In this briefing:
- S: Outshines Thai Property Peers on High Recurring Profit
- Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
- Thai Telecoms: Slowdown in Mobile Business Continues.
- After You Looks Beyond Thailand For Opportunities
- The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
1. S: Outshines Thai Property Peers on High Recurring Profit
We initiate coverage of S with a BUY rating, based on a target price of Bt4.2 derived from a sum-of-the-parts (SOTP) methodology and implying 16.5xPE’19E, a 23% discount to the average of its peers in the Thai real estate sector.
The story:
- Asset value to drive long-term sustainable growth
- 19 projects under development worth a combined Bt36bn to drive sales over the next three years
- REITs will be a key catalyst to boost recurring income
- Higher revenue contribution from hotel business
Risks:
- Tightened credit approval
- Raw material costs & F/X fluctuation
Background: In 2014, Santi Bhirombhakdi** and his property arm, Singha Property Management, acquired a major stake in RASA, a listed property company on the SET, and changed its name to “Singha Estate Public Company Limited”, or “S”. This new major shareholder quickly unveiled plans to transform S into a holding company. During 2015-17, the company made several acquisitions including (1) a 51.56% stake in NVD, a low-rise property developer that operates under the “Nirvana” brand with a current market value of Bt2.7bn; (2) Suntowers, an office complex worth Bt4.5bn; and (3) a mixed-use commercial complex owned by the major holder’s family business worth over Bt6bn. It also set up a joint venture with a partner to invest in and operate 26 hotels in the UK worth Bt8.6bn.
Note: ** Owner of Boon Rawd Brewerey, Thailand’s oldest brewery and maker of Singha Beer
Revenue breakdown:
The residential property segment contributed 41% of S’s 2018 total revenue. This segment includes the development and sale of high-rise and-low rise projects such as single detached houses, townhomes, home offices, and condominiums.
The commercial property segment contributed 36% of total revenue. This business includes space for rent, common-service charges for utilities, security systems, and other service fees. The company owns two commercial property projects — The Lighthouse (a community mall) and Suntowers (an office complex).
S owns 37 hotels with a combined 4,271 rooms comprising (1) two hotels with 297 rooms in Thailand, namely Santiburi Beach Resort & Spa and Phi Phi Island Village Beach Resort; (2) 22 hotels in England and 7 in Scotland (total of 3,115 rooms) under a 50:50 JV with FICO Group; and (3) 6 Outrigger-branded hotels with 859 rooms. This segment accounts for 18% of sales.
The company also provides construction materials such as precast concrete and aluminum, as well as hotel management services. These two segments contribute 3% and 2% respectively.
2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
3. Thai Telecoms: Slowdown in Mobile Business Continues.
The Thai mobile market reported another weak quarter in 4Q18, with trends deteriorating at all three operators. The weakness was partly due to the cheap unlimited fixed speed offers which were popular in 2018 but which have now been removed from the market. Growth should recover by 2H19. With Total Access Communication (DTAC TB) having acquired spectrum in 2018, it will no longer cede market share without a struggle. That suggests competitive risks are high in Thailand, with all three operators aiming to boost market share. We remain cautious on the sector and are also worried that the government seems keen to push on with 5G spectrum auctions despite a lack of use cases.
4. After You Looks Beyond Thailand For Opportunities
We met up with management of two companies whose industries couldn’t have been more different. This is the quick run-down on what they are up to recently:
- After You posted 14% earnings growth on the back of 20% revenue growth. While this remains healthy, it realizes that domestic market opportunities will become more limited and has started to look abroad with HK as its first market.
- Locally, the desserts leader is still planning a slew of new products and some in exclusive partnerships with various airlines such as Air Asia and Thai Smile.
- In an effort to reduce storefront expenses, they will start selling certain products outside stores and even online, now 3% of total sales.
- Amata’s earnings crashed 28% in 2018 on the back of 2% revenue decline, as Vietnam retroactively forbid certain land sales and even fines the company for past transactions that abided with the law back then!
5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This past week’s highlights include three Smartkarma Originals Insights, with a deep dive on orphan stock Doubledragon Properties (DD PM) by Nicolas Van Broekhoven and Lloyd Moffatt and individual company Insights from Jessica Irene on Pakuwon Jati (PWON IJ) and Angus Mackintosh on Alam Sutera Realty (ASRI IJ) in an ongoing series on Indonesian Property.
Macro Insights
In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.
Equity Bottom-Up Insights
In a Smartkarma Originals Insight, DoubleDragon Properties (DD PM): From Overhyped to Undervalued; Multi-Bagger in the Making?, CrossASEAN Insight Providers Nicolas Van Broekhovenand Lloyd Moffatttake a deep dive into this large-cap orphan stock and present a compelling buy case for the company.
In the third individual company Insight in this Smartkarma Originals Series, Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ), Jessica Irene takes a deep dive into this high-quality property developer.
In the fourth individual company insight in this Smartkarma Originals series, Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ), CrossASEAN Insight Provider Angus Mackintosh takes a deep dive into this leading township developer.
In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement.
in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.
In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.
In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.
In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month.
in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement.
In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue.
Sector and Thematic Insights
in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.
In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore.
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