In this briefing:
- Snippets #20: Dark Clouds in Thai Equities
- The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
- Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
- Japan – Chinese Flu
- M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
1. Snippets #20: Dark Clouds in Thai Equities
Of the five interesting trends/events/developments we heard this month, we highlighted five and how they could impact Thai equities in the near term:
- Thai Raksa Chart Party dissolution. The dissolution of the TRC, the second largest Thaksinite party, poses some political risks but could affect sentiments for companies founded by Thaksin, such as Intuch and AIS.
- Thai Air Asia says no to Nok Air. After the briefest considerations, the larger airline came to the conclusion that they wouldn’t acquire a stake in struggling Nok Air.
- Capital Gains Taxes are currently under consideration by the government for the first time. If implemented, they are likely to have negative impact on overall equities but the brokers in particular.
- From LINE to BEC. LINE (Thailand)’s Country Manager Ariya Phanomyong has agreed to move to BEC. Though mildly positive, we believe improvements will revolve around distribution rather than the more key issue of content.
- True Move’s Request for 5G delay may sound odd at first glance, but we see it as a rational, if not very tactful, way of delaying a new round of capex.
2. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce
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 week’s highlights include an update from CrossASEAN Insight Provider Kevin O’Rourke on the running order ahead of the upcoming Indonesian Election on 17th April. In the Equity-Bottom-up section, Angus Mackintosh circles back Pt Matahari Department Store (LPPF IJ) post its underwhelming results and we have a number on contrasting views on e-commerce player Sea Ltd (SE US) post the announcement of its recent placement, which was bigger than its IPO from Johannes Salim, CFA, Arun George, and Rickin Thakrar.
Macro Insights
In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle.
In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week.
In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines.
Equity Bottom-Up Insights
In Matahari Department Store (LPPF IJ) – A Retail Conundrum, CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum.
In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation.
In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers.
In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB).
In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation.
In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO.
In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company.
In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company.
In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement.
In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George.
In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).
In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results.
In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play.
Sector and Thematic Insights
In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results.
In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam.
3. Global Capital Flows Show China’s Collapsing Export Markets Could Soon Revive
- Capital flows are strongly Granger causal
- Gross capital flows lead World shipping activity by 4 months
- Capital flows have been slowly rising since June 2018: in February they jumped
- Reinforces out pro-Asia and pro-China investment message
4. Japan – Chinese Flu
By Konstantinos Venetis, Senior Economist
- Japan skirts recession but near-term prospects remain weak
- Deflationary headwinds to persist in H1, threatening business spending
- Recovery likely in late 2019 as world trade finds a firmer footing
5. M: Trimmed 2019-20E Earnings Forecast by 12% and 19%
M had 4Q18 net profit of Bt606m (+11%YoY, -10%QoQ). The 2018 earnings was 10% lower than our forecast but in line with our expectation.
- Excluding impairment cost from employee benefit, 4Q18 core earnings grew 26.4%YoY to Bt690m. Meanwhile, gross margin remains flat at 68.3%, close to past four quarters level.
- The 2018 earnings increases 6% driven by gross profit margin expansion to 68.4% from 67.8% in 2017 and 4.3% growth in sales to Bt16bn due mainly to branches expansion and lower raw material costs respectively.
- We maintain our positive view toward its 2019-2020 outlook backed by SSSG recovery and branch expansion plan. However, we cut our 2019-20E earnings forecast by 12% and 19% respectively to factor in weak sales and margin than our previous expectation.
We maintain our BUY rating based on a new target price of Bt88 (27.4xPE’19) or down 8% from our previous target to follow earnings cut.
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