Brief Thailand: IPO Stalker: SISB’s Growth Plans and more

In this briefing:

1. IPO Stalker: SISB’s Growth Plans
2. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand
3. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019
4. Golden Land: Less An Offer, More A Consolidation Of Interests

1. IPO Stalker: SISB’s Growth Plans

SISB has been one of the best investments in our portfolio, rising 26% since we jumped in shortly after the IPO. Founder Kelvin Koh reiterated the strengths in his prospectus (English-Chinese language, affordability, own brand) and backs it up with:

• positive stats and trends. 7.8% CAGR in international students, growth in high net worth Thais (11.4% CAGR) and expat population (6.9% CAGR) all of which are supportive of the business.
• expansion plans both abroad and domestic. A Bt70m investment in the Thonburi site as well as talks to potentially set up new campuses in China and/or CLMV region.
• Financials. An almost sixfold jump in earnings from Bt18m in 2017 to Bt103.5m in 2018 primarily due to its high operating leverage and now debt-free status after the IPO.
• favorable operating environment. High availability of Caucasian teachers in Thailand and growing Chinese expat community due to China’s increasing environment.

2. RRG Global Macro Weekly – Election Volatility Expected in India, Indonesia and Thailand

• Volatility set to rise as Thailand, Indonesia and India all Face ElectionsRussia: Michael Calvey, a US citizen and one of Russia’s most prominent foreign investors, has been detained.
• Indonesia: Incumbent President and his challenger from the military are trying to outdo each other in spending largesse targeting rural poor ahead of the May election.
• South Africa: Recent inflation readings have been the lowest in a long time on lower fuel expenses. Expected to stay low.

3. SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019

SYNEX’s 4Q18 net profit was at Bt190m (+16%YoY, +18QoQ), in-line with our expectation

• Record-high level of sales at Bt10.38bn is the major contributor to impressive 4Q18 performance. Meanwhile , gross margin drops below 4% in the first time due to changing product mix towards more on device segment
• SYNEX post 2018 net profit of Bt721m (+15%YoY) driven by 18% increase in revenue
• We maintain our positive view toward FY19-20E earnings outlook driven by (1) number of flagship smartphone model launches and new brands for low budget users, Neffos, and, (2) higher sales contribution from high-margins product such as gaming desktops and post-sales services.

We maintain our BUY rating with a new target price of Bt16.80 (previous target price at Bt15.0) derived from 17xPE’2019E, which is the average of the World information and technology sector

4. Golden Land: Less An Offer, More A Consolidation Of Interests

Frasers Property (Thailand) Pcl (FPT TB) has announced a conditional voluntary tender offer for Golden Land Prop Dvlp (GOLD TB) at Bt8.50/share, ~2.4% premium to last close.

Frasers Property Ltd (FPL SP) owns 40.95% in FPT and also 39.92% in GOLD. FPT’s director Panote Sirivadhanabhakdi (the son of Charoen Sirivadhanabhakdi), via his majority-controlled vehicle Univentures Public (UV TB), holds 39.28% in GOLD. Panote is also the vice-chairman of GOLD.

Presumably, both FPL and Univentures will tender into the Offer giving FPT a minimum holding of 80.2%. There were no specific minimum acceptance conditions attached to the tender offer mentioned in the announcement.

Should FPP secure 90% of GOLD in the tender offer, it may proceed with its delisting. A voluntary delisting is still achievable with ~80% in the bag, but that is conditional on <10% of shareholders not voting against.

Preconditions to the commencement of the tender offer include the approval from disinterested shareholders in FPP, approval from “relevant contractual parties of GOLD and GOLD’s subsidiaries” and the approval from the Office of Trade Competition Commission.

The fact the Sirivadhanabhakdi family already holds, directly/indirectly ~80% in GOLD, such regulatory approvals should be forthcoming.

This appears a done deal. The only apparent risk is the expected shareholder vote of Univentures wherein Panote will likely need to abstain.

Currently trading at a gross/annualized spread of 1.8%/4.3% assuming early August payment. Very tight, suggesting investors are more likely angling for the back-end.