Thailand

In this briefing:

1. Asian Credit Monitor: The Pad Thai Election
2. SPCG: Laying Foundations for Next Stage of Growth
3. S: Outshines Thai Property Peers on High Recurring Profit
4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
5. Thai Telecoms: Slowdown in Mobile Business Continues.

1. Asian Credit Monitor: The Pad Thai Election

We expect the upcoming March 24^th general election in Thailand to be the first step toward a check-and-balance system but also see this election leading to another election in 2-3 years with the current poll pointing to either an indecisive faction with the junta’s leader, General Prayut Chan O-Sha as the Prime Minister (PM) or  a loose faction with Abhisit Vejjajiva as the PM. In either case, we do not expect the new government to have the decisive vote in the parliament. 

With all the campaign promises, most of which copied Thaksin’s populism style, we also expect rising domestic spending post-election. We expect the voting turnout to be a record 80% or above and believe this election is at least a step toward a more transparent government with a valid opposition and that should induce more investments into the country. That said, we see the event as credit positive for Thailand. Though Thailand’s USD and THB bonds are not attractive and/or sufficiently liquid to international investors, in our view, we believe Thailand is worth monitoring on its role to be the center of the Greater Mekong region, let alone ASEAN.

2. SPCG: Laying Foundations for Next Stage of Growth

We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.

The story:

• Promising industry outlook
• Striding toward overseas opportunities
• Expiring adder should have been priced in already
• Expected stable earnings in 2019-21E

Risks:   Single source supplier

                Forex fluctuation

                Uncertainty about sunlight

3. S: Outshines Thai Property Peers on High Recurring Profit

We initiate coverage of S with a BUY rating, based on a target price of Bt4.2 derived from a sum-of-the-parts (SOTP) methodology and implying 16.5xPE’19E, a 23% discount to the average of its peers in the Thai real estate sector.

The story:

• Asset value to drive long-term sustainable growth
• 19 projects under development worth a combined Bt36bn to drive sales over the next three years
• REITs will be a key catalyst to boost recurring income
• Higher revenue contribution from hotel business

Risks:

• Tightened credit approval
• Raw material costs & F/X fluctuation

Background: In 2014, Santi Bhirombhakdi** and his property arm, Singha Property Management, acquired a major stake in RASA, a listed property company on the SET, and changed its name to “Singha Estate Public Company Limited”,  or “S”. This new major shareholder quickly unveiled plans to transform S into a holding company. During 2015-17, the company made several acquisitions including (1) a 51.56% stake in NVD, a low-rise property developer that operates under the “Nirvana” brand with a current market value of Bt2.7bn; (2) Suntowers, an office complex worth Bt4.5bn; and (3) a mixed-use commercial complex owned by the major holder’s family business worth over Bt6bn. It also set up a joint venture with a partner to invest in and operate 26 hotels in the UK worth Bt8.6bn.

Revenue breakdown:

The residential property segment contributed 41% of S’s 2018 total revenue. This segment includes the development and sale of high-rise and-low rise projects such as single detached houses, townhomes, home offices, and condominiums.

The commercial property segment contributed 36% of total revenue. This business includes space for rent, common-service charges for utilities, security systems, and other service fees. The company owns two commercial property projects — The Lighthouse (a community mall) and Suntowers (an office complex).

S owns 37 hotels with a combined 4,271 rooms comprising (1) two hotels with 297 rooms in Thailand, namely Santiburi Beach Resort & Spa and Phi Phi Island Village Beach Resort; (2) 22 hotels in England and 7 in Scotland (total of 3,115 rooms) under a 50:50 JV with FICO Group; and (3) 6 Outrigger-branded hotels with 859 rooms. This segment accounts for 18% of sales.

The company also provides construction materials such as precast concrete and aluminum, as well as hotel management services. These two segments contribute 3% and 2% respectively.

4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

5. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

In this briefing:

1. Free Money Has Flown

1. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

In this briefing:

1. Free Money Has Flown
2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

1. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

2. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

In this briefing:

1. SPCG: Laying Foundations for Next Stage of Growth
2. S: Outshines Thai Property Peers on High Recurring Profit
3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
4. Thai Telecoms: Slowdown in Mobile Business Continues.
5. After You Looks Beyond Thailand For Opportunities

1. SPCG: Laying Foundations for Next Stage of Growth

We initiate coverage of SPCG with a BUY rating and a 2019E target price of Bt22.80, derived from a discounted cash flow valuation (WACC 7.0% and terminal growth of 1.0%). This is equivalent to 8.4x PE’19E.

The story:

• Promising industry outlook
• Striding toward overseas opportunities
• Expiring adder should have been priced in already
• Expected stable earnings in 2019-21E

Risks:   Single source supplier

                Forex fluctuation

                Uncertainty about sunlight

2. S: Outshines Thai Property Peers on High Recurring Profit

We initiate coverage of S with a BUY rating, based on a target price of Bt4.2 derived from a sum-of-the-parts (SOTP) methodology and implying 16.5xPE’19E, a 23% discount to the average of its peers in the Thai real estate sector.

The story:

• Asset value to drive long-term sustainable growth
• 19 projects under development worth a combined Bt36bn to drive sales over the next three years
• REITs will be a key catalyst to boost recurring income
• Higher revenue contribution from hotel business

Risks:

• Tightened credit approval
• Raw material costs & F/X fluctuation

Background: In 2014, Santi Bhirombhakdi** and his property arm, Singha Property Management, acquired a major stake in RASA, a listed property company on the SET, and changed its name to “Singha Estate Public Company Limited”,  or “S”. This new major shareholder quickly unveiled plans to transform S into a holding company. During 2015-17, the company made several acquisitions including (1) a 51.56% stake in NVD, a low-rise property developer that operates under the “Nirvana” brand with a current market value of Bt2.7bn; (2) Suntowers, an office complex worth Bt4.5bn; and (3) a mixed-use commercial complex owned by the major holder’s family business worth over Bt6bn. It also set up a joint venture with a partner to invest in and operate 26 hotels in the UK worth Bt8.6bn.

Revenue breakdown:

The residential property segment contributed 41% of S’s 2018 total revenue. This segment includes the development and sale of high-rise and-low rise projects such as single detached houses, townhomes, home offices, and condominiums.

The commercial property segment contributed 36% of total revenue. This business includes space for rent, common-service charges for utilities, security systems, and other service fees. The company owns two commercial property projects — The Lighthouse (a community mall) and Suntowers (an office complex).

S owns 37 hotels with a combined 4,271 rooms comprising (1) two hotels with 297 rooms in Thailand, namely Santiburi Beach Resort & Spa and Phi Phi Island Village Beach Resort; (2) 22 hotels in England and 7 in Scotland (total of 3,115 rooms) under a 50:50 JV with FICO Group; and (3) 6 Outrigger-branded hotels with 859 rooms. This segment accounts for 18% of sales.

The company also provides construction materials such as precast concrete and aluminum, as well as hotel management services. These two segments contribute 3% and 2% respectively.

3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

4. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

5. After You Looks Beyond Thailand For Opportunities

We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:

• After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
• Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
• In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
• Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!

In this briefing:

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

In this briefing:

1. S: Outshines Thai Property Peers on High Recurring Profit
2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
3. Thai Telecoms: Slowdown in Mobile Business Continues.
4. After You Looks Beyond Thailand For Opportunities
5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

1. S: Outshines Thai Property Peers on High Recurring Profit

We initiate coverage of S with a BUY rating, based on a target price of Bt4.2 derived from a sum-of-the-parts (SOTP) methodology and implying 16.5xPE’19E, a 23% discount to the average of its peers in the Thai real estate sector.

The story:

• Asset value to drive long-term sustainable growth
• 19 projects under development worth a combined Bt36bn to drive sales over the next three years
• REITs will be a key catalyst to boost recurring income
• Higher revenue contribution from hotel business

Risks:

• Tightened credit approval
• Raw material costs & F/X fluctuation

Background: In 2014, Santi Bhirombhakdi** and his property arm, Singha Property Management, acquired a major stake in RASA, a listed property company on the SET, and changed its name to “Singha Estate Public Company Limited”,  or “S”. This new major shareholder quickly unveiled plans to transform S into a holding company. During 2015-17, the company made several acquisitions including (1) a 51.56% stake in NVD, a low-rise property developer that operates under the “Nirvana” brand with a current market value of Bt2.7bn; (2) Suntowers, an office complex worth Bt4.5bn; and (3) a mixed-use commercial complex owned by the major holder’s family business worth over Bt6bn. It also set up a joint venture with a partner to invest in and operate 26 hotels in the UK worth Bt8.6bn.

Revenue breakdown:

The residential property segment contributed 41% of S’s 2018 total revenue. This segment includes the development and sale of high-rise and-low rise projects such as single detached houses, townhomes, home offices, and condominiums.

The commercial property segment contributed 36% of total revenue. This business includes space for rent, common-service charges for utilities, security systems, and other service fees. The company owns two commercial property projects — The Lighthouse (a community mall) and Suntowers (an office complex).

S owns 37 hotels with a combined 4,271 rooms comprising (1) two hotels with 297 rooms in Thailand, namely Santiburi Beach Resort & Spa and Phi Phi Island Village Beach Resort; (2) 22 hotels in England and 7 in Scotland (total of 3,115 rooms) under a 50:50 JV with FICO Group; and (3) 6 Outrigger-branded hotels with 859 rooms. This segment accounts for 18% of sales.

The company also provides construction materials such as precast concrete and aluminum, as well as hotel management services. These two segments contribute 3% and 2% respectively.

2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

3. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

4. After You Looks Beyond Thailand For Opportunities

We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:

• After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
• Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
• In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
• Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!

5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

In this briefing:

1. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

1. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

Macro Insights

In Indonesia: Waiting To Unleash The Potential, our friends at River Valley Asset Management cast their learned eye over the prospects for the Indonesian Stock market. 

In Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position, CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this consumer electronics player and highlights the risks from the US-China Trace War. 

In Puregold Price Club: Steady Grower with Provincial Expansion Story, Johannes Salim, CFA comments on this leading Philippines consumer play. 

in Silverlake Axis (SILV SP): 2Q19 Results Again Confirm New 3-Year Growth Cycle; HNA Overhang Removed, Nicolas Van Broekhoven revisits Silverlake Axis (SILV SP) and sees blue skies ahead post its recent results. 

In Delta’s Less-Than-Straightforward Tender Offer, events specialist David Blennerhassett comments on Delta Electronics Thai (DELTA TB) following a tender offer for the company. 

In Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies, Anish Kapadia examines the recent sale of a stake in Mako gas field in Indonesia and its implication for other SE Asian energy plays such as Medco Energi Internasional T (MEDC IJ). 

In Catch-Up Session with Intuch Group, Thai guru Athaporn Arayasantiparb, CFA revisits Intouch Holdings (INTUCH TB) following a meeting with management. 

In GPSC To Proceed With Glow Takeover, But At What Price?, events specialist David Blennerhassett looks at the ongoing takeover of Glow Energy Pcl (GLOW TB) by Global Power Synergy Company Ltd (GPSC TB). 

In UG Healthcare: Weak 2Q19 Driven by One-Off Issue, If 10% NPM Achieved in FY20 Trades at 4x FY20 P/E, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits UG Healthcare (UGHC SP) after some weak results but remains positive on the long term story.  

In M1 Ltd (M1 SP): Axiata Throws in the Towel, Delisting Looms, Arun George circles back to the acquisition of M1 Ltd (M1 SP) by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) after Axiata Group (AXIATA MK) decided to accept the offer. 

In OUE C-REIT – Beware of the CPPU Timebomb, Royston Foo revisits this REIT and highlights some potential DPU dilution ahead for minorities.  

in MINT Placement – Well Flagged Placement but Only Marginally Accretive, Past Deals Have Done Well, Sumeet Singh zeros in on a recent placement by Mapletree Industrial Trust (MINT SP).  

Sector and Thematic Insights

In Top Consumer Themes in Vietnam, Dylan Waller looks at this high growth sector and highlights his top picks.

In Singapore Property – January Developers’ Sales Data Continues to Point Towards a Bleak Outlook, Royston Foo revisits the sector after January’s sales data. 

In Singapore Real Deals (Issue 3): Integrated Mixed-Use Development in Pasir Ris, Anni Kum looks at a recent white site launch in Pasir Ris.

In this briefing:

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
2. Thai Telecoms: Slowdown in Mobile Business Continues.
3. After You Looks Beyond Thailand For Opportunities
4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
5. Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation Range

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

2. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

3. After You Looks Beyond Thailand For Opportunities

We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:

• After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
• Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
• In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
• Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!

4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

5. Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation Range

Delta Electronics Thai (DELTA TB) (Delta) released its opinion (Form 250-2) and the opinion of the Independent Financial Advisor (IFA) on the tender offer. Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for 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. Thai Telecoms: Slowdown in Mobile Business Continues.
2. After You Looks Beyond Thailand For Opportunities
3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
4. Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation Range
5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

1. Thai Telecoms: Slowdown in Mobile Business Continues.

The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19.  With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.

2. After You Looks Beyond Thailand For Opportunities

We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:

• After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
• Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
• In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
• Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!

3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

4. Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation Range

Delta Electronics Thai (DELTA TB) (Delta) released its opinion (Form 250-2) and the opinion of the Independent Financial Advisor (IFA) on the tender offer. Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for 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).

5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

In this briefing:

1. Silverlake Axis (SILV SP): 2Q19 Results Again Confirm New 3-Year Growth Cycle; HNA Overhang Removed

1. Silverlake Axis (SILV SP): 2Q19 Results Again Confirm New 3-Year Growth Cycle; HNA Overhang Removed

Silverlake Axis (SILV SP) published 2Q19 results which again confirmed that the long-anticipated rise in revenues (+20% YoY) and profits (+99% YoY) has finally arrived. After three years of stagnation, this is the second quarter in a row that real earnings growth is visible.

YTD the share price of SILV has run by approximately 31% as we saw some larger volume spikes earlier this year which indicate that HNA is now finally off the register as a significant shareholder. Since HNA’s stake had dropped below 5% the new buyer has not had to step forward and disclose its identity.

Importantly, management believes the first half of FY19 was just the beginning of a new 3-year growth cycle and prospects are looking good for both FY2019 (ends June 2019) and FY2020 (ends June 2020). Dividends will continue but might be tempered depending on the number of acquisitions that are made. 

Risk-Reward is not as attractive as early November but continues to look solid at these levels with a total return of 20% still achievable (assuming mid-point of historical P/E range) or a total return of 60% (assuming high-end of historical P/E range).