In this briefing:
- Are US Stocks Still Expensive?
- Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
- COM7 (COM7 TB): Acquisition to Support Aggressive Expansion
- Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
- Sathorn Series M: TMB-Thanachart Courtship
1. Are US Stocks Still Expensive?
There are striking parallels between 1929 and 2018.
The 1929 crash put a halt to a nine-year bull run on the market.
Up until October 1929, same as this year, market consensus was that asset prices could only go up from their current level.
As we mentioned in When the Tide Goes Out, Dominoes Fall, a decade of building up excesses meant a painful burst, back 79 years ago: between October of 1929 and September of 1932, eighty-nine percent of the value of stocks was erased and the market didn’t recover to its former peak until 25 years later.
Are we in a similar situation right now?
2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending December 22, 2018
Highlights of significant recent happenings include:
- Feeding the Dragon – Sumitomo Corp (8053 JP) buying into massive Chile copper project; Mitsui & Co Ltd (8031 JP) and Tokyo Gas (9531 JP) announced plans to be long-term buyers of Mexican LNG.
- Local News on Global Companies – Huawei Technology (40978Z CH)‘s to do “whatever is required” to meet Canada’s 5G security standards; Ant Financial (1051260D CH)’s Sesame Credit be used to apply for Canadian visas; Facebook Inc A (FB US) offered data to Netflix Inc (NFLX US) and Royal Bank Of Canada (RY CN); BlackBerry Ltd (BB CN)‘s high-security reputation increasingly valuable; Fedex Corp (FDX US) and United Parcel Service Cl B (UPS US) deny negative impact from Amazon.com Inc (AMZN US)‘s Amazon Air operations; and Anheuser Busch Inbev Sa (Adr) (BUD US) and Tilray Inc (TLRY US) are doing “joint” product development.
- Trade Deals & No Deals – Bosideng Intl Hldgs (3998 HK) got an unexpected boost, while Canada Goose Holdings (GOOS CN) took an unexpected hit as a consequence of the U.S.A. Government’s problems with Huawei Technology (40978Z CH) .
- Outliers – Another “silver lining” to global warming? The Warming Arctic Opens the Northwest Passage as a Potential Maritime Superhighway
3. COM7 (COM7 TB): Acquisition to Support Aggressive Expansion
- Improving asset turnover, good risk adjusted price momentum, and relatively strong analyst recommendations relative to its sector
- Larger distribution channel through acquisition of DNA Retail Link to add 95 more stores to current 518 stores
- New mobile product launches in 4Q18 and COM7’s focus on high margin products, such as Android smartphones, should support high earnings growth which was up 56% YoY in 3Q18
- Attractive at a 19CE* PEG of 0.9 versus ASEAN sector at a PEG of 2.7
- Risks: Lower-than-expected demand for new IT products, slower-than-expected store expansions
* Consensus Estimates
4. Micron’s Guidance Bombshell Signals Troubled Times Ahead For Beleaguered Semiconductor Segment
After months of skirting around inventory build-up and a weakening demand outlook, Micron used their latest earnings report to call closing time on a revenue and profitability party that began in Q4 2016 and just got better and better with each passing quarter.
Micron reported Q1 FY2019 results on December 18’th and while revenues were largely in line with recently lowered guidance from the company, their outlook for both Q2 and 2019 as a whole was worse than even the most bearish of expectations.
Citing high inventory levels at key customers, Micron guided Q2 FY2019 revenues for $6 billion at the midpoint, down a staggering $1.9 billion, 24% QoQ and 18% YoY. At the same time, Micron revised down their CY2019 bit demand growth forecast for both DRAM (from 20% to 16%) and NAND (35%, the bottom of the previously forecasted range). The company plans to adjust both CapEx and bit supply output downwards to match.
In the wake of their guidance bombshell, Micron’s share price closed down almost 8% the following day to end the session at $31.41, a level last seen in August 2017. Micron is unique in reporting out of sync with its industry peers, making it the proverbial canary in a coal mine. The company’s gloomy outlook and clarion call for further CapEx reductions in a bid to rebalance supply and demand spells troubled times ahead for an already beleaguered semiconductor segment ahead of the upcoming earnings season.
5. Sathorn Series M: TMB-Thanachart Courtship
Right before Christmas, the Ministry of Finance confirms that both Thanachart and KTB were in talks to merge with TMB. We note that:
- Considering that KTB’s earlier courtship failed once, it is more likely, but by no means guaranteed, for the deal with Thanachart to happen.
- A deal with Thanachart would leave TMB as the acquirer rather than the target. Thanachart’s management has better track record than TMB.
- Both banks have undergone extensive deals before this one: 1) TMB acquired DBS Thai Danu and IFCT; and 2) Thanachart engineered an acquisition of the much bigger, but struggling, SCIB.
- A merger between the two would still leave them smaller than BAY and not really change the bank rankings, but it would give TMB a bigger presence in asset management and hire-purchase finance and an re-entry into the securities business.
