Thailand

In this briefing:

1. Battery Technology- The Key To An Electric Vehicle Future
2. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
3. WICE: Expansion Phase Still Go On
4. Company Visits: The Best of March 2019
5. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

1. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
• F. Batteries Beyond Li-ion
• G. Supply Constraints for Key Raw Materials
• H. The Competitive Landscape

A. Key  Conclusions

Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.

Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. 

Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

2. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.

Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.

3. WICE: Expansion Phase Still Go On

We maintain BUY rating for WICE with a new target price of Bt5.20 (previous target price: 7.50), based on 29xPE’19E, its one year average trading range or 20% discount to Thai transportation sector.

The story:

• Cross broader business plays the key growth driver in 2019
• We revised down earnings in 2019-21E due to lower-than-expected margins

Risks:

• Stronger Baht vs major foreign currencies such as US dollar causes lower income in Baht terms as the main reporting currency is Baht
• Higher than expected in fluctuation in freight rates
• Intensity of freight forwarding businesses in both domestic and overseas

4. Company Visits: The Best of March 2019

We selectively visited a dozen companies in March and were most impressed with three of them (two of which we happily own):

• SISB, Thailand’s only listed education stock, whose market cap has increased more than 30% since its IPO. The future potential growth they are currently working on in Cambodia and China  will show up here and spruce the company’s already strong growth. Working in a favorable environment (Thailand’s affluent class is growing) also helps.
• MINT, the country’s hotel chain giant and 20th largest chain in the world, sees great growth potential in Europe, where things are slowly turning around after they made two big acquisitions (NH Hotels and Tivoli). Synergies are also materializing with co-marketing and re-branding efforts.
• After You, arguably the dessert chain with the highest margin in Thailand. No longer a newbie IPO stock, these guys boast collaboration with global giant Starbucks and branching out into new channels such as After You Durian. 

5. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States.  Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress. 

In this briefing:

1. SIS: 4Q18 Result Broke the Record

1. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

In this briefing:

1. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
2. WICE: Expansion Phase Still Go On
3. Company Visits: The Best of March 2019
4. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?
5. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks

1. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.

Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.

2. WICE: Expansion Phase Still Go On

We maintain BUY rating for WICE with a new target price of Bt5.20 (previous target price: 7.50), based on 29xPE’19E, its one year average trading range or 20% discount to Thai transportation sector.

The story:

• Cross broader business plays the key growth driver in 2019
• We revised down earnings in 2019-21E due to lower-than-expected margins

Risks:

• Stronger Baht vs major foreign currencies such as US dollar causes lower income in Baht terms as the main reporting currency is Baht
• Higher than expected in fluctuation in freight rates
• Intensity of freight forwarding businesses in both domestic and overseas

3. Company Visits: The Best of March 2019

We selectively visited a dozen companies in March and were most impressed with three of them (two of which we happily own):

• SISB, Thailand’s only listed education stock, whose market cap has increased more than 30% since its IPO. The future potential growth they are currently working on in Cambodia and China  will show up here and spruce the company’s already strong growth. Working in a favorable environment (Thailand’s affluent class is growing) also helps.
• MINT, the country’s hotel chain giant and 20th largest chain in the world, sees great growth potential in Europe, where things are slowly turning around after they made two big acquisitions (NH Hotels and Tivoli). Synergies are also materializing with co-marketing and re-branding efforts.
• After You, arguably the dessert chain with the highest margin in Thailand. No longer a newbie IPO stock, these guys boast collaboration with global giant Starbucks and branching out into new channels such as After You Durian. 

4. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States.  Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress. 

5. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks

In this briefing:

1. January Chip Revenues Down 15.6% Year-On-Year

1. January Chip Revenues Down 15.6% Year-On-Year

The Semiconductor Industry Association in the US released the latest WSTS figures for January chip revenues.  Monthly revenues are down 15.6% from January of 2018.  While this is not a surprise to our clients it is frightening to those who anticipated that 2019 would be a continuation of the bonanza enjoyed in 2018.

In this briefing:

1. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

1. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).

In this briefing:

1. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
2. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

1. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).

2. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

In this briefing:

1. WICE: Expansion Phase Still Go On
2. Company Visits: The Best of March 2019
3. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?
4. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks
5. China’s New Semiconductor Thrust – Part 1: Why and How?

1. WICE: Expansion Phase Still Go On

We maintain BUY rating for WICE with a new target price of Bt5.20 (previous target price: 7.50), based on 29xPE’19E, its one year average trading range or 20% discount to Thai transportation sector.

The story:

• Cross broader business plays the key growth driver in 2019
• We revised down earnings in 2019-21E due to lower-than-expected margins

Risks:

• Stronger Baht vs major foreign currencies such as US dollar causes lower income in Baht terms as the main reporting currency is Baht
• Higher than expected in fluctuation in freight rates
• Intensity of freight forwarding businesses in both domestic and overseas

2. Company Visits: The Best of March 2019

We selectively visited a dozen companies in March and were most impressed with three of them (two of which we happily own):

• SISB, Thailand’s only listed education stock, whose market cap has increased more than 30% since its IPO. The future potential growth they are currently working on in Cambodia and China  will show up here and spruce the company’s already strong growth. Working in a favorable environment (Thailand’s affluent class is growing) also helps.
• MINT, the country’s hotel chain giant and 20th largest chain in the world, sees great growth potential in Europe, where things are slowly turning around after they made two big acquisitions (NH Hotels and Tivoli). Synergies are also materializing with co-marketing and re-branding efforts.
• After You, arguably the dessert chain with the highest margin in Thailand. No longer a newbie IPO stock, these guys boast collaboration with global giant Starbucks and branching out into new channels such as After You Durian. 

3. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States.  Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress. 

4. Monthly Geopolitical Comment: Markets Are Still Waiting for the Result of US-China Trade Talks

5. China’s New Semiconductor Thrust – Part 1: Why and How?

China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities.  This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.

In the first part of this series we will see what motivated China to enter the market and how it plans to do so.

In this briefing:

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

In this briefing:

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.

Chris Hoare met the Thai telcos recently but did not come away particularly enthused. His view is that the market probably remains tough this year. The good news is that the low priced, limited speed with unlimited usage, offers have mostly been withdrawn. It will take 2-3 quarters for this to work through, as these were 12 month plans, but it does suggest improved data monetization as the year progresses. A lack of data monetization was the key reason behind the revenue slowdown in 2H18. However, with data usage now so high (around 10GB/month), and content services unlikely to lead to revenue growth in the foreseeable future, overall revenue recovery is likely to be modest. 

In this briefing:

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.
3. Snippets #19: Marijuana, Mergers, and More

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.

2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.

Chris Hoare met the Thai telcos recently but did not come away particularly enthused. His view is that the market probably remains tough this year. The good news is that the low priced, limited speed with unlimited usage, offers have mostly been withdrawn. It will take 2-3 quarters for this to work through, as these were 12 month plans, but it does suggest improved data monetization as the year progresses. A lack of data monetization was the key reason behind the revenue slowdown in 2H18. However, with data usage now so high (around 10GB/month), and content services unlikely to lead to revenue growth in the foreseeable future, overall revenue recovery is likely to be modest. 

3. Snippets #19: Marijuana, Mergers, and More

Five interesting trends/developments that could impact Thai equities in the recent period:

• Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
• Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
• MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
• Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
• BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.