Brief Thailand: Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle and more

In this briefing:

1. Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle
2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.
3. Snippets #19: Marijuana, Mergers, and More
4. China – Eurozone Negative Feedback Loop.
5. The Week that Was in ASEAN@Smartkarma – Asian Currencies, Indonesian Media, and Shopee

1. 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.

2. Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019.

Chris Hoare met the Thai telcos recently but did not come away particularly enthused. His view is that the market probably remains tough this year. The good news is that the low priced, limited speed with unlimited usage, offers have mostly been withdrawn. It will take 2-3 quarters for this to work through, as these were 12 month plans, but it does suggest improved data monetization as the year progresses. A lack of data monetization was the key reason behind the revenue slowdown in 2H18. However, with data usage now so high (around 10GB/month), and content services unlikely to lead to revenue growth in the foreseeable future, overall revenue recovery is likely to be modest. 

3. Snippets #19: Marijuana, Mergers, and More

Five interesting trends/developments that could impact Thai equities in the recent period:

• Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
• Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
• MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
• Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
• BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.

4. China – Eurozone Negative Feedback Loop.

Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit,  this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China. 

5. The Week that Was in ASEAN@Smartkarma – Asian Currencies, Indonesian Media, and Shopee

Macro Insights

In Widodo’s Generals Take Fire / Anti-Foreign Rhetoric Takes Toll / Land Hampers Adhi’s LRT / MRT Near, CrossASEAN Insight Provider Kevin O’Rourke provides his value-added views on political and economic developments in Indonesia over the last week. 

In Asia’s External Balances Signal Safety for Investors, Dr Jim Walker takes a close look at Asian currencies, their performance over the last year and highlights some interesting misperceptions. 

Equity Bottom-Up Insights

In Procurri: Exit DeClout, Enter Novo Tellus. Company Remains Highly Undervalued at 4.4x 2018 EV/EBITDA, CrossASEAN Insight provider Nicolas Van Broekhoven revisits Procurri Corporation (PROC SP) and finds an overhang lifted for the stock.  

In Surya Citra Media (SCMA IJ) – Digital Revolution in the Spring, Angus Mackintosh revisits this leading Indonesian media company and finds it on the cusp of a more digital future. 

In Blue Bird (BIRD IJ) – Transport Wizzard with a Twist, Angus Mackintosh revisits Indonesia’s leading taxi company after a meeting with management and comes back with some positive newsflow. 

In Sea Ltd: Further Share Re-Rating After a 35% Daily Gain? Why Not?, Johannes Salim, CFA circles back to Sea Ltd (SE US) after the post-results call with management. 

In Bank Danamon Goes Ex-Rights, Travis Lundy circles back to the ongoing merger between Bank Danamon Indonesia (BDMN IJ) and Mitsubishi Ufj Financial (8306 JP). 

In BIMB: Market Gives Thumbs-Up to Results, Paul Hollingworth takes a close look at this Malaysian Bank. Bimb Holdings (BIMB MK) or BHB commands two subsidiaries, Bank Islam and Takaful Malaysia.

In Golden Land: Less An Offer, More A Consolidation Of Interests, event-driven specialist David Blennerhassett revisits this ongoing takeover situation. 

In Ho Bee Land – 4Q Earnings Hit by Unexpected Tax Provision, Royston Foo revisits the company post recent results. 

In SYNEX: New Smartphone Launches Help Drive Earnings Momentum in 2019, our friend at Country Group comment on Synnex Thailand (SYNEX TB) following recent numbers. 

In PRM: Thai Largest Tanker Fleets Assured of Consistent Growth, Country Group initiates coverage on Prima Marine PCL (PRM TB) with a BUY rating. 

Sector and Thematic Insights

In INDO Snippets: Second Presidential Debate, BNLI & PNBN – This Time Is Real?, CrossASEAN Insight provider Jessica Irene provides us with substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. This week she comments on the second presidential debate, Bank Permata (BNLI IJ) stake sale rumours, as well as ANZ’s potential disposal of its stake in Bank Pan Indonesia (PNBN IJ). 

In Jakarta Trip – On the Ground Insight Feb 2019, CrossASEAN Insight Provider Henry Soediarko provides us with his value-added on the ground comments following a trip to Jakarta. 

In Singapore Real Deals (Issue 4): Purpose Built Workers Accommodation, an Alternative Asset Class, Anni Kum puts out her fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. In this issue, she examines Singapore’s Purpose Built Workers Accommodation (PBWA) industry landscape in light of the nation’s foreign workforce policy.