Asian Equities Analyst, Logistics & Transport, Tracking Traffic

Daniel Hellberg

Asian Equities Analyst, Logistics & Transport

Tracking Traffic

Focusing on Asian logistics, transportation, and travel companies

Equity Capital Markets

Kerry Express Thailand / Equity Capital Markets

In an updated filing, <a href="https://www.smartkarma.com/entities/kerry-express-thailand" target="_blank" data-smartkarma-citation="entities:29253:1" rel="noopener">Kerry Express Thailand (KEX TB)</a> indicated it could sell as many as 300 mn new shares in its planned IPO. Many media reports have suggested the company hopes to raise about US$300 mn in the offering, suggesting KEX will come to market at around 30 baht per share.In this note, we try to answer the following questions regarding KEX's valuation:<ul>
<li>What are the most useful 'comps' for KEX? </li>
<li>What are some appropriate valuation multiples to use in comparing KEX to peers?</li>
<li>How does KEX's valuation at 30 baht per share compare to the peer group we've identified?</li>
<li>What factors could support either a premium or discount valuation for KEX versus peers?</li>
</ul>At 30 baht per share (which implies market capitalization of US$1.7 bn), KEX would not be overvalued relative to peers, in our view, and there are reasons KEX could eventually demand a premium valuation relative to other express companies.

In an updated filing, Kerry Express Thailand (KEX TB) indicated it could sell as many as 300 mn new shares in its planned IPO. Many media reports have suggested the company hopes to raise about US$300 mn in the offering, suggesting KEX will come to market at around 30 baht per share.In this note, we try to answer the following questions regarding KEX's valuation:
What are the most useful 'comps' for KEX? 
What are some appropriate valuation multiples to use in comparing KEX to peers?
How does KEX's valuation at 30 baht per share compare to the peer group we've identified?
What factors could support either a premium or discount valuation for KEX versus peers?
At 30 baht per share (which implies market capitalization of US$1.7 bn), KEX would not be overvalued relative to peers, in our view, and there are reasons KEX could eventually demand a premium valuation relative to other express companies.

Kerry Express Thailand (KEX) IPO: Approach to Valuation

Equity Bottom-Up

<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> rallied 14% on Monday in the US on news that <a href="https://www.smartkarma.com/entities/pfizer-inc" target="_blank" data-smartkarma-citation="entities:1131:1" rel="noopener">Pfizer Inc (PFE US)</a>'s Covid19 vaccine had been found highly effective, and that distribution of the vaccine would begin before the end of 2020. Many travel-related stocks, such as airlines (<a href="https://www.smartkarma.com/entities/american-airlines-group-inc" target="_blank" data-smartkarma-citation="entities:3663:1" rel="noopener">American Airlines Group (AAL US)</a>, +15%) and cruise operators (<a href="https://www.smartkarma.com/entities/royal-caribbean-cruises-ltd" target="_blank" data-smartkarma-citation="entities:1629:1" rel="noopener">Royal Caribbean Cruises (RCL US)</a>, +29%) also rallied by 10% or more. We have anticipated a rebound in Chinese travel-related shares when there is positive news about a 'normalization' of travel, especially cross-border travel, which has been hit harder than domestic travel. As investors in Chinese travel-related stocks begin thinking about a return to 'normal' market conditions for the sector, now is probably a good time to revisit what 'normal' means. In the months prior to the emergence of Covid19, Chinese travel demand -- outbound and domestic -- was by several measures quite weak. While there will likely be a brief period in 2021 during which pent-up demand is finally met with easing travel restrictions, we believe that in the medium-term demand growth will sink back to the single digits.

Trip.com (TCOM US) rallied 14% on Monday in the US on news that Pfizer Inc (PFE US)'s Covid19 vaccine had been found highly effective, and that distribution of the vaccine would begin before the end of 2020. Many travel-related stocks, such as airlines (American Airlines Group (AAL US), +15%) and cruise operators (Royal Caribbean Cruises (RCL US), +29%) also rallied by 10% or more. We have anticipated a rebound in Chinese travel-related shares when there is positive news about a 'normalization' of travel, especially cross-border travel, which has been hit harder than domestic travel. As investors in Chinese travel-related stocks begin thinking about a return to 'normal' market conditions for the sector, now is probably a good time to revisit what 'normal' means. In the months prior to the emergence of Covid19, Chinese travel demand -- outbound and domestic -- was by several measures quite weak. While there will likely be a brief period in 2021 during which pent-up demand is finally met with easing travel restrictions, we believe that in the medium-term demand growth will sink back to the single digits. 

Trip.com Rallies 14% on Vaccine News. But What's the 'Normal' We'll Return To in 2021?

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

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 <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.

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?

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.

Chinese media reports Chinese tourism activity during the long Golden Week + National Day holiday period declined by about 21% YoY to 637 mn person-visits. Spending on tourism during the period reportedly fell by 28% YoY to 466 bn RMB. 
Some observers are suggesting these numbers show a strong continued recovery in tourism demand since activity collapsed in Q1 this year due to the Covid19 pandemic.
But we disagree.
In our view, the headline 2020 Golden Week+ numbers we have seen so far are not as strong as we would have expected, given a number of factors that actually should have flattered this year's overall activity and spending numbers. 
A closer analysis of the numbers actually suggests tepid tourism demand, in our opinion, and we do not believe the recovery has gained momentum in October.  

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Thematic (Sector/Industry)

Air activity around the region appeared to improve on Friday, October 2nd, with departures from the nine airports we track rising to their highest level since we began monitoring data for this report (early April). As has been the case for the past six months, Mainland Chinese airports continue to lead the recovery, with other origins reporting only modest improvement, if any. 
Weighted average room rates in the cities we track remained well above Spring and Summer lows, but fell by 3% compared to a month ago. This is not surprising; despite the improvement in travel activity over the past few months, we doubt many hotels have regained substantial pricing power. 
Overall, the data we collected this week appears to confirm existing trends: Chinese domestic travel activity continues to improve, but regional activity remains far below year-ago levels. Pure Chinese domestic plays, whether transport or hotels, should continue to recover ahead of names exposed to cross-border travel, which still faces a multitude of Covid19-related restrictions.

Air activity around the region appeared to improve on Friday, October 2nd, with departures from the nine airports we track rising to their highest level since we began monitoring data for this report (early April). As has been the case for the past six months, Mainland Chinese airports continue to lead the recovery, with other origins reporting only modest improvement, if any. 
Weighted average room rates in the cities we track remained well above Spring and Summer lows, but fell by 3% compared to a month ago. This is not surprising; despite the improvement in travel activity over the past few months, we doubt many hotels have regained substantial pricing power. 
Overall, the data we collected this week appears to confirm existing trends: Chinese domestic travel activity continues to improve, but regional activity remains far below year-ago levels. Pure Chinese domestic plays, whether transport or hotels, should continue to recover ahead of names exposed to cross-border travel, which still faces a multitude of Covid19-related restrictions.

TRACKING TRAFFIC's Travel Tracker Dashboard (October 2): Air Activity Improves | Room Rates Stagnate

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)

Kerry Express Thailand (KEX) IPO: Approach to Valuation

What's the right valuation approach to Kerry Express (KEX), which hopes to complete its IPO in Thailand in the coming weeks?

Tracking Traffic

Trip.com Rallies 14% on Vaccine News. But What's the 'Normal' We'll Return To in 2021?

An effective vaccine is part of what will get China and the world back to 'normal' travel demand. But even before Covid19 erupted, Chinese travel...

Tracking Traffic

Airport of Thailand (AOT): Soon or Later?

The Thai government is in talks with China to exempt Chinese tourists from the 14-day quarantine by 2021. The protest will bring weakness to the...

Henry Soediarko

China's 'Golden Week': Headline Tourism Numbers Hardly Shine

Contrary to some, we do not believe headline tourism numbers from the recent Golden Week suggest improving conditions in China's domestic travel...

Tracking Traffic

TRACKING TRAFFIC's Travel Tracker Dashboard (October 2): Air Activity Improves | Room Rates Stagnate

what happened of note? air activity in china and elsewhere hotel room rates conclusions

Tracking Traffic

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