Brief Utlilities: TPCH: Promising Growth at an Attractive Valuation and more

In this briefing:

1. TPCH: Promising Growth at an Attractive Valuation
2. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile
3. HK Connect Discovery Weekly: CRRC, Car Inc/UCar (2019-01-25)
4. Centrica PLC (CNA LN): Lots of Gas but No Fizz
5. Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming

1. TPCH: Promising Growth at an Attractive Valuation

We initiate coverage of TPCH with a BUY rating and a 2019E target price of Bt13.0, pegged to  13.0xPE, which is the average valuation of its inexpensive listed peers. In comparison, TPCH is trading below 10x PER in 2019-20E. Given that the investment phase for its biomass power plants is almost over, we expect it to pay a nice dividend yield of 3.3% in 2019E and 6.6% in 2020E.

The story:

• Decent growth in 2019-20E
• Price contraction has opened an investment opportunity
• Poised to be an early leader in the waste-to-energy business
• Expect a 31% CAGR for earnings in 2019-20E

Risks:

• Lack of raw materials
• Raw material price fluctuation

2. NTT (9432 JP) Remains the Broadband King in Japan, Both for Fixed Line and Mobile

With its nationwide fiber optic network infrastructure, NTT continues to dominate the fixed line broadband market in Japan with 68% market share. In this Insight we explore the fixed line broadband market in Japan today and how it is evolving, especially with the increasing dominance of “collaboration” offerings that bundle fiber with mobile services.

Mobile services are getting a lot of attention today, especially in the run up to 5G launches over the coming 12 months, but without fiber backhaul, 5G would be a nonstarter. In this Insight we investigate what 5G will bring and what is needed to support it as well as the telcos’ latest plans. 

NTT is not just an incumbent telecom operator, it’s also a key player for future technologies and provides the physical infrastructure and architecture for many of the industries new services.With all the talk about 5G it is sometimes easy to forget that fixed line networks are still necessary. With NTT’s strong fiber-based network and its collaborations with NTT Docomo and many other partners in mobile and data, we believe NTT is well positioned to be a key and winning player in the evolving telecom and technology space. 

3. HK Connect Discovery Weekly: CRRC, Car Inc/UCar (2019-01-25)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this week’s HK Connect Discovery, we highlight that CRRC’s outflow coincides with media reports that highlight the risks of China’s investment in high-speed railway. We also see a very substantial southbound flow into Car Inc. 

4. Centrica PLC (CNA LN): Lots of Gas but No Fizz

The political decision to exit the European Union has unpredictable negative consequences for both the UK economy and stockmarket. My purpose is to identify a portfolio of UK shorts and occasional longs.  

Centrica PLC: What does it do ?

Centrica, through its operating subsidiary British gas is the largest of the six major energy supply companies operating in the UK. The core activity, and providing around 70% of revenues, is energy supply to households and businesses in the UK, US and Canada. The group has a 28% share of the home energy market in the UK and 13% of the market in US. In energy supply to businesses, Centrica is the second largest supplier in the US where it claims a 15% market share. Beyond energy supply Centrica has three established business, Services, Trading, and E&P, and two nascent high growth businesses Distributed Energy & Power and Connected Home

Why is it in the short portfolio?

Energy Supply is dominated by regulation and price conscious consumers which has lead management to predict a flat revenue outcome over the long term. Customer numbers are declining, the recently introduced default tariff price cap will eat into revenues, and higher gas prices are unhelpful.

Recognizing the problem management intend to treat Energy Supply as a cash-cow re-investing its cash-flow into the growth businesses. However the available upside from these new ventures may not provide sufficient compensation. More immediately consideration of cash-flow suggests the dividend, currently supporting the shares with a near 9% yield, may not prove sustainable.

5. Global Ex-U.S. Equity Strategy: MSCI EM in Early Stages of Bottoming

Our overall global outlook remains cautious and continued downward pressure on global equities remains our expectation. One bright spot is EM (more on this below), which continues to give us hope that global equities can bottom out.  We provide a technical appraisal of major markets and highlight actionable setups within the global Utilities and Staples Sectors.