Thailand

In this briefing:

1. Company Visits: Berli Jucker, M Visions
2. Krung Thai Bank: Not as Cheap as It Looks
3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
4. Snippets #20: Dark Clouds in Thai Equities
5. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

1. Company Visits: Berli Jucker, M Visions

We visited one big-cap stock, Berli Jucker, and one pip-squeak recent IPO M Vision today. A couple of highlights:

• Slow revenue growth at BJC at under 5% largely driven by Big C (hypermarket), but earnings growth was strong at 28% mainly due to lower cost of palm oil in the snack business.
• Good progress in Vietnam with expansion of the bottle capacity this year and SABECO increasing purchases of bottles.
• Overall unimpressed. The company isn’t expecting to grow revenues more than 9% this year, and many of the cost cuts we saw in 2018 are clearly one-offs. Higher oil prices are likely to lead to rising palm oil prices this year too, since the two commodities are linked through substitution effect.
• MVP underwent a bad year on the profit level, but their various businesses, at least on the top line level, looks like it could recover quickly this year.

2. Krung Thai Bank: Not as Cheap as It Looks

Originally, Krung Thai Bank Pub (KTB TB) struck us as interesting. A solid PH Score™, reasonable franchise valuation and P/Book, and a low RSI.

However, further due-diligence shows a somewhat stagnant and eroding operation.

• Headline profitability improvement is unrelated to efficiency or to operational advances.
• Cost growth is fast outpacing a declining top-line.
• Interest income has actually fallen for each of the last 3 years.
• The bank is being squeezed on margin despite keeping interest expenses unchanged.
• Non-interest expenses soared by 26% YoY.
• The bottom line (and profitability) was flattered by varied low quality items as well as much lower loan loss provisions, but still remained well above comprehensive income.
• Asset Quality is also concerning (despite lower loan loss provisions) given the sharp rise in loss (especially) and substandard loans as well as the amount of Special Mention Loans on the Balance Sheet. This means provisioning of problem loans may not be sufficient.
• Liquidity: Deposits are also declining, pushing up the LDR.

3. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

4. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

5. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam. 

In this briefing:

1. Krung Thai Bank: Not as Cheap as It Looks
2. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
3. Snippets #20: Dark Clouds in Thai Equities
4. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
5. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

1. Krung Thai Bank: Not as Cheap as It Looks

Originally, Krung Thai Bank Pub (KTB TB) struck us as interesting. A solid PH Score™, reasonable franchise valuation and P/Book, and a low RSI.

However, further due-diligence shows a somewhat stagnant and eroding operation.

• Headline profitability improvement is unrelated to efficiency or to operational advances.
• Cost growth is fast outpacing a declining top-line.
• Interest income has actually fallen for each of the last 3 years.
• The bank is being squeezed on margin despite keeping interest expenses unchanged.
• Non-interest expenses soared by 26% YoY.
• The bottom line (and profitability) was flattered by varied low quality items as well as much lower loan loss provisions, but still remained well above comprehensive income.
• Asset Quality is also concerning (despite lower loan loss provisions) given the sharp rise in loss (especially) and substandard loans as well as the amount of Special Mention Loans on the Balance Sheet. This means provisioning of problem loans may not be sufficient.
• Liquidity: Deposits are also declining, pushing up the LDR.

2. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

3. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

4. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam. 

5. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

In this briefing:

1. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
2. Snippets #20: Dark Clouds in Thai Equities
3. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
4. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
5. Japan – Chinese Flu

1. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses

We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).

The story:

• We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
• Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.

2. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

3. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam. 

4. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

5. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

In this briefing:

1. Snippets #20: Dark Clouds in Thai Equities
2. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
4. Japan – Chinese Flu
5. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

1. Snippets #20: Dark Clouds in Thai Equities

Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:

• Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
• Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
• Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
• From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
• True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.

2. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam. 

3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

4. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

5. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

In this briefing:

1. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
3. Japan – Chinese Flu
4. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
5. MINT’s First Post-Acquisition Update

1. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam. 

2. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

3. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

4. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

5. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

In this briefing:

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
2. Japan – Chinese Flu
3. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
4. MINT’s First Post-Acquisition Update
5. SIS: 4Q18 Result Broke the Record

1. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive

• Capital flows are strongly Granger causal
• Gross capital flows lead World shipping activity by 4 months
• Capital flows have been slowly rising since June 2018: in February they jumped
• Reinforces out pro-Asia and pro-China investment message

2. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

3. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

4. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

5. 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. Japan – Chinese Flu
2. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
3. MINT’s First Post-Acquisition Update
4. SIS: 4Q18 Result Broke the Record
5. January Chip Revenues Down 15.6% Year-On-Year

1. Japan – Chinese Flu

By Konstantinos Venetis, Senior Economist

• Japan skirts recession but near-term prospects remain weak
• Deflationary headwinds to persist in H1, threatening business spending
• Recovery likely in late 2019 as world trade finds a firmer footing

2. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

3. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

4. 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.

5. 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. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
2. MINT’s First Post-Acquisition Update
3. SIS: 4Q18 Result Broke the Record
4. January Chip Revenues Down 15.6% Year-On-Year
5. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

1. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%

M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.

• Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
• The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
• We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.

We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.

2. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

3. 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.

4. 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.

5. 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. MINT’s First Post-Acquisition Update
2. SIS: 4Q18 Result Broke the Record
3. January Chip Revenues Down 15.6% Year-On-Year
4. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
5. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

1. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

2. 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.

3. 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.

4. 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).

5. 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. SIS: 4Q18 Result Broke the Record
2. January Chip Revenues Down 15.6% Year-On-Year
3. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
4. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
5. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.

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.

2. 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.

3. 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).

4. 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.

5. 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.