Daily Thailand: Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand and more

In this briefing:

1. Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand
2. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
3. Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover?

1. 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.

2. 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?    

3. 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.