Daily Thailand: Uzbekistan Initiation: Value Hidden in Plain Sight and more

In this briefing:

1. Uzbekistan Initiation: Value Hidden in Plain Sight
2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending January 17, 2019
3. The Burden of Too Big Government
4. JKN: Prime Content Distributor Eyes Big Opportunities in ASEAN Market
5. Emerging Asean Telcos 2019: Indonesia Looks Best Placed. Malaysia Improving.

1. Uzbekistan Initiation: Value Hidden in Plain Sight

Uzbekistan’s economy is a frontier market stand out and has a large number of attractive characteristics:

• Uzbekistan’s stock market trades at a substantial discount to other frontier markets, though the extremely illiquid nature of the market makes it hard to trade.  However, there still is foreign interest in the market.
• The IMF projects that the economy will grow by 5% during 2018 and 2019, and eventually reach 6% by 2022, though this is still below its historical high. 
• Market reforms were spearheaded in December 2016 when the newly elected president, Shavkat Mirziyoyev decided to transition towards a market- oriented economy led by private sector growth, as the public sector was unable to create enough jobs.  This represents a significant shift given that Uzbekistan had been a closed, centrally planned economy until 2016.
• Tourist arrivals grew by 91.6% during H1 2018, and this is poised to improve greater in the future due to the impact of the visa liberalization measures.
• Twin deficits have remained under control and Uzbekistan is one of few current account surplus frontier markets.
• Uzbekistan is also very attractive compared to other markets in the frontier space given that its minimum wage is only US$24/month, compared to around $70-75/month in Kyrgyzstan and Kazakhstan.

The market reforms that the country recently implemented will be a major catalyst for future economic growth and makes investment in this market appealing.  Apart from strong growth, the market is also appealing due to its high foreign exchange reserves ( nearly 2 years of import cover), consistent CA surplus, and stable currency.  My latest frontier and emerging market recap highlights the appeals of markets such as Bangladesh, Vietnam, and Egypt, while expressing concerns for markets such as Sri Lanka and Pakistan.  Uzbekistan is a suitable addition given its stable macro/political picture, and the main negative factor of this market is the highly inaccessible nature of the equity market.  The ADTV is less than $100,000, which is a far cry from other frontier markets like Romania, Sri Lanka and Kenya.

2. Business Happenings in the Americas that May Be “Below the Radar” – Week Ending January 17, 2019

Highlights of significant recent happenings include:

3. The Burden of Too Big Government

From our very own “Austrian” Leigh Skene:

Wars in old times were made to get slaves. The modern implement of imposing slavery is debt. Ezra Pound

Governments used public sector balance sheets to bail out private financial institutions and assist private companies to emerge from bankruptcy in the GFC. These actions transferred credit risk from the private to the public sector, yet falling nominal interest rates minimised, and in some cases froze, the cost of servicing the mounting government debt until late 2016. Since then, many borrowers have paid rising  interest rates on increasing amounts of debt. Debt service charges are rising faster than nominal GDP in a growing number of nations as a result. It is estimated that the US federal funding requirement will rise from minus US$ 700bn to US$ 2tr in 2022.

4. 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.

5. 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.