Brief Equities Bottom-Up: JKN: 4Q18 Earnings Grew Both YoY and QoQ and more

In this briefing:

1. JKN: 4Q18 Earnings Grew Both YoY and QoQ
2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India
3. BIMB: Market Gives Thumbs-Up to Results
4. Blue Bird (BIRD IJ) – Transport Wizzard with a Twist – On the Ground in J-Town

1. JKN: 4Q18 Earnings Grew Both YoY and QoQ

The company’s 4Q18 net profit was at Bt46m (+298%YoY and +8%QoQ). The result was in line with our 2018 forecast and accounted for 97% of our full-year forecast.

• A YoY surge in earnings was due to a 30% increase in revenue to Bt360m, mainly from export revenue (50% revenue contribution in 3Q18 from 0% in 4Q17). A QoQ gain was caused a reduction in extra expenses for holding an annual event ‘JKN mega showcase’ in early August.
• 2019 earnings outlook is still decent on the back of 1.) higher revenue contribution from export market especially South East Asia (26% of revenue in 2018), 2.) CNBC studio commencement in 2Q19, and, 3.) revenue recognition from new channel subscribers (No.5, Thairath, Spring news, True4U, Nation and MONO)

We maintain our forecast and BUY rating for JKN with a target price of Bt8.80 based on 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.

2. 7-Eleven in India: Standard Franchise Model Would Require Minor Tweaks in India

• 7-Eleven partners up with Future Retail in an effort to enter the growing Indian Market
• Indian E-Commerce giants pose a significant threat to 7-Eleven’s plans
• 7-Eleven’s recent shift focuses more on developing markets.
• Lack of profitability in India could require changes to the standard franchise agreement in order to attract franchisees

On 28th February 2019, Seven & I Holdings (3382 JP), the operator of the world’s largest convenience store chain 7-Eleven, announced that the company has signed a master franchise agreement with Kishore Biyani’s Future Retail, the operator of the Indian large format store chain Big Bazaar, to expand the 7-Eleven convenience stores into India. Future Retail and Seven & I Holdings expect the first 7-Eleven convenience store in India to be opened in Mumbai in 2019.

3. BIMB: Market Gives Thumbs-Up to Results

Malaysia has a tailwind of a new administration, vowing to overturn many aspects of its predecessor – including cancelling mega infra projects and reducing the “real” National debt.

The economy is relatively buoyant and is slated to generate an average of 4.75% GDP growth over 2018-2022. Private consumption will remain the main driver of growth, still the domestic economy continues to face downside risks stemming from any further escalation in trade tensions and commodity related shocks. Inflation has mellowed, supported by the cut in GST, but will still, once these effects diminish, be modest, at around 2%. Unemployment is low and there is a current account surplus.

Bimb Holdings (BIMB MK) or BHB commands two subsidiaries, Bank Islam and Takaful Malaysia. Bank Islam is a niche consumer-centred lender with a focus on mortgages: the largest component of the loan book and growing at a double-digit pace. Loans are therefore >5 years while funding tends to be <1 year. The insurance operation is BIMB’s most profitable revenue stream though. There is a concerted focus on the brand, on strategic bank partnerships, and on digitalisation. Both subsidiaries are rooted in Shariah-compliance. (Islamic Finance is a fast-growing market share in Malaysia). We do not rule out corporate reorganisation initiatives to unlock further value. The main shareholder is Lembaga Tabung Haji, a religious pilgrim fund board.

While BIMB is less sensitive to government actions on sovereign guarantees for infra projects, the bank is mainly exposed to consumer credit trends and cycle. Malaysia has a high level (by Asian standards) of household (excluding mortgages) indebtedness, dominated by credit cards, auto finance, and personal loans. Some areas of consumer banking reflect a stretched DSR, underpinning a moderately high risk by credit-to-GDP gap. The corporate sector is not excessively leveraged. BIMB though commands strong asset quality, provisioning, and capitalisation levels.

4. Blue Bird (BIRD IJ) – Transport Wizzard with a Twist – On the Ground in J-Town

A visit in Jakarta to the Blue Bird (BIRD IJ) office was well-timed as the company is close to the conclusion of two corporate actions, as well as an interesting extension to its relationship with Go-Jek Indonesia (1379371D IJ).

Both acquisitions are synergistic with its existing business and represent long-term opportunities rather than an immediate significant boost to earnings.

The company’s underlying fundamentals continue to improve with fleet utilisation up versus last year in 4Q18, as was the average revenue per taxi.

The company continues to see the benefits of its tie-up with Go-Jek, which will soon morph into something even more significant.

Blue Bird (BIRD IJ) remains an interesting way to play the rising levels of affluence amongst the rising middle classes in Indonesia. the company is close to completing two corporate actions including a new venture into the car auction business with Mitsubishi UFJ and the acquisition of an intercity bus company. It is also close to signing an extension and expansion of its relationship with Go-Jek, which will help to cement its position in the online ride-hailing space. Underlying fundamentals continue to improve both in terms of fleet utilisation and average revenue per taxi. According to Capital IQ consensus, the company trades on  14.9x FY19E PER and 13.7x FY20E PER, with forecast EPS growth of +16.2% and +8.9% for FY19E and FY20E respectively. The near-term completion of two corporate actions and an extension of its agreement with Go-Jek Indonesia (1379371D IJ) should provide positive catalysts for the share price coupled with improving ridership, average revenue per taxi, and fleet utilisation.