Brief Equities Bottom-Up: TPCH: Promising Growth at an Attractive Valuation and more

In this briefing:

1. TPCH: Promising Growth at an Attractive Valuation
2. DIGI 4Q Modestly Disappoints but Margins Are Improving and Outlook Is Benign. Upgrade to Neutral
3. New J. Hutton Exploration Report (Week Ending 25/01/19)
4. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile
5. Intel. Dogged By Headwinds In The Year Of The Pig

1. TPCH: Promising Growth at an Attractive Valuation

We initiate coverage of TPCH with a BUY rating and a 2019E target price of Bt13.0, pegged to  13.0xPE, which is the average valuation of its inexpensive listed peers. In comparison, TPCH is trading below 10x PER in 2019-20E. Given that the investment phase for its biomass power plants is almost over, we expect it to pay a nice dividend yield of 3.3% in 2019E and 6.6% in 2020E.

The story:

• Decent growth in 2019-20E
• Price contraction has opened an investment opportunity
• Poised to be an early leader in the waste-to-energy business
• Expect a 31% CAGR for earnings in 2019-20E

Risks:

• Lack of raw materials
• Raw material price fluctuation

2. DIGI 4Q Modestly Disappoints but Margins Are Improving and Outlook Is Benign. Upgrade to Neutral

DIGI (DIGI MK) reported a slightly disappointing set of 4Q18 figures, carrying on from 3Q. Service revenue contracted by 2% after growing 0.1% in 3Q. However, the overall margin was slightly better driven by an improved equipment margin, with EBITDA up 2.2% YoY. Underlying (ex-equipment) margins dipped by 80bp. DIGI’s KPIs look in line, with subscribers down by 140k (in line with historic trends) and ARPUs flat sequentially. Data usage continues to grow (now almost 10GB/ month/sub) from already high levels. The dividend was slightly down at 4.8 sen,  suggesting dividends might have peaked. Guidance for 2019 is in line with our expectations: flat revenues and low single digit growth in EBITDA on a pre-IFRS basis. We have upgraded DIGI from Reduce to Neutral, the first time in 6 years we have not been Sellers! After five years of price declines and revenue erosion, Malaysian telcos look much closer to global norms now. With DIGI down 30% from its high in early 2015,  and with earnings having stabilized we are now comfortable with a neutral rating. 

3. New J. Hutton Exploration Report (Week Ending 25/01/19)

• Cover 314 companies, soon to be expanded
• Recommend Speculative Buy on PEX
• Thick VMS intersections e.g. 40m @ 10.2% Zn, 2.83 % Pb
• Economic mineralisation at Southern Nights starts at 120m depth
• Wagga Tank prospect recorded 9.3m @ 7.32% Zn, 3.38% Pb
• Peel Mining Ltd (PEX AU) ; Metals X Ltd (MLX AU); Ramelius Resources (RMS AU); Atrum Coal Nl (ATU AU); First Graphite (FGR AU) ; Galaxy Resources (GXY AU); Sovereign Metals (SVM AU); Globe Specialty Metals (GSM US); White Cliff Minerals (WCN AU); Carnegie Clean Energy (CCE AU); Theta Gold Mines (TGM AU)  

4. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile

With its nationwide fiber optic network infrastructure, NTT continues to dominate the fixed line broadband market in Japan with 68% market share. In this Insight we explore the fixed line broadband market in Japan today and how it is evolving, especially with the increasing dominance of “collaboration” offerings that bundle fiber with mobile services.

Mobile services are getting a lot of attention today, especially in the run up to 5G launches over the coming 12 months, but without fiber backhaul, 5G would be a nonstarter. In this Insight we investigate what 5G will bring and what is needed to support it as well as the telcos’ latest plans. 

NTT is not just an incumbent telecom operator, it’s also a key player for future technologies and provides the physical infrastructure and architecture for many of the industries new services.With all the talk about 5G it is sometimes easy to forget that fixed line networks are still necessary. With NTT’s strong fiber-based network and its collaborations with NTT Docomo and many other partners in mobile and data, we believe NTT is well positioned to be a key and winning player in the evolving telecom and technology space. 

5. Intel. Dogged By Headwinds In The Year Of The Pig

Intel‘s fourth quarter 2018 results last week missed on earnings to the tune of $360 million. That, combined with a tepid outlook for 2019 YoY growth of just 1% spooked investors, sending the stock down over 5% on three times the normal trading volume the following day. 

Lagging process technology leadership, ever increasing competition from ARM, AMD and NVIDIA, lower modem sales as iPhone unit shipments decline, falling NAND prices, data center spending significantly reduced as the hyperscalers digest and optimise their record-breaking build-out will all weigh heavily on the company in the coming quarters. 

After a record breaking 2018 which saw the company’s annual revenue grow 13% to edge north of the $70 billion mark for the first time ever, Intel now faces a growing array of headwinds which will dog the company for the Year of the Pig.