Brief Equities Bottom-Up: Maxis Revenues Stabilizing. Ambitious Long Term Goals in Enterprise and Connectivity and more

In this briefing:

1. Maxis Revenues Stabilizing. Ambitious Long Term Goals in Enterprise and Connectivity
2. BBTN: Indonesia Has Special Mention Problems Too
3. Westpac Banking: Looking Fragile
4. Celltrion Healthcare: Well, We Were Warned

1. Maxis Revenues Stabilizing. Ambitious Long Term Goals in Enterprise and Connectivity

In late January, we upgraded our view on the Malaysian telecom sector after 6 years of being negative. We also and noted that Maxis was best placed to benefit from increased bundling and Enterprise opportunities (due to low cost access to Telekom Malaysia’s (T MK) (TM) fibre infrastructure).  We see signs the current round of results (4Q18) as being supportive of this view. While Maxis 4Q numbers were affected by one offs, the key is a return to service revenue growth while we think the market will view Maxis’ long term revenue guidance positively. Longer term, Maxis announced aggressive longer term revenue targets based on a move into Enterprise and fixed connectivity which should deliver significant revenue growth.

2. BBTN: Indonesia Has Special Mention Problems Too

Bank Tabungan Negara Persero (BBTN IJ) appears to have a nasty combination of high Special Mention Loans (SMLs) and elevated “past due but unimpaired Loans”.

The implication is that provisioning levels are insufficient in an environment of eroding asset quality.

But the bank continues to grow credit by around 20% YoY.

The bank is hugely exposed to the retail real estate market (91% of Loans).

In fact, the Indonesian Banking Sector is rife with high SMLs and in some cases elevated “past due but unimpaired Loans”.

SMLs are traditionally associated with Chinese under-reporting of underlying bad loans, and hence the production of a somewhat flattering Asset Quality picture.

Maybe, the health and valuation of the Indonesian Banking Sector needs to be reassessed with implications for IDR.

3. Westpac Banking: Looking Fragile

Westpac Banking (WBC AU) is facing a class action suit regarding alleged irresponsible lending in home loans since 2011. This is the first class action against a major Australian bank since the publication of the royal commission’s final report.

The ramifications of the royal commission report remain a source of debate with elections coming up. But, in general, banks will not be allowed to conduct operations in a “business-as-usual way”. There will be consequences for credit provision.

Westpac’s Balance Sheet looks decidedly fragile as it stands. The bank is entering a slowdown from a position of weakness.

Exposures to Australia’s slowing economy (not unrelated of course to China), the dovish turn at the Central Bank, and in particular its bubbly housing market make us hyper cautious. The highly volatile Aussie dollar tumbled from levels above $0.7200 to below $0.7100 following reports that China banned coal imports from the country at a major port.

Despite the sinking share prices of Australia’s main banks, valuations may still be too high given the varied headwinds.

4. Celltrion Healthcare: Well, We Were Warned

Celltrion Healthcare (091990 KS) reported preliminary 2018 results that were dramatically short of expectations as the company cut shipments to reduce distributors’ inventories. Management had announced plans to shift to a direct sales model to get better control over pricing decisions, but the magnitude of Q4’s shortfall (94% decline in revenue) raises questions about the role of “channel stuffing” in boosting prior periods’ results. In addition, we expect some spillover effect on Celltrion Inc (068270 KS)‘s Q4’s results. This Insight discusses the results in brief and contrasts Celltrion Healthcare’s results with those of Samsung Bioepis. 

We continue to avoid these stocks.