Daily Equities Bottom-Up: Keppel-KBS US REIT – Positioned for Defensive Growth. Still Attractively Priced. and more

In this briefing:

1. Keppel-KBS US REIT – Positioned for Defensive Growth. Still Attractively Priced.
2. Thailand – KTC Defies the Sceptics
3. Prataap Snacks Ltd – Q2 Results; Will Acquisition of Avadh Snacks Be a Game Changer for Prataap
4. Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement
5. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1

1. Keppel-KBS US REIT – Positioned for Defensive Growth. Still Attractively Priced.

Keppel-Kbs Us Reit (KORE SP) (“KORE”) announced its full-year results this evening. 

Income available for distribution to Unitholders was 8.6% higher than the IPO forecast. The outperformance was due to contribution from the Westpark Portfolio which was acquired on 30^th Nov 2018. Excluding the impact of Westpark Portfolio, income from the underlying IPO portfolio was generally in line with the forecast.

For the full year, total income available for distribution to Unitholders was US$43.8 mil.

KORE reiterated that the US tax regulation changes and convergence of Barbados tax rates for domestic and international companies are not expected to have any material impact on NTA and DPU. There will be no further changes expected to the trust structure.

The outlook for KORE remains positive. KORE has positioned itself well for defensive growth in the coming year.

Positive set of results and outlook is expected to continue driving the re-rating of KORE. The immediate price target for KORE is US$0.78 per unit (parity to NAV) that will translate to a forward yield of 7.3%.

2. Thailand – KTC Defies the Sceptics

Krungthai Card (KTC TB) shows all too clearly how to keep profit growth high, rising from 20%, to 33% and to 56%, from 2016 through 2018. There are few financial companies that can compare to the persistent and high and improving rate of profit growth. We must remember that late in 2017, regulations changed lowering the maximum rate on credit card loans and limiting facilities based on a more stringent policy relating to income. Ironically, we believe this supports performance. Customers may have become more careful on defaulting, running the risk of getting cut off and having to re-apply for a personal loan or a credit card. And under new regulations, customers can not receive as high a credit limit as in the past, if their income is less than Bt30,000 or Bt50,000 per month.

3. Prataap Snacks Ltd – Q2 Results; Will Acquisition of Avadh Snacks Be a Game Changer for Prataap

In Q2 of FY19, the company has grown at 10.15% with revenue of INR 2.92 bn. EBITDA was INR 0.24 bn and EBITDA margin stood at 8.4%  down by 167 bps, Net profit stood at 0.113 bn with margins at 3.87% down by 102 bps. Raw materials cost has increased in the first half of the year leading to lower margins. 

The company has acquired 80% in Avadh Snacks, a Gujarat based snacks company for INR1.48 bn, we have discussed the implications in the report.

The stock is currently tradings at its 54x its FY18 EPS (Pre-acquisition) and 42x its FY19 EPS (post-acquisition), we believe the stock is currently overvalued but are positive on the long term prospects of the firm.

4. Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement

Total Access Communication (DTAC TB) recently settled a number of outstanding cases with CAT, one of the two Thai Telecom authorities (the other being TOT). DTAC agreed to pay THB9.5bn ($300m) to CAT to settle a number of outstanding disputes. They did NOT clear all their disputes and there are substantial remaining potential liabilities. In the past, The Thai telcos have tended to ignore these cases given the glacial moves through the system (some are 20+ years), but DTAC’s moves suggest it is time to take a closer look. The total numbers for the industry are substantial at around $20bn and, following DTAC’s settlement, Chris Hoare thinks the risk of crystallizing losses has increased. We have cut our target prices as a result. The industry was already facing headwinds from the business revival at DTAC now that it has secured access to spectrum.

5. Sell General Electric (GE US): Lots of Liabilities, Limited Cashflow – Target $1

GE’s business reality is far removed from management’s up-beat message. Creative accounting enabled management to line their pockets, while the underlying business deteriorated. A bloated board sanctioned poor disclosure, leasing, restructuring provisions and asset trading that obscured the decline. In FY 2018, we expect underlying Industrial profits of US$3.4bn and unlevered sustainable cashflow of US$5.1bn, down 50%. Change is coming, but it is too little, too late…