In this briefing:
- Forecasting the Semiconductor Market
- The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
- Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand
- Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
- Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover?
1. Forecasting the Semiconductor Market
This is the time of year that Objective Analysis releases its semiconductor forecast. This post is based upon a video posted on the WeSRCH website that explains the Objective Analysis 2019 semiconductor forecast.
Although accurate semiconductor forecasts are straightforward to produce, the consistently-accurate methodology spelled out in this Insight is rarely used.
The forecast predicts that the downturn that the industry is currently entering will be longer than most, with profits eluding chip companies until 2022.
2. The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
This pre and post-Hogmanay 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.
The top three Equity Bottom-up ideas this weak come from CrossASEAN Insight Provider Jessica Irene on Indonesian pharma and consumer health play Kalbe Farma (KLBF IJ), CrossASEAN Insight Provider Angus Mackintosh on high-quality industrial Selamat Sempurna (SMSM IJ), and Daniel Tabbush‘s Insight on high ROA Indonesian finance company PT BFI Finance Indonesia (BFIN IJ). In the Sector and Thematic section, Athaporn Arayasantiparb, CFA presents his top picks in Thailand on the back of the weaker oil price.
Macro Insights
In Strong Revenues / Benign CPI / Indrawati’s Award / Prabowo’s Arabic / Scandals Mount / Tsunami Toll, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.
Equity Bottom-up Insights
In Kalbe Farma (KLBF IJ): Navigating Through the New Pharma Dynamics, CtossASEAN analyst, Jessica Irene zeros in on Indonesia’s largest pharma company as its consumer health division overtakes pharmaceuticals as a source of revenue and asks whether now is the time to revisit the stock.
In Selamat Sempurna (SMSM IJ) – Truly Industrious, former Jakartan Angus Mackintosh circles back to Indonesia’s largest filter manufacturer, which he sees as one of the country’s best quality listed industrials.
In Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance, banking specialist Daniel Tabbush circles back to PT BFI Finance Indonesia (BFIN IJ), which he suggests is an attractive prospect.
In Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover? , out Thai guru Athaporn Arayasantiparb, CFA takes a look at Thanachart Capital (TCAP TB) as TMB Bank PCL (TMB TB) comes close to concluding its takeover.
In Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?, Johannes Salim, CFA takes another looks at US-listed South East Asian e-commerce player Sea Ltd (SE US) and sees the company gaining ground in Indonesia, which is its most important growth market.
In Jardine C&C (JCNC SP): Close the Stub Trade, Curtis Lehnert revisits his recommendation on Jardine Cycle & Carriage (JCNC SP) and suggests now is the time to close the trade idea.
In M1 Offer Coming – Market Odds Suggest a Bump But… Travis Lundy investigates that the take over of Konnectivity Pte. Ltd. by leading Singapore telecoms firm M1 Ltd (M1 SP).
In Tuan Sing: Beneficiary of Exuberant Demand for Prime Office Investment Properties, Property Specialist Insight Provider Anni Kum suggests that recent large office acquisition by Gaw Capital in Singapore should benefit office player Tuan Sing Holdings (TSH SP).
In Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer, event-driven specialist David Blennerhassett zeros in on Hotel Properties (HPL SP) after a recent change in shareholding.
Sector and Thematic Insights
In Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand, Thai guru Athaporn Arayasantiparb, CFA searches for beneficiaries of the weaker oil price in Thailand.
In The Four Vulnerabilities in Thai Property, Athaporn Arayasantiparb, CFA looks takes a step back to look at the Thai Property Sector and explores a number of vulnerabilities.
3. Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand
As the US turns into a net exporter and weaker Chinese economic outlook looms, oil prices have tanked quickly. While QE unwinding will continue to weigh down share price performance for Thai equities in 2019, we do believe a few areas could benefit from lower energy costs on the earnings side.
- Consumer goods. Lower energy cost leads to higher disposable income. BJC, which sells consumables like potato chips, comes to mind.
- Retailing. Retailers that sell bigger items and provide parking space like BJC’s Big C and Robinsons benefit on the revenue side, while CP All’s 7-Eleven can expect to see cost reduction.
- Airlines & other tourism stocks. The cost savings for airlines is arguably bigger than any other sector could expect to enjoy. If they cut down ticket prices to compete, it will spill over to other areas of tourism, such as airport and hotel operators.
- Media. Improving consumer sentiment prompts new purchases and encourages businesses to advertise more. If we had to pick one, we’d go with Major this time. We also hold this stock for good measure.
4. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign.
Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.
Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?
5. Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover?
As the merger between TMB and Thanachart gets a nudge from the Ministry of Finance and could be finalized this month, we try to answer a few questions in this review:
- Takeover premium. Based on our estimates, the potential improvements in ROE from the merger and potential divestment of MBK, we think it justifies an Bt11.1/sh premium for Thanachart. The new best case price target for Thanachart stands at Bt64.25/sh, implying a 29% premium over current share price.
- Negotiations will play a key role in the actual takeover price. We provide a table of how much money is left on the table for TMB if they acquire TCAP at lower than what we expect.
- Benefits. Thanachart has a higher ROE than TMB and appears smaller but better managed. The merger would allow TMB to re-enter the securities business (more cross-selling), enlarge its asset management franchise, and scale up deposit base for both banks…more so on the Thanachart side.
- Size. Even after the merger, the combined bank would still have a much smaller headcount than BAY, smallest of the five largest Thai banks. However, it would have more branches than BAY and just 11% less branches than KBANK.
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