Brief Thailand: The Week that Was in ASEAN@Smartkarma – Elections, Trade War Beneficiaries, and Indonesian Textiles and more

In this briefing:

1. The Week that Was in ASEAN@Smartkarma – Elections, Trade War Beneficiaries, and Indonesian Textiles
2. Political Pit Stop (April): An Election Gridlock
3. Bull Or Bear? Latest Global Liquidity Readings
4. Risk of Future LNG Supply Glut as Bubble of New Projects Grows
5. Shaky Situations at DEMCO and Pranda

1. The Week that Was in ASEAN@Smartkarma – Elections, Trade War Beneficiaries, and Indonesian Textiles

Macro Insights

In Prayuth Accomplishes a Clear-Cut Victory, Assuring Stability (If Not Rapid Growth), CrossASEAN Insight Provider Prasenjit K. Basu comments on the result of the recent election in Thailand. 

In Thai Election 2019: Defeat in Parliament, Victory in Senate, Thai Guru Athaporn Arayasantiparb, CFA comments on the results on the Thai elections and the consequences for decision making in that country. 

In a follow-up Insight on the recent election in Thailand, Political Pit Stop (April): An Election Gridlock, Athaporn Arayasantiparb, CFA deals with some unfinished business post the election.

In Elections, Coups and Constitutions: Thailand’s Reckoning, Dr. Jim Walker looks at Thailand’s political history with the recent election in mind and concludes that Thai politics looks set to become fractious and interesting once again. 

In his insight, 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate, Kevin O’Rourke looks and the most important political and economic developments over the past week and provides his value-added comment. 

In Vietnam Picks up the China Baton, Dr. Jim Walker lays out his thoughts on which countries are set to benefit the most from the ongoing trade dispute between the US and China. Indonesia and Vietnam would seem to be the most obvious beneficiaries.  

Equity Bottom-Up Insights

In his most recent on-the-ground insight, Shaky Situations at DEMCO and Pranda, Athaporn Arayasantiparb, CFA lays out his thoughts post visits to two companies with very different trajectories, namely renewable power specialist Demco Pcl (DEMCO TB), which is struggling, despite doing really well in the past and jeweller Pranda Jewelry Pub (PRANDA TB), once struggling but now on a recovery path. 

In Golden Agri Bull Pivots to Get Involved, technical specialist Thomas Schroeder works his magic on this leading Singapore listed plantation company.

For a fundamental view on the above situations please refer to last week’s insight, Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR, from commodities specialist Charles Spencer who zeros on the potential positive impact from an impending El Nino event on Golden Agri Resources (GGR SP). 

Sector and Thematic Insights

In Small Cap Diary: Rajthanee Hospital, CAZ, Athaporn Arayasantiparb, CFA lays out his thoughts post visits to these two small-cap companies from totally different industries Rajthanee Hospital (RJH TB) and CAZ Thailand PCL (CAZ TB). 

2. Political Pit Stop (April): An Election Gridlock

Despite the election being over on March 24, Thailand has a few unfinished business to attend to:

• EC impeachment. Many irregularities were found in the election and ballot boxes both inside and outside Thailand, prompting a move to impeach the Election Committee for a job poorly done.
• The two alliances. After the count, the Thaksinite lead over Army faction widens, and a number of parties have committed to their cause. Yet, the Senate will vote for Gen Prayuth with overwhelming majority. Whoever wins (our bet is still on the Army), it will be hard-won and unlikely confirmed until the May deadline.
• The fence sitters. The Democrats went back on their earlier move to the Thaksinite camp, while the swing vote parties, led by Bhumjaithai, continue to bide for time. Without their decision, it is impossible to announce a winner, although it is beleived they will eventually side with the incumbent.
• New round of mud slinging. The Army faction attacks Thaksin for disrespect, while the Thaksinites, though already leading in polls, claim the ballot boxes were tampered.

In light of this, the only safe ‘political’ stocks to play are those likely to benefit regardless of who wins, such as STEC and TSC. An extended political gridlock is also likely to weigh down the market until May, when we expect it to be resolved.

3. Bull Or Bear? Latest Global Liquidity Readings

• Global Liquidity bottoming out, but Central Banks not yet easing
• US Fed only withdrew $30bn in Q1, versus $350 bn in Q4
• PBoC still tightening through OMOs
• ECB  on ‘pause’
• QE4 is coming in 2019, but no evidence it has started yet

4. Risk of Future LNG Supply Glut as Bubble of New Projects Grows

The rapidly improving outlook in the LNG industry over the last few years, reinforced towards the end of 2017 by the unexpected growth of demand from China, has set off a proliferation of new LNG projects especially from the US (Exhibit 1).

In its latest LNG Outlook report, Royal Dutch Shell (RDSA LN) is projecting from 2023 onwards a significant gap between the future LNG demand and the existing supply including the capacity under construction that could require up to 100mtpa of new LNG project sanctions by 2023.

The race to gain market share in the projected LNG demand-supply gap has produced an aggregated capacity of proposed new projects of up to 475mtpa, a number larger than the total LNG traded volume in 2018 of 319mtpa and way above the capacity required to meet the future growth in LNG demand.

Exhibit 1: Funnel of proposed LNG projects getting bigger

5. Shaky Situations at DEMCO and Pranda

We visited two companies with very different trajectories. 

• Renewable power specialist DEMCO is struggling, despite doing really well in the past, while jeweler Pranda, once struggling, is on the recovery path.
• DEMCO reported gross profit and revenue decline of 8% and 7% respectively. Their earnings more than doubled, but that’s solely due to dividends from Wind Energy, an investment that cost them Bt800m and is embroiled in scandal.
• Pranda’s operating cash flows surged from Bt12m to Bt230m, as they restructured their store network.
• We’d still be caution on PDJ, as management doesn’t feel the restructuring is over. More stores could be closed down in the future.