong> in PER, PBR, and EV/EBITDA multiples to the Thai Tourism stock peers. <strong>No rush on having AOT in my portfolio. </strong></p>

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. 

Singapore

SATS Limited provides integrated ground handling and in-flight catering services at Singapore Changi Airport.  The Company also provides aviation security, airline laundry, and airport cargo delivery management services.

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SATS (SATS SP)

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