In this briefing:
- Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action
- REIT Discover: Sasseur Sizzles with 9% Yield
- The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
1. Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action
Geo Energy Resources (GERL SP) reported weak 4Q18 results late last month. The reason for the 5M USD net loss in 4Q18 was mainly due to Chinese import restrictions for Indonesian coal in November and December last year. With the import quota removed as of January ICI4 coal prices have rebounded from +/-30 USD/ton late 2018 to 40 USD/ton this week.
Geo remains in deep value territory (3x EV/EBITDA) as the company still has over 200M USD+ in cash it raised from a 300M USD bond placing almost 18 months ago. While the CEO announced plans to organize a HK dual listing in 1H19 this cannot materialize unless management can execute on a significant acquisition opportunity it has been considering for the last twelve months. With Indonesian elections coming up next month the hope is that clarity on this potential transaction can be sorted by late 1H19.
While Europe is obsessed with Climate Change doomsday scenarios being shouted around by school-skipping teenagers, the reality is that three out of four of the most populated countries in the world (China, India and Indonesia) will remain heavy users of coal for decades to come. With cleaner coal technology being the key differentiator how much pollution is emitted.
My Fair Value estimate (Base case) remains 0.35 SGD or 89% upside. Please recall, Macquarie paid 0.29 SGD for a 5% stake in November 2018 and had warrants issued to it at 0.33 SGD.
2. REIT Discover: Sasseur Sizzles with 9% Yield
REIT Discover is an insight series featuring under-researched and off-the-radar REITs in an attempt to identify hidden gems and gems in-the-making. In this issue, we follow up on the first China outlet mall REIT listed in Singapore, Sasseur Real Estate Investment (SASSR SP) , whose share price is down 7.5% from its IPO price of S$0.80 since its debut on 28 March 2018. Its distributable income exceeded its IPO forecast for FY2018. Annualized distribution per unit (DPU) yield for FY2018 was 9.1% based on current price. Moving forward, FY2019 DPU projection is S$0.06, translating into a DPU yield of 8.1% compared to FY2018. It is likely that the DPU for the projection years are conservative and the REIT manager will endeavour to beat the IPO forecast for FY2019 and even the annualized DPU for FY2018.
Sasseur REIT’s business model differs from other typical retail malls which lease out assets and receive rental income based on an agreed rental rate. Instead, it has structured a complex form of master lease, called the Entrusted Management Agreement (EMA), where it received a percentage of tenants’ sales turnover as the rental. As such, income generated its portfolio of properties are mainly sales-driven and hence may be unstable.
Essentially, the EMA encompasses a set of obligations that binds the sponsor to a two-year income support to Sasseur REIT in exchange for a long-term master lease which limits DPU upside. This is because a large chunk of the portfolio’s potential revenue growth will go to the sponsor.
We are not saying this is all bad; the master lease under the EMA provides income stability to the REIT given that gross revenue is sales-driven. Rather, we acknowledge the resilience of the outlet mall business model as seen from the long and successful track record of Tanger Factory Outlet Centers Inc (SKT US) in the United States and strong growth of Bailian Group’s outlet business in China. What is striking is China’s small outlet market size relatively to the mature regions despite the sheer size of its growing middle to upper-middle class population. This suggests that China’s outlet industry could grow significantly.
At 29% gearing ratio, Sasseur REIT has additional debt headroom of S$283mn to tap on its right-of-first-refusal (ROFR) pipeline of assets to grow its S$1.5bn initial portfolio. Even without inorganic growth, two of its properties, representing 43% of total portfolio valuation, are relatively new assets in their third year of operation, suggesting strong potential for growth. Sasseur REIT looks promising based its results in the last three quarters. Sasseur REIT’s premium P/NAV of 1.03x at the point of listing was surprisingly expensive given that its properties are non-prime outlet malls in China’s Tier-Two cities. P/NAV has since fallen to an attractive 0.8x.
3. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This week’s highlights include an update from CrossASEAN Insight Provider Kevin O’Rourke on the running order ahead of the upcoming Indonesian Election on 17th April. In the Equity-Bottom-up section, Angus Mackintosh circles back Pt Matahari Department Store (LPPF IJ) post its underwhelming results and we have a number on contrasting views on e-commerce player Sea Ltd (SE US) post the announcement of its recent placement, which was bigger than its IPO from Johannes Salim, CFA, Arun George, and Rickin Thakrar.
Macro Insights
In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle.
In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week.
In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines.
Equity Bottom-Up Insights
In Matahari Department Store (LPPF IJ) – A Retail Conundrum, CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum.
In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation.
In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers.
In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB).
In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation.
In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO.
In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company.
In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company.
In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement.
In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George.
In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).
In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results.
In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play.
Sector and Thematic Insights
In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results.
In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam.
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