In this briefing:
- 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
- CKP (CKP TB): Powerful Expansion to Drive Earnings Growth
- Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
1. 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
2. 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.
3. 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.
4. CKP (CKP TB): Powerful Expansion to Drive Earnings Growth
- Strong net profit momentum and more attractive to analysts relative to its sector
- Higher power demand trend from new industrial consumers should continue supporting electricity sales, revenue rose 31% YoY in 3Q18
- Large capacity expansion from Xayaburi hydroelectric power plant in Laos with expected commercial operation date (COD) in 4Q19 to more than double CKP’s current effective capacity
- Trades above ASEAN Utilities at 19CE* 45.1x PE but offers great EPS growth in a sector that is expected to remain flattish
- Risk: Delays for new plants, change in government regulation
* Consensus Estimates
5. Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019
In a follow up to my note from last year Overview of My Winners and Losers in 2017…and 5 High Conviction Ideas Going into 2018 I again look at my stock ideas that have worked out in 2018, those that have not and those where the verdict is still pending.
Last year I provided 5 high conviction ideas and here is their performance in a brutal year for Asian Stock Markets:
Company | Share Price 27 Dec 2017 | Share Price 20 December 2018 | Dividends | % Total Return |
0.70 HKD | 0.88 HKD | 0.01 HKD | +27% | |
0.20 SGD | 0.27 SGD | 0.0 SGD | +35% | |
2.39 HKD | 2.82 HKD | 0.147 HKD | +24% | |
0.84 SGD | 0.85 SGD | 0.02 SGD | +3.5% | |
1.44 MYR | 0.32 MYR | 0.0 MYR | -79% |
4 out of 5 had a positive performance.
Below I will make a new attempt to provide five high conviction ideas going into 2019.
