Brief Equities Bottom-Up: Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019. and more

In this briefing:

1. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.
2. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)
3. Alps Alpine Buyback Proceeding Apace
4. Snippets #19: Marijuana, Mergers, and More

1. 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 The good news is that the low priced, limited speed with unlimited usage, offers have mostly been withdrawn.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. 

2. Shanghai/Shenzhen Connect – $8.4 Bn Inflows in February (Kweichow Moutai, Aier Eye, Luxshare)

In our Discover SZ/SH Connect series, we aim to help our investors understand the flow of northbound trades via the Shanghai Connect and Shenzhen Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by offshore investors in the past seven days.

We split the stocks eligible for the northbound trade into three groups: those with a market capitalization of above USD 5 billion, and those with a market capitalization between USD 1 billion and USD 5 billion.

We note that offshore investors were buying all GICS sectors, and had a strong preference for Industrials, Consumer Staples, Consumer Discretionary, and Financials names. We estimate that total inflow into the A-share market via northbound trade amounted to USD 8.4 bn in February.

3. Alps Alpine Buyback Proceeding Apace

Late last year, in the final run-up to the vote to determine whether Alpine (6816 JP) investors would subject themselves to a bad share exchange ratio or would choose to oblige Alps (6770 JP) to have another run at it in a different format, Alps announced a shareholder return policy which included buying back ¥40 billion of shares. 

It is to be noted that this meant that the combined entity was going to be left with less cash than the total deemed necessary by the two companies just a very short while before. Why? Because Alps – with the strong governance it has – obviously had the right amount – and Alpine also had the right amount (it needed substantial equity-funded cash as “working capital” because otherwise it would run a serious danger of business disruption and deterioration. So despite this severe business risk, the two companies effectively announced they would disburse 90% of Alpine’s cash on hand to shareholders POST-MERGER through the special dividend offered to sweeten the pot to get the merger through, and the ¥40 billion buyback. 

The merger, of course, went through, and the ¥28.4 billion* buyback is proceeding apace.

4. Snippets #19: Marijuana, Mergers, and More

Five interesting trends/developments that could impact Thai equities in the recent period:

• Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
• Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
• MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
• Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
• BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.