Brief Thailand: MINT’s First Post-Acquisition Update and more

In this briefing:

1. MINT’s First Post-Acquisition Update
2. SIS: 4Q18 Result Broke the Record
3. January Chip Revenues Down 15.6% Year-On-Year
4. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer
5. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

1. MINT’s First Post-Acquisition Update

We caught up with MINT and Bangkok Dec-Con today. Some highlights from the meeting:

• MINT has gained international presence following the acquisition of NH Hotels in Spain, but the first benefits is mainly coming from the top line side (34% revenue growth) rather than profit level at this stage. Having said that, NH itself has turned around significantly.
• Synergies expected through branding, loyalty programs, and cross-selling, though perhaps not all at once. 
• Leverage reduction. Much has already been achieved by asset revaluation, but the next step involves sales of some selected Tivoli assets and issuance of new warrants entailing a maximum dilution of 20%.
• Bangkok Dec-Con acquired a 40% stake in Phuket water concessionaire Gold Shores in December for Bt600m. A sizable diversification, eventhough they are really growing their profits like crazy in 2018.  

2. SIS: 4Q18 Result Broke the Record

SIS’s 4Q18 net profit was Bt149m (+77%YoY, +16%QoQ), a record high level. The impressive 2018 result was much better than our forecast and accounts for 131% of our full-year forecast.

• A YoY and QoQ earnings growth were backed by an all-time high level of gross margin at 6.7% mainly driven by higher sales contribution from data center related products and others (security and surveillance) segments. 2018 net profit was at Bt468 (+58%YoY), buoyed by a record high sales and margin
• We maintain a positive outlook toward its 2019-20E earnings driven by 1) solid growth for high margin segments: enterprise, security and surveillance on the back of strong outlook for IT investment by private sector along the mega-trend of digitalization.
• Announced Bt0.55 of dividend payment or equivalent to 4.7% yield (XD on 3th May 2019

We maintain a BUY rating for SIS with our new target price of Bt15.0 derived from 10xPE’19E, its average trading range in the past five years or a 30% discount to the Thai Info Tech sector.

3. January Chip Revenues Down 15.6% Year-On-Year

The Semiconductor Industry Association in the US released the latest WSTS figures for January chip revenues.  Monthly revenues are down 15.6% from January of 2018.  While this is not a surprise to our clients it is frightening to those who anticipated that 2019 would be a continuation of the bonanza enjoyed in 2018.

4. Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion).

5. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle

Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.