In this briefing:
- BCP: More Stable Income with an Attractive Yield
- A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
- U.S. Tech Stocks Are Leading Market Higher.
- China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
1. BCP: More Stable Income with an Attractive Yield
We initiate coverage of BCP with a BUY rating, based on a target price of Bt41, which is derived from a sum-of-the-parts (SOTP) methodology and imply to 10.2xPE’19E to bring it in line with the Thai energy sector.
The story:
- Attractive dividend yield of 6-7% a year
- Refining business set to recover in 2019
- Hidden value from non-core business
Risks:
- Raw material price fluctuation
- Possibility of impairment losses from investment projects
Background: Established in 1940, Bangchak Corporation Public Company Limited and its subsidiaries ‘ operations include refinery, oil trading, petroleum product marketing and renewable energy businesses. With a capacity of 120,000 barrels per day, Bangchak produces and distributes its products through more than 1,000 service stations nationwide. It also plans to expand the scope of its business to cover food and convenience stores and novel product businesses and to seek investment opportunities in bio-based products and natural resource businesses.
2. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies. This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .
Exxon Q4’18 conference call, “While we see a lot of high growth opportunities in LNG, capacity will come on in big chunks. It won’t be necessarily coordinated, so we’ll see, I suspect, periods of oversupply.”
3. U.S. Tech Stocks Are Leading Market Higher.
The S&P 500 remains just short of formidable resistance at its 200-day MA. Yet, there are signs of continued breadth improvement. Technology in particular continues to top our Sector RSR rankings, fueled by strengthening price and RS action for semiconductors, semi-suppliers, and numerous Software groups. Last week we upgraded our weighting for Technology and its strength continues to broaden out. In this week’s report we highlight a number of actionable Technology stocks across our various Groups.
4. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
- US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
- Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
- A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks. - The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
- Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.
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