Brief Thailand: Battery Technology- The Key To An Electric Vehicle Future and more

In this briefing:

1. Battery Technology- The Key To An Electric Vehicle Future
2. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG
3. WICE: Expansion Phase Still Go On
4. Company Visits: The Best of March 2019
5. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

1. Battery Technology- The Key To An Electric Vehicle Future

The Insight is structured as follows:

• A. Key  Conclusions
• B. Report Highlights
• C.History of Electric Vehicles
• E. History of Rechargeable Battery Technologies And An In-Depth Analysis on Li-ion Batteries
• F. Batteries Beyond Li-ion
• G. Supply Constraints for Key Raw Materials
• H. The Competitive Landscape

A. Key  Conclusions

Global sales of EV’s reached 2m units in 2018. As a base case scenario, we expect a combination of improving EV battery cost-effectiveness, increasingly challenging emissions standards and ongoing incentives by various governments to propel unit sales to 8m units annually by 2025. Against this, we consider battery material price increases, a reduction of EV incentives in the US and China and political and environmental risks from the mining of metals used in batteries as downside risks which could delay the growth of the EV market.

Surprisingly, the EV battery technology that will drive us towards that 8m unit goal is still very much a work in progress. While Lithium Ion is the by far the dominant technology, there are striking differences between variants of the technology, battery pack design, battery management systems and manufacturing scale between the leading contenders. Furthermore, while there’s nothing on the horizon to completely displace Lithium Ion within the next decade, it remains unclear whether the technology will be the one to achieve the $100/kWh price target that would make the EV cost-neutral compared to its internal combustion predecessors. 

Quite apart from the technology,  the EV battery segment faces other significant challenges including increasing costs for core materials such as Cobalt, increasing safety concerns as the mix of that very same cobalt is reduced in the cathode, the growing risk of litigation amidst a fiercely competitive environment and last but not least, the appetite of various governments to maintain a favourable subsidy framework. 

2. More Volatility in the LNG Markets as JKM Drops Below TTF – Oil Majors Increase Exposure to US LNG

The JKM has halved its value since December, continuing its steady decline and dropping below the TTF, the benchmark for European LNG prices. Asian LNG spot prices are now at their lowest level since May 2015. While a prolonged LNG price downturn could force many projects to be cancelled, the winners among the developers are starting to emerge, aggressively pushing ahead their projects closer to the final investment decision.

Both Tellurian Inc (TELL US) and NextDecade Corp (NEXT US) signed high-profile deals, respectively with Total Sa (FP FP) and Royal Dutch Shell (RDSA LN), that could significantly de-risk their proposed LNG projects and increase the probability to reach FID in 2019. In Russia, LNG newcomer Novatek PJSC (NVTK LI) agreed two long-term offtake deals with Repsol SA (REP SM) and Vitol thereby moving a step closer to FID its Arctic LNG 2 project.

3. WICE: Expansion Phase Still Go On

We maintain BUY rating for WICE with a new target price of Bt5.20 (previous target price: 7.50), based on 29xPE’19E, its one year average trading range or 20% discount to Thai transportation sector.

The story:

• Cross broader business plays the key growth driver in 2019
• We revised down earnings in 2019-21E due to lower-than-expected margins

Risks:

• Stronger Baht vs major foreign currencies such as US dollar causes lower income in Baht terms as the main reporting currency is Baht
• Higher than expected in fluctuation in freight rates
• Intensity of freight forwarding businesses in both domestic and overseas

4. Company Visits: The Best of March 2019

We selectively visited a dozen companies in March and were most impressed with three of them (two of which we happily own):

• SISB, Thailand’s only listed education stock, whose market cap has increased more than 30% since its IPO. The future potential growth they are currently working on in Cambodia and China  will show up here and spruce the company’s already strong growth. Working in a favorable environment (Thailand’s affluent class is growing) also helps.
• MINT, the country’s hotel chain giant and 20th largest chain in the world, sees great growth potential in Europe, where things are slowly turning around after they made two big acquisitions (NH Hotels and Tivoli). Synergies are also materializing with co-marketing and re-branding efforts.
• After You, arguably the dessert chain with the highest margin in Thailand. No longer a newbie IPO stock, these guys boast collaboration with global giant Starbucks and branching out into new channels such as After You Durian. 

5. What Next in the Inflation / Deflation Debate and What Does It Mean for Asset Prices?

Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States.  Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress.