In this briefing:
- SAPPE: New Strategic Partner Drive 2019 Earning Growth
- GLOW’s Done Deal As SPA (Almost) Completes
- Company Visits: Berli Jucker, M Visions
- Krung Thai Bank: Not as Cheap as It Looks
- TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
1. SAPPE: New Strategic Partner Drive 2019 Earning Growth
We cut our target price by 22% to Bt24.7 to factor in disappointing 2018 result. However, we maintain our BUY rating on the back of positive outlook toward its new products and market expansion plan.
The story:
- Posted net profit of Bt50m in 4Q18, down 36%YoY and 25%QoQ
- Trimmed 2019-21E forecast by 23.8%-24.3% respectively
- Expanding strategic partnership
- Our new target price of Bt24.7 is based on a target PE’19E of 18.8x which is equivalent to the World’s consumer staples sector.
Risks: (1) Fluctuations in raw material prices
(2) Exchange rate fluctuations
(3) Highly competitive industry
2. GLOW’s Done Deal As SPA (Almost) Completes
The revised SPA between Engie SA (ENGI FP) and Global Power Synergy Company Ltd (GPSC TB) is expected to the close this week, triggering a mandatory Tender offer for Glow Energy Pcl (GLOW TB).
The revision was a remedial requirement (announced on the 27 Dec) after the Office of the Energy Regulatory Commission (ERC) resolved to approve, in principle, the proposed merger of GSPC and GLOW, provided GLOW sells Glow SPP1 before or at the same time as the merger. The ERC had previously rejected the merger on the 11 October.
The divestment of SPP1 to B Grimm Power (BGRIM TB) for Bt3.3bn (~2.5% of GLOW’s market cap at the time) was announced on the 22 February and was completed yesterday.
Subsequent to the SPP1 sale, the purchase price under the SPA was adjusted to Bt91.9906/share, a ~3% decline from the initial Bt94.892/share price under the original SPA.
My discussions with GLOW indicate the SPA is expected to complete this week – i.e. Engie crosses its 69.11% holding in GLOW to GPSC – and that the 247-3 and 247-4 forms will be submitted by GPSC in “around” 1-2 weeks after the close of the main transaction. The ERC signed off on the SPA last Friday.
Assuming late-May payment, this is currently trading at a gross/annualised spread of 1.6%/8.8%.
3. Company Visits: Berli Jucker, M Visions
We visited one big-cap stock, Berli Jucker, and one pip-squeak recent IPO M Vision today. A couple of highlights:
- Slow revenue growth at BJC at under 5% largely driven by Big C (hypermarket), but earnings growth was strong at 28% mainly due to lower cost of palm oil in the snack business.
- Good progress in Vietnam with expansion of the bottle capacity this year and SABECO increasing purchases of bottles.
- Overall unimpressed. The company isn’t expecting to grow revenues more than 9% this year, and many of the cost cuts we saw in 2018 are clearly one-offs. Higher oil prices are likely to lead to rising palm oil prices this year too, since the two commodities are linked through substitution effect.
- MVP underwent a bad year on the profit level, but their various businesses, at least on the top line level, looks like it could recover quickly this year.
4. Krung Thai Bank: Not as Cheap as It Looks
Originally, Krung Thai Bank Pub (KTB TB) struck us as interesting. A solid PH Score™, reasonable franchise valuation and P/Book, and a low RSI.
However, further due-diligence shows a somewhat stagnant and eroding operation.
- Headline profitability improvement is unrelated to efficiency or to operational advances.
- Cost growth is fast outpacing a declining top-line.
- Interest income has actually fallen for each of the last 3 years.
- The bank is being squeezed on margin despite keeping interest expenses unchanged.
- Non-interest expenses soared by 26% YoY.
- The bottom line (and profitability) was flattered by varied low quality items as well as much lower loan loss provisions, but still remained well above comprehensive income.
- Asset Quality is also concerning (despite lower loan loss provisions) given the sharp rise in loss (especially) and substandard loans as well as the amount of Special Mention Loans on the Balance Sheet. This means provisioning of problem loans may not be sufficient.
- Liquidity: Deposits are also declining, pushing up the LDR.
5. TTW: Cut 2019-2023 Earnings on the Rise of Depreciation Expenses
We maintain our positive view toward its long-term outlook on the backs of potential growth from its location and secured contract with government agency. Maintain a BUY rating with a new target price of Bt16.8 (SOTP).
The story:
- We cut our 2019-2021 earnings forecast by 12-13% to factor in rising depreciation expenses caused by its shortening depreciated years of PTW’s assets.
- Our new target price of Bt16.8 is derived from Some-of-the-parts (SOTP) which comprises (1) Bt13.8 from core business (tap water supply under both TTW and PTW) based on DCF(6.7%WACC, 0%TG) and (2) Bt3.0 from CKP based on IFA report.
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