In this briefing:
- JKN: Prime Content Distributor Eyes Big Opportunities in ASEAN Market
- Emerging Asean Telcos 2019: Indonesia Looks Best Placed. Malaysia Improving.
- Oil Prices Are Up. Which Stock Benefits?
- Debt Ratios Do Matter
- Much Ado About Credit
1. JKN: Prime Content Distributor Eyes Big Opportunities in ASEAN Market
We initiate coverage of JKN with a BUY rating, based on a target price of Bt8.80, pegged to the the 14.8xPE’19E mean of the Asia ex-Japan Consumer Discretionary Sector.
The story:
- Plenty of opportunities in the ASEAN market
- Harvest season is imminent
- New contracts with three new channels confirm 2019 domestic growth
- Mild recovery for domestic digital TV industry in 2019E
Risks: Heavy reliance on a few major customers, probability it will have to set provisions for doubtful debts and potential inability to renew contracts with customers.
2. Emerging Asean Telcos 2019: Indonesia Looks Best Placed. Malaysia Improving.
Looking at the telco space for Emerging Asean markets in 2019, we see a number of key themes.
- Revenue trends are likely to worsen in Thailand and the Philippines, but improve in Indonesia and possibly Malaysia.
- Margin trends usually follow revenue but Indonesia will have the added benefit of reduced subscriber churn following the SIM registration completion in 2018.
- Political risk is elevated with elections in Thailand (although renewed talk of delays) and Indonesia.
Overall, Indonesia looks to be the most interesting market with rising revenue growth as the market stabilizes. Telekom Indonesia (TLKM IJ) is our top pick, followed by Xl Axiata (EXCL IJ). Elsewhere, Malaysia looks to be improving but valuations remain high. The outlook has worsened in Thailand with DTAC (DTAC TB) getting hold of spectrum and now litigation risk coming to the fore with old cases with TOT/CAT. The Philippine duopoly faces the rude shock from the China Telecom Consortium’s entry in late 2019.
3. Oil Prices Are Up. Which Stock Benefits?
Oil prices shot back up to US$60/bbl levels in 2019. ‘Experts’ claim it has to do with lower US inventories, but we believe the truth is murkier than that. Instead of dwelling on the dynamics, let’s focus on which stocks benefits when the pendulum swings the other way.
- Near-term: PTTEP is the most direct beneficiary of higher oil prices. The crude they dig, rig, or suck out of the Earth immediately appreciates in value, and so does sentiments for their stock. It may also impact monetary policies, raising interest rates and benefiting banks.
- Medium-term, we expect people to focus on substitutes. Alternative energy providers like Bangchak could see improvement in volumes as their product becomes more competitive.
- Longer term, people would be more willing to switch to electric cars, benefiting both chargers (think EA) and coal (Banpu….someone still needs to generate electricity).
- There could also be lifestyle changes, which means condos closer to offices become more popular as a means to save on transport cost. Think AP, Sansiri, and BTS.
4. Debt Ratios Do Matter
Monetary diarrhoea has inflated the debt structure.
The death of the Bretton Woods monetary system in 1971 paved the way for unbridled money printing. The resulting Great Inflation inflicted huge negative real returns on bondholders and stockholders until 1982. Thereafter, many countries, especially EMs, linked their exchange rates to the dollar, resulting in the fastest ever-growth in global foreign exchange reserves. In addition, central bank puts and then extraordinary fiscal and monetary policies turned it into the most virulent asset bubble in history, despite monetary mayhem, exemplified by numerous banking crises and three big stock market drawdowns.
5. Much Ado About Credit
- Global financing conditions could tighten further
- Credit demand is deteriorating; credit risks are rising; Eurodollar costs are edging higher
- A de-escalation in trade tensions and a Fed pause could ease the pain
- Will Fed recently turning more dovish (possible shift to slower QT & Fed rate cut in 2019?) + concomitant USD drift provide sufficient respite to put a floor under risk assets?
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