Brief Value Investing: PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter and more

In this briefing:

1. PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter
2. Vietnam Market Update: Deep Value Found in Salient Themes
3. Bharti Airtel Buy on Short Lived Breach Below Support

1. PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter

Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation.

Profitability is elevated with chunky NIMs and spreads, fee income and insurance are performing well, and OPEX is under control. Capital Adequacy and CIR look healthy.

However, we are concerned about rising interest costs, at a pace in excess of interest income generation.

The bank also seems to be stretching a little in terms of quality income to reach the Net Profit line with “other non-interest interest income” and gains on securities. The bottom line falls a little short of a comprehensive income assessment.

In addition, asset quality remains a thorny issue. The Balance Sheet continues to be much more toxic than the sedate NPL ratio. This relates to the micro focus.

Debt to Equity is on the rise.

Overall, trends are no better than average – as testified by a PH Score of 5.

Trading on a P/Book of 2.6x and an earnings yield of 7.3%, we believe that valuation is somewhat rich irrespective of the bank’s strengths. A franchise valuation of 52% versus a median of 8% in Asia Pacific seals the deal.

2. Vietnam Market Update: Deep Value Found in Salient Themes

My previous insight Top Consumer Themes in Vietnam notes the clear cut strategy of investing in consumer growth stocks at reasonable valuation, while avoiding some of the over-hyped momentum names that trade at unreasonable multiples.  Another interesting trend to note in the market includes the lower valuation of select stocks that are positioned in key, high growth sectors, which are by no means value traps.  After eliminating value traps and overvalued momentum names, it is clear to see the VN Index offers asymmetric value for investors.  The attractively priced consumer growth stocks and value names are both relatively favorable compared to that of other frontier markets ( less favorable macro picture but similar valuation in many cases).

Some of the themes mentioned in this insight are an indirect play on China’s economic transformation, as it chooses to “export” some of its less sophisticated economic activities to other frontier markets ( ie. coal in Mongolia and textiles in other frontier markets).  This has intensified recently on the back of trade war tension.  Stocks in Vietnam that are in sectors positioned to benefit from this trade at relatively depressed valuations.

I included an overview of the following themes and some stocks positioned in these areas:

• Power is an appropriate way to access Vietnam’s broad based economic growth: Investment in power stocks is an indirect play on Vietnam’s continued growth in manufacturing and the country’s improved standards of living.
• Industrial park operators are attractively priced and offer exposure to Vietnam’s manufacturing narrative, which is a very straight forward growth narrative: Industrial park operators have relatively guaranteed success and have been able to attract large names such as Samsung and LG.
• Vietnam’s textile industry will be a key driver of growth moving forward: Vietnam’s textile industry has continued its course of growth, even though it has been moving into electronics exports and also facing increased competition from lower cost countries such as Bangladesh.
• Port stocks are extremely cheap, as perceived risk is greater than actual risk: The valuation for port operators has also become very depressed in recent years, though this is clearly a strong long term growth areas for Vietnam’s stock market.
• Vietnam’s agriculture growth recently reached a 7 year high, though growth still remains in the lower single digits and below the country’s average GDP growth.
• Plastic and steel stand out as high growth areas, though margins are sensitive to commodity price movements.

3. Bharti Airtel Buy on Short Lived Breach Below Support

Bharti Airtel (BHARTI IN) corrective cycle does not appear complete with risk of a final spike lower  below key pivot support. It is this crack lower that we want to take advantage of.

Sell volume spike implies the flat range will break lower. 

Daily cycle triangulation sides with a press below pivot support. An upside break of this triangle would trigger a tactical long but would lack needed gas for a sustainable drive.

Weekly MACD is seeking a bottoming/basing cycle that will turn the cycle higher once we see a final capitulation spike below pivot support as we did back in 2008, 2010 and 2012.