In this briefing:
- Snippets #18: Naughty CEOs, Southern Crusades
- Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
- Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
- LNG Producers Outperform as More LNG from the US Is Coming into the Market
- Thailand – KTC Defies the Sceptics
1. Snippets #18: Naughty CEOs, Southern Crusades
In this review, we highlight five new unrelated developments that might impact the Thai stock market if you happen to hold the affected stocks.
- Skeletons in the closet. CIMB’s Thai CEO went on voluntary leave to clear his name regarding a legacy case back in his KTB days, while one of Thailand’s highest profile tycoon Dr. Prasert has been implicated in a stock manipulation case of Bangkok Airways from way back in 2015.
- Religious wars? As the southern insurgency spreads to economically vibrant province of Songkhla, insurgents attack a Buddhist temple and kill two monks, possibly in an effort to turn the crisis into a religious war. Doesn’t sound great for overall stability.
- A rare bump in the Baht. Despite QE unwinding, the Baht has risen almost 3% against the greenback. Bad news for exporters (eg. TUF, DELTA) good news for serial acquirers (think Thai Beverage, Banpu).
- Government-inspired deals. Is the government driving M&A in Thailand these days? They certainly had a hand in the TMB-Thanachart deal and now are rumored to be buying Thaicom, the country’s only satellite operator.
- Air quality takes a dive thanks to diesel and aggressive skytrain construction programs. Stores selling face mask and companies that substitute ethanol to diesel are set to benefit, while BTS might hit headwinds as government forces them to slow down construction.
2. Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
In our base case, we do not expect the trade war between the US and China to end soon. The next bilateral meeting between Liu He and US Trade Representative Robert Lighthizer is scheduled at the end of this month. If the Chinese side is hoping to placate the US with promises to purchase US commodities, this is unlikely to be sufficient to achieve a lasting improvement in the relationship. We are sceptical that the Chinese leadership will agree to launch structural reforms under pressure from the US.
Elsewhere, we are concerned with growing geopolitical and security risks in Nigeria where both presidential and parliamentary elections are scheduled in February. The relations between Turkey and the US have also soured ahead of the Turkish local elections. In Poland, the assassination of the Gdansk mayor put the polarisation of the society into the spotlight ahead of the parliamentary elections due this autumn. There are signs that the US is about to ramp up pressure on Russia after newly elected Democratic House members filled their seats earlier this month.
3. Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
On January 24’th 2019, SEMI announced that Wafer Fab Equipment (WFE) billings for North America-based manufacturers of semiconductor equipment amounted to $2.11 billion worldwide in December 2018. This represents an 8.5% MoM increase, although still lower YoY by 12.1%. December’s data marks the reversal of a six month long downtrend in monthly billings, a bullish signal that the WFE segment has bottomed and better times lie ahead.
This latest billings data coincides with WFE bellwether Lam Research (LRCX US)‘s latest earnings report which slightly exceeded guidance with revenues of $2.5 billion, up 8.7% sequentially. On the call, company executives stated that first quarter CY 2019 would mark the trough from a gross margin perspective, strongly implying that it would be the same for revenues.
LRCX shares surged 15.7% in overnight trading triggering a rising tide that lifted large swathes of semiconductor stocks, particularly those within the WFE sector. Two swallows don’t necessarily mean it’s Spring, but for now, the markets are betting that it does.
4. LNG Producers Outperform as More LNG from the US Is Coming into the Market
On the back of a growing LNG global trade volume, LNG producers have outperformed the US market and their E&P peers including the oil majors over the last two years. As global LNG production reaches a record 316m tonnes in 2018, a 9.6% increase year on year, new capacity additions set to come online in the next three years will be dominated by the US. This insight will examine how the recent entry of US LNG in the market is transforming the LNG industry and which emerging players are driving the change.
Exhibit 1: LNG Producers Outperform the US Market
5. Thailand – KTC Defies the Sceptics
Krungthai Card (KTC TB) shows all too clearly how to keep profit growth high, rising from 20%, to 33% and to 56%, from 2016 through 2018. There are few financial companies that can compare to the persistent and high and improving rate of profit growth. We must remember that late in 2017, regulations changed lowering the maximum rate on credit card loans and limiting facilities based on a more stringent policy relating to income. Ironically, we believe this supports performance. Customers may have become more careful on defaulting, running the risk of getting cut off and having to re-apply for a personal loan or a credit card. And under new regulations, customers can not receive as high a credit limit as in the past, if their income is less than Bt30,000 or Bt50,000 per month.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
