Therdsak Thaveeteeratham

Executive Vice President / Research

Asia Plus Securities

This week is expected to see the same factors – trade war and meetings of several countries’ central banks which are expected to run a more tightening policy. The Fed is forecast to hike the funds rate by 25 basis points and next year should be on watch.

There are mixed views over the December 19 Thai MPC meeting with less chance to see a policy rate hike in this round after lower-than-expected inflation announced for the latest month and still-low crude prices. If the policy rate remains unchanged in this MPC meeting, it will support the SET Index. The local political situation may see less weight on the Thai bourse but could be a support after a January 2 official announcement to hold an election.

In terms of market valuation, the SET Index is at 1,600 points, the market PER is 14.8 times at this year-end and 14.3 times at next year-end, the lower-than-normal levels and investors may gradually accumulate stocks for long-term investment. We still prefer the theme of domestic play. Our picks are retail: CPALL and BJC, ICT: DTAC, construction-construction materials: DCC, STEC and SEAFCO.    – Therdsak Thaveeteeratham, Executive Vice President / Research, Asia Plus Securities

Move ahead to 2019 election.

The SET Index has risen an average of 1.8 per cent. It’s interesting that it has increased 3.7 per cent and 5.1 per cent on average about one week and one month after an election, respectively.

Based on the past four elections, the baht has appreciated 0.6 per cent on average about two month before an election and has appreciated 2.3 per cent on average in the month of an election. The SET Index has climbed in three to six months before the election and has advanced consistently by 3.7 per cent on average in one to two weeks after the election.

Aside from the election, the baht will likely get support from the BOT’s expected rate hike in 1Q19. Given narrower US-TH 10Y bond yield, capital could flow into fixed income instruments again. Based on one-year statistics, the SET Index has moved on the opposite of the baht with a correlation of -85 per cent. It means that if the baht appreciates, the SET Index will rise and if the baht depreciates, the SET Index will drop. In two months before the election, the baht is expected to appreciate and the SET Index is forecast to rise.

Due to less inflationary pressure which comes positively to domestic consumption and government stimulus, we like retail group: CPALL, ROBINS, BJC or hotel and food group: MINT, CENTEL. We also prefer AMATA for a certain election schedule, which could boost foreign investors’ confidence and certainty on urban development in the EEC. We also pick STEC, CK as already-approved megaprojects will likely speed up implementation next year. – Prakit Siriwattanaket, Vice President, Kasikorn Securities

It shows how the capital markets industry can wring out historical inefficiencies in its business model — inefficiencies that were acceptable in order to grow rapidly and capture market share — as it now faces digital disruption and struggles to overcome fragmented cost structures and create shareholder value.

The report, titled “Capital Markets Vision 2022,” is based on Accenture’s proprietary financial analysis of the capital markets industry and on interviews with executives at leading industry firms.

Accenture is a global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations.

 For the report, Accenture analysed value pools bottom up — based on individual players’ results — creating a view on specific sector and subsector profitability, using fiscal year 2017 data as a baseline. The company used economic profit as a yardstick, deducting credit losses, full operating costs, taxes and the cost of equity. The researchers took special interest in the underlying profit dynamics for key sectors including investment banking, corporate and investment banking, asset management, wealth management and market infrastructure. The researchers then discussed the implications of this baseline and the likely development of these value pools with executives at leading capital markets firms and, during these conversations, identified key management challenges against this backdrop.

Among the key findings: Wealth and asset managers generate 90 per cent of overall industry economic profits (profit after taxes and cost of equity) but are ineffective at achieving scale efficiencies and should prepare for down-market scenarios, with shrinking margins. Investment banks, meanwhile, show a diverse picture: Only some institutions — both large and small — are earning 10 or more cents on the dollar in economic profit, while many others are not earning their cost of equity. And traditional market-infrastructure players’ revenues are now rivaled by those of emerging cryptocurrency exchanges.

Capital markets firms collectively earn about US$1 trillion in annual net revenue, which translates to more than US$100 billion in economic profit, according to Accenture analysis. But as shareholders, regulators and customers continue to exert pressure on them to deliver higher value at lower cost and as quantitative easing tapers off, fee pressures will place an ever-greater burden on the industry to resolve its once-lucrative inefficiencies, the report shows.

“Some expect the capital markets sector to normalise again and resemble itself before the financial crisis, but our outlook for the years ahead is very different,” said Nontawat Poomchusri, Country Managing Director and Financial Services Lead, Accenture in Thailand.

“This industry still leans heavily on historically ‘lucrative inefficiencies,’ when there was little incentive to change the status quo because the industry was generating such strong profits. But unlike in other sectors, the core business of capital markets accounts for a very small fraction of its cost bases — and in an era of rapid digital innovation, that leaves the industry ripe for disruption.”

The report, based on Accenture’s proprietary financial analysis of the capital markets industry and on interviews with executives at leading industry firms, focuses on the three main sectors: investment banking, asset and wealth management, and market infrastructure. Among the key findings for each: Market infrastructure players. According to the report, revenue from cryptocurrency exchanges now matches that from traditional exchanges. The interdealer brokerage business—the most traditional arm of the market infrastructure subsector—is narrowly profitable on a pre-tax basis; and most interdealer brokerages are actually shrinking shareholder value. The most profitable part of the subsector are regulated exchanges, which often generate pre-tax margins greater than 50 percent. However, their growth prospects seem to be modest. Most are exploring opportunities in asset servicing, data services and traditional and cryptocurrency trading.

“Adapting a trillion-dollar industry for the digital age while it’s entering an era of profound disruption is a complex and shape-shifting goal,” said Nontawat. “But it is also an era that provides significant opportunities for those who act fast as value pools are being redistributed. Nimble firms will be able to capture new profit opportunities in a ‘race for relevance’—while also benefiting the industry’s customers.”

From purchase to payments, there has been no short of innovation that makes the online retail consumers’ lives that much easier. With a click, they get to choose from almost an endless selection of items, and with another click, they complete the purchase by paying with a digital wallet, mobile payment app, or stored value card.

While business-to-consumer (B2C) payments channels dominate the market, there remains a lag in the development of business-to-business (B2B) payments solutions.

Just as consumers find online payments to be seamless and cost-effective, many businesses consider B2B digital payments expensive and complex. Concerns about hefty set-up costs and a tedious implementation process could be keeping companies from switching to digital payments. Some 90 per cent of Asia B2B transaction volume is in cash, and about 40 per cent of B2B transaction value is in cash and cheques.

But to pay less attention to the B2B payments segment would be a short-sighted approach. Estimates show retail e-commerce sales were US$2.3 trillion in 2017 while B2B online sales stood at $7.7 trillion, excluding non-e-commerce B2B payments. And the number of non-cash transactions is expected to grow 28.8 per cent annually in emerging Asia and 9.9 pr cent in mature Asia Pacific through 2021. More importantly, electronic invoicing reduces administrative costs by 60-90 per cent compared to paper invoicing processing, translating into savings of $12.80 per invoice.

To capitalise on the potential of B2B digital payments, we need a concerted approach to bring about a new mindset towards regular corporate payments practice and a change to businesses’ reliance on paper invoicing. Governments, banks, financial services companies, and technology firms have a role to play in this digital shift.

Asean regulators are taking steps to boost electronic B2B payments. These measures include the enhancement of the e-payments infrastructure, waivers of transaction fees for domestic online transactions, and an increase in cheque processing fees. In the Asean agreement on e-commerce endorsed in August 2018, provisions encouraging member states to promote paperless trade, cross-border data flows, and electronic payments were laid out.

With the advent of digital solutions that have transformed retail payments, it makes good economic sense to leverage existing innovations to engineer a shift in the B2B payments space.

In the B2C payments area, many Asian governments are launching their direct debit networks to encourage digital adoption. Indonesia’s central bank unveiled a direct debit feature in their national clearing system in 2016, and is in discussions to launch additional payment options to provide digital alternatives. PayNet, owned by Bank Negara Malaysia, has also revamped its direct debt infrastructure to include business-friendly features to promote usage. These direct debit systems allow for the drawing down of payers’ accounts after a one-time authorisation. Businesses can leverage the existing instant payments infrastructure capabilities to do the same with their vendors or suppliers.

With the widespread use of consumer e-wallets, Fintechs and corporates are also exploring the viability of business e-wallets for payments within their supply chain ecosystem. A number of Proof of Concepts (POCs) are underway as some larger corporates are assessing the feasibility of setting up their proprietary wallets.

As instant payments among consumers through a proxy, such as mobile numbers, take shape, companies in industries such as telecommunications or insurance could be keen to improvise this capability for their B2B accounts. Higher payment transaction limits will also likely accelerate the pace at which businesses offer and accept B2B digital payments.

In Singapore, the Association of Banks in Singapore (ABS) initiated the PayNow Corporate Scheme, an extension of the peer-to-peer funds transfer service PayNow. The corporate initiative, launched in August 2018, is an end-to-end process that covers billing, payments, and collections.

To leverage the full potential of these technologies and simplify the business payments process, corporates need to accept and apply new technologies to their own payments systems and work together to synchronise the instant payments mechanism across their digital platforms. Partnerships between banks and technology firms are critical to develop digital payments solutions that are safe, secure, and convenient for businesses to use. International financial institutions, such as Standard Chartered, have a key role to play in facilitating instantaneous cross-border digital transactions. The bank is actively working with its corporate clients to simplify B2B payments in their supply chain ecosystem. It is also leveraging the distributed ledger technology, which enables simultaneous access, validation, and record-updating across a cross-border network used by multiple parties, to support international B2B digital payments.

Re-imagining the future of B2B payments is critical to moving the innovation agenda forward. The advent of B2C digital payments is a step in the right direction, but it takes a collaborative effort between businesses and regulators to make digital B2B payments a reality. We can either be a part of the digital payments ecosystem or risk being left behind in this race towards the paperless ideal.

ContrIbuted by ANKUR KANWAR, Regional Head – Cash Management Products, Asean and South Asia, Standard Chartered Bank

In all, the projects are being touted as improving the livelihoods of people in the region – designated as Area 1 – while also promoting tourism.

The multibillion-baht package was approved yesterday at a meeting on economic and social development for the five provinces: Bueng Kan, Loei, Nong Bua Lamphu, Nong Khai and Udon Thani. The meeting was chaired by Prime Minister Prayut Chan-o-cha.

Sawat Teeraratananukulchai, chairman of the Udon Thani Chamber of Commerce, said that, broken down, the projects aimed at bringing in development in five dimensions: logistics; water resources for agriculture and flood solutions; manufacturing upgrades and product value-adding; tourism; and people’s quality of life.

He said the projects would help equip the targeted provinces for the expected leap in the country’s economic growth in 2021, when key elements of the major transport projects would be completed. Some of the new transport links would pass through these provinces.

Among such projects are the Bangkok-Nong Khai double-track railway and the high-speed railway from southern China to the Lao capital Vientiane. These projects are expected to raise the number of Chinese tourists in Vientiane from 500,000 a year to at least 2 million. In turn, more Chinese are expected to cross the border into Thailand’s upper-Northeastern provinces, where they will spend on accommodation, sightseeing and shopping.

The value of Thailand-Laos trade in the five provinces is expected to rise 10 per cent a year from 2019-21.

“We want to push for this group of provinces to become the Isaan Economic Corridor or IEC. We’ve discussed this in detail and are preparing to propose that the next government give its support by focusing on raising capabilities in services and tourism, particularly tourism along Mekong River,” Sawat said.

The government’s measures to boost tourism through visa-free initiatives and eased re-entry visas have led to a 4 per cent in visitor numbers so far.

In regard to the planned investment in infrastructure to cope with the to-be-expanded tourism and economy, Sawat said that Udon Thani province has proposed that the government support a plan for a Bt3-billion third terminal at Udon Thani airport. This project falls under a Ministry of Transport plan. Sawat also wants to see support for a planned Bt1.4-billion private sector-led dry port project for the purchasing of local agricultural products.

About 60 per cent of the infrastructure of Udon Thani industrial estate has been completed and a number of Chinese investors are keen to invest in the area, he said.

Wilawan Kanoksil, chairman of the Nong Khai Chamber of Commerce, said that the five upper-Northeastern provinces had teamed up for a collective pitch on the projects related to economic development and people’s quality of life. Among the priority projects is for a logistics system, especially for a Mekong River rail crossing to shorten the travel time to Vientiane, and a 139-kilometre route from Udon Thani to Bueng Kan. Details for both projects will likely be studied next year.

Other logistics projects approved include studies for bypass roads for Loei province and Chiang Kan, investment in an integrated transport system for tourism within the group of provinces, and the construction of a port along Mekong River.

Puttipong Punnakanta, deputy secretary-general to the Prime Minister, said the Transport Minister had reported to the meeting on details for the major transport projects benefiting the five provinces. The Bangkok-Nong Khai double-track rail project, worth about Bt26.65 billion, is included and has been prepared in detail. The report is expected to be forwarded to a Cabinet meeting in January.

Agriculture and Cooperatives Minister Kritsada Bunrat said that amid a decline in both demand and prices for rubber, the Ministry of Agriculture and Cooperatives, Ministry of Transport and the Ministry of Finance have discussed solutions. Possible remedies include the determination of the central construction models and a manual for construction of roads mixed with rubber for local administrative organisations’ planned para-soil cement roads.

It is planned that all villages, 75,032 in total, will each construct one kilometre of such rubber-mixed road, under the government’s efforts to stabilise rubber prices over the long term. No less than one million tonnes of rubber are expected to be used on such road construction in the villages.

Customers can select PayPal as their preferred payment method on ANA’s website and its smart app for international flights and flights within Japan booked at the same time.

While the use of PayPal will not affect ticket prices, ANA has added the digital platform to open up new opportunities for tech-savvy consumers.

PayPal joins credit cards, ANA Sky Coins, convenience stores and bank transfers as acceptable methods for online purchases.

“We are excited about taking another step to offer individually tailored services to passengers by adding PayPal to our list of payment options,” said Mitsuo Tomita, ANA executive vice president.

“PayPal is a significant global platform, with over 250 million users all over the world, and we want to make travelling as convenient and accessible for them as possible.”

SOLID VIEW

CP All secures

‘A’ ratings from TRIS

TRIS Rating has affirmed the “A+” company rating on CP All PLC (CPALL) and also affirms the ratings on the outstanding senior unsecured debentures at “A”.

The different ratings on the debt issues reflect the company’s high level of secured debt and the fact that the unsecured debentures are in an inferior position to the secured debt.

At the same time, TRIS Rating assigned an “A” rating to CPALL’s proposed issues of up to Bt10 billion in senior unsecured debentures and the additional greenshoe portion of up to Bt5 billion.

The company will use the proceeds from the proposed issues to refinance its existing |debts.

The ratings continue to reflect the company’s market position and proven record as the largest operator of convenience stores in Thailand.

COVERED

Chubb Life names country

chief for Thailand

Chubb, the world’s largest publicly traded property and casualty insurance company, yesterday announced the appointment of Angela Hunter to the role of country president for Chubb Life in Thailand, subject to regulatory approval.

Chubb Life’s operations in Thailand provides life insurance and protection services to meet the financial protection and security needs of a broad range of customers.

Hunter joins from Prudential Assurance Company, Singapore where she was executive vice president and chief customer, marketing and digital officer, responsible for a diverse product portfolio including medical, protection and savings and investments. Prior to this, she held senior leadership roles in financial services in New Zealand and Australia.