Brief Equities Bottom-Up: Tisco – A Bright Bank in a Dim Rate World and more

In this briefing:

1. Tisco – A Bright Bank in a Dim Rate World
2. Tencent (700 HK): The Worst Part Online Game Recovered in Q4 Before Restarting License Approval
3. Is There Still a Bright Future for FutureBright?
4. HDFC Ltd- It Deserves Its Premium Valuation Tag
5. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

1. 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.

2. 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%.

3. 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.

4. 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.

5. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR).