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

Equity Bottom-Up

Contrary to last year when foreign tourists entering Thailand must be quarantined for at least 14 days, the quarantine requirements will be waived for vaccinated foreign visitors arriving on the resort island of Phuket from July 1, the first destination to reopen since the Covid-19 pandemic. The plan to re-open Phuket for tourism was supported by local business operators that joined forces and offered to be the reopening model for major tourist provinces. Flights to the province and hotels to attract quality tourists will be made available.<div class="content-highlight">The stock is currently trading at the premium to its 5-year average in the three valuation metrics especially in the PER and EV/EBITDA where earnings and cash flow (EBITDA) were particularly low in 2020 due to the poor tourists' arrival in Thailand. However, the current PBR premium to the 5-year average is not that much, suggesting that the <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 not exactly overvalued compared to its 5-year average.   </div>

Contrary to last year when foreign tourists entering Thailand must be quarantined for at least 14 days, the quarantine requirements will be waived for vaccinated foreign visitors arriving on the resort island of Phuket from July 1, the first destination to reopen since the Covid-19 pandemic. The plan to re-open Phuket for tourism was supported by local business operators that joined forces and offered to be the reopening model for major tourist provinces. Flights to the province and hotels to attract quality tourists will be made available.The stock is currently trading at the premium to its 5-year average in the three valuation metrics especially in the PER and EV/EBITDA where earnings and cash flow (EBITDA) were particularly low in 2020 due to the poor tourists' arrival in Thailand. However, the current PBR premium to the 5-year average is not that much, suggesting that the Airports of Thailand (AOT TB) is not exactly overvalued compared to its 5-year average.   

Airport of Thailand (AOT): Tourists, Come Back.

Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

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Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. 
In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound and domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. 
A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand far below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. 
The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.




Data and anecdotes from a range of sources in December and January show the recovery in Chinese domestic travel demand has stalled. Looking forward, government estimates suggest travel activity over the Lunar New Year holiday in February will also remain muted. 
In the run up to the long holiday period, Chinese officials have responded aggressively to Covid19 outbreaks in several Chinese cities, most of them in Northern China. Until vaccines reach most of the population and prove effective against new variants of the virus, travel demand -- outbound and domestic -- will likely remain depressed. Even a Summer rebound now appears optimistic. 
A combination of hesitant consumers and necessarily aggressive government responses to new outbreaks leaves current travel demand far below normal (2019) levels. The stalled recovery in Chinese travel activity thus lags substantially the return of the Chinese consumer. With few signs of "pent-up" travel demand, it appears Chinese tourists may have altered spending priorities. 
The Chinese travel sector will enjoy easy YoY "comps" in early 2021 as we lap the worst of the Covid19 crisis in H120. However, in the medium-term, we see a "new normal" developing: non-essential travel has become riskier and less attractive, and thus a lower priority for consumers, and this will likely remain the case until Covid19 is put decisively in the rear-view mirror.  

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

Asean-focused. Ex-Head of Thai Research

Athaporn Arayasantiparb, CFA

Asean (Thailand) Focused Independent Research

M Corp Review

M Corp is led by Athaporn Arayasantiparb who served as Head of Research for UOB and ANZ in Thailand and was an award-winning telecoms analyst at UBS in 2010 (AsiaMoney Thailand category) and Regional Strategist for DMG in Singapore. Prior to that, he also served as Kasikornbank credit analyst and scholar. He has a total work experience of 17 years, of which 14 were in research and 4 in research management roles. He started his career as an engineer for PTT and currently manages family investments. He holds an MBA from Stern (NYU) and CFA Charter since 2006. Apart from IPO Radar, which focuses on future listings, MCorp Review also provides six on-going thematic series ranked by frequency in descending order, namely: 1) Silicon Stories (technology) 2) Sathorn Series (financial services) 3) Thai-Coons (billionaire origin stories) 4) Reality Check (data-driven, investigative) 5) Thai Media Spotlight; and 6) Thai Macro Watch (global market drivers).

Thematic (Sector/Industry)

In the review, we look at the distressed Thai aviation industry from four key angles. While there is considerable upside to be had from a sectoral turnaround, survival of most local carriers, with the exception of Bangkok Airways, is really at risk, and neither the government nor private sector may be up to the task of rescuing them:<ul>
<li>
The existential crisis. With Bt330bn of debts in default, Thai Airways is the largest bankruptcy in Thai history, 5.5x the size of TPI's case in 1997. Former subsidiary Nok Air and archrival Air Asia are also restructuring. There's no guarantee any of them will survive the crisis.</li>
<li>
The rescue plans &amp; finances involved. Thai Airways will spend Bt3bn hiring Advisors (Baker &amp; Mckenzie, E&amp;Y, and Finansia). The industry will lay off close to 10,000 people (if not more) to cut costs and are now looking for Bt17bn in soft loans. Even in the best case, THAI probably will need 5 years to get back to profitability...if it survives.</li>
<li>
Reliance on domestic travel and non-core revenues. With international tourism basically dried up, airlines increasingly rely on domestic travel, but that hardly fills their collective fleet of 200 planes. With THAI and NOK at negative equity and AAV at 3.5x gearing, they make money wherever they can now in the short term, ignoring all impact on image.</li>
<li>
International travel recovery. In the long run, international tourism recovery is vital. If the three carriers disappear, it could be a windfall for Bangkok Airways and foreign airlines like Emirates. </li>
</ul>

In the review, we look at the distressed Thai aviation industry from four key angles. While there is considerable upside to be had from a sectoral turnaround, survival of most local carriers, with the exception of Bangkok Airways, is really at risk, and neither the government nor private sector may be up to the task of rescuing them:

The existential crisis. With Bt330bn of debts in default, Thai Airways is the largest bankruptcy in Thai history, 5.5x the size of TPI's case in 1997. Former subsidiary Nok Air and archrival Air Asia are also restructuring. There's no guarantee any of them will survive the crisis.

The rescue plans &amp; finances involved. Thai Airways will spend Bt3bn hiring Advisors (Baker &amp; Mckenzie, E&amp;Y, and Finansia). The industry will lay off close to 10,000 people (if not more) to cut costs and are now looking for Bt17bn in soft loans. Even in the best case, THAI probably will need 5 years to get back to profitability...if it survives.

Reliance on domestic travel and non-core revenues. With international tourism basically dried up, airlines increasingly rely on domestic travel, but that hardly fills their collective fleet of 200 planes. With THAI and NOK at negative equity and AAV at 3.5x gearing, they make money wherever they can now in the short term, ignoring all impact on image.

International travel recovery. In the long run, international tourism recovery is vital. If the three carriers disappear, it could be a windfall for Bangkok Airways and foreign airlines like Emirates. 


Mission Impossible 2021: Rescuing the Thai Airline Industry

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/179/973/original/BANNER-TourDec20.png?1608779882" class="editor-image img-responsive" data-smartkarma-image-id="179973"></figure></section>Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like <a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a>.

Outbound Chinese tourism activity remained dormant in November. Macau's recovery slowed, and the appearance of a new variant of the Covid19 virus suggests a potential recovery in Chinese outbound travel may be pushed back until at least the middle of 2021, maybe later. To our surprise, the recovery in domestic Chinese tourism also appears to have lost steam in November. Passenger counts at the three major national airlines fell YoY, and overall activity was well below that of October. Chinese consumers remain cautious towards discretionary travel. We believe Chinese travel demand will recover gradually in 2021, and that the recovery could gain momentum in the second half of the year. Still, the emergence of a new strain of the virus will likely cap outbound travel in the near-term, and it also appears the rebound in domestic demand is moderating. For now, we would avoid pricey travel-related stocks like Trip.com (TCOM US).

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/174/124/original/BANNER-TOURISM.png?1606332998" class="editor-image img-responsive" data-smartkarma-image-id="174124"></figure></section>Chinese outbound travel activity remained moribund in October, even after another increase in trips to Macau, which eased some travel restrictions in July. Macau's slow recovery suggests it will take many months for outbound activity to normalize once regional restrictions are lifted. China's 'Golden Week' holiday period was a day longer this year, but by most measures domestic air activity in October remained weak versus 2019. Sequential improvement in RPKs and passenger counts in October was just +5% MoM, roughly in-line with normal seasonality, and travelers are still opting for shorter trips. We believe the pace of recovery in domestic travel is moderating. Can the 2021 Lunar New Year holiday rescue China's travel service providers? Without a relaxation of restrictions in key regional markets, another major holiday travel period could be 'lost', in our opinion. We do not believe improving domestic activity can offset 'lost' outbound travel in Q121.We remain negative on Chinese travel demand. We believe the normalization of domestic and especially outbound activitity will take longer than expected -- no 'snap back' scenario, in other words. Furthermore, we believe underlying demand growth was slowing even before Covid19 hit, and it's become clear that domestic travel activity is unlikely to fully offset 'lost' outbound trips.

Chinese outbound travel activity remained moribund in October, even after another increase in trips to Macau, which eased some travel restrictions in July. Macau's slow recovery suggests it will take many months for outbound activity to normalize once regional restrictions are lifted. China's 'Golden Week' holiday period was a day longer this year, but by most measures domestic air activity in October remained weak versus 2019. Sequential improvement in RPKs and passenger counts in October was just +5% MoM, roughly in-line with normal seasonality, and travelers are still opting for shorter trips. We believe the pace of recovery in domestic travel is moderating. Can the 2021 Lunar New Year holiday rescue China's travel service providers? Without a relaxation of restrictions in key regional markets, another major holiday travel period could be 'lost', in our opinion. We do not believe improving domestic activity can offset 'lost' outbound travel in Q121.We remain negative on Chinese travel demand. We believe the normalization of domestic and especially outbound activitity will take longer than expected -- no 'snap back' scenario, in other words. Furthermore, we believe underlying demand growth was slowing even before Covid19 hit, and it's become clear that domestic travel activity is unlikely to fully offset 'lost' outbound trips. 

TRACKING TRAFFIC/Chinese Tourism: Macau's Slog | Golden Week Fails to Shine | LNY 2021 At Risk?

Thailand

Thai Airways International Public Company Limited is Thailand's national airline providing air transportation, freight and mail services on domestic and international routes including Asia, Europe, North America, Africa and South West Pacific.  The Company is a state enterprise which is controlled by the government and partly owned by the public.

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Thai Airways International (THAI TB)

Airport of Thailand (AOT): Tourists, Come Back.

The quarantine requirements will be waived for vaccinated foreign visitors arriving on the resort island of Phuket from July 1, the first...

Henry Soediarko

December-January Travel Data Confirm Stalled Domestic Recovery; Weak LNY Unlikely to Help

The recovery in domestic travel demand stalled again in December, and we believe improvement will be muted in the near-term as officials battle...

Tracking Traffic

Mission Impossible 2021: Rescuing the Thai Airline Industry

Bangkok Airways might be the only survivor amongst the 4 listed carriers. Short term, Thai aviation relies on domestic tourist, but long term,...

Athaporn Arayasantiparb, CFA

TRACKING TRAFFIC/Chinese Tourism: Domestic Recovery Lost Steam in November

It appears the nascent recovery in Chinese domestic tourism activity began to stall in November. Outbound travel activity remains dormant, and even...

Tracking Traffic

TRACKING TRAFFIC/Chinese Tourism: Macau's Slog | Golden Week Fails to Shine | LNY 2021 At Risk?

Chinese travel demand remained weak in October, which included the long Golden Week holiday. Poor outbound travel demand is not a surprise at this...

Tracking Traffic

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