Brief Equities Bottom-Up: Snippets #21: Bremain, TMB Rights Issue and more

In this briefing:

1. Snippets #21: Bremain, TMB Rights Issue
2. Tisco – A Bright Bank in a Dim Rate World
3. Tencent (700 HK): The Worst Part Online Game Recovered in Q4 Before Restarting License Approval
4. Is There Still a Bright Future for FutureBright?
5. HDFC Ltd- It Deserves Its Premium Valuation Tag

1. Snippets #21: Bremain, TMB Rights Issue

These are the five developments/news flows/trends and their potential impact on Thai equities you should be aware of in recent weeks: 

• Reversing Brexit. A special report highlighting the possible reversal of Brexit should have limited impact on Thai equities, though a few names like SSI, Thai Union, and Minor do float up on the screen.
• TMB announces a 5 for 1 rights issue at Bt2.07/sh, which could raise US$570m of new capital for their acquisition of Thanchart and imply a 65-35 split of ownership between the two banks.
• Politically motivated wage hike. Some of the political campaigns by smaller parties are even more populist than the major parties, implying wage increases between 10-30% from current levels. This could really destabilize Thailand’s long-term prospects as an investment base. 
• Italian-Thai Chairman thrown into prison. Premchai Karnasutra, who killed one of Thailand’s last 9 black leopards, is sentenced to 16 months in jail. Share prices actually rose!
• Bangkok’s third airport! The Navy is putting up the UTaPao airport construction up for bid. Front runners include the CP-led consortium, which includes ITD, but contenders include the BTS-STEC consortium and another smaller one.

2. Tisco – A Bright Bank in a Dim Rate World

The Fed’s comments may be a surprise to many, but we hope not to our readers. Granular US bank data has indicated for some time, that rising rates were more driven by policy than by demand.  As the world now braces for rate cuts and slower growth, there remain a handful of small banks in Asia Pacific that offer respite. Thailand’s Tisco Financial Group (TISCO TB) ranks as having one of the highest dividend yields in Asia Pacific at 7.8%. Where Tisco remains small, growth prospects are far better than for mainstream banks Bangkok Bank Public (BBL TB), Siam Commercial Bank Pub Co (SCB TB) and Kasikornbank PCL (KBANK TB). Additionally, Tisco has seen a steady rise in profitability with ROA now at 2.31% from 1.84% two years ago and from 1.30% in 2014. This profile of rising and high returns, while still small in a local context, and with one of the best dividend yields anywhere, make it a bright spot in a low rate world.

3. Tencent (700 HK): The Worst Part Online Game Recovered in Q4 Before Restarting License Approval

• The worst business, online game, recovered in 4Q2018, because small competitors died.
• The growth rate of game broadcast also bounced up in 4Q2018, as an important competitor Panda TV went bankrupt.
• In fact, games are only a small part of Tencent and other businesses have been growing strongly.
• The re-organization in October 2018 controlled expenses well.
• The 5-year P/E band suggests that Tencent’s stock price has upside of 26%.

4. Is There Still a Bright Future for FutureBright?

Almost 12 months after posting our initial thesis on Future Bright Holdings (703 HK)Gambling on a Bright Future, we review FutureBright’s most recent results, raising questions on whether stalling improvement in the core restaurant business performance warrants taking chips off the table while waiting for key catalysts to materialise.

5. HDFC Ltd- It Deserves Its Premium Valuation Tag

In continuation of the Housing Finance Series (pleas click here and here for the earlier articles), this article provides a detail on HDFC, the largest Housing Finance Company (HFC) in the country. The company has a market share of 38% in the private sector. It is a AAA rated  with one of the best asset quality among its peers.

The key strength of HDFC is its ability to generate low cost funds from multiple sources that helps in maintaining its spread irrespective of the interest rate cycles.

Given a long term secular trend of the housing industry in India, we expect HDFC to remain a key beneficiary. A strong corporate governance standard, high management quality and a robust risk management may help in sustaining the return ratios as well as the asset quality that are among the best in class.