Equity Analysis /
Thailand

FM and EM Consumers: Who will prevail post-coronavirus?

  • The coronavirus that is ravaging Asia and going global is a Black Swan event that presents both risks and opportunities.

  • Investors need to prepare themselves for the risks and the eventual containment of the virus.

  • Similar viral outbreaks in the past 25 years have seen markets rally three months after the worst of the crisis.

FM and EM Consumers: Who will prevail post-coronavirus?
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
25 February 2020
Published byTellimer Research
  • The coronavirus (Covid-19) that is ravaging Asia and going global is a Black Swan event that presents both risks and opportunities.
  • Investors need to prepare themselves for the risks and the eventual containment of the virus. Similar viral outbreaks in the past 25 years have seen markets rally three months after the worst of the crisis.
  • The food & beverage component of the consumer sector is particularly exposed to a bounce back. E-commerce may be revalued due to the virus.

The coronavirus is a Black Swan event that has now claimed more than 2,600 lives. Just as the virus emerged suddenly and unexpectedly, so investors need to brace for its eventual containment.

History shows that the market rallies after a health scare peaks. The MSCI World index recovered after events such as SARS (April 2003), Swine Flu (April 2009), Avian Flu (June 2006) and the Cholera outbreak (November 2010). Three months after SARs, MSCI World was up 16.4%.

Consumer stocks have been hit hard by the virus, but may bounce back sharply once containment is achieved. The MSCI Asia ex-Japan Consumer Discretionary index fell 12% immediately after the SARS outbreak. It rallied by 2% one month after SARS, and by 18% three months afterwards.

Our favoured recommendations are branded and can recover sharply. These include THBEV SP (BUY, TP SGD1.30) and CPF TB (BUY, TP THB38.0). Among non-rated companies, CPIN IJ and INDF IJ perform well in our Teflon Test (see page 4). Branded consumer plays tend to be more resilient to the risk of disease, debt and depreciation, due to their steady cash generation. THBEV SP and CPF TB have net gearing levels of over 1x, but they are deleveraging and converting their debt into Thai Baht.

EM e-commerce is likely to be revalued as a result of the virus outbreak because stay-at-home business will be less disrupted. We use our proprietary Cash Sustainability Index (CSI) to assess these companies. BABA US and MELI US (both Not Rated by Tellimer) fare well on this metric as they are cash-generative and are consolidating their operating earnings. 

Though we expect a rebound once the virus is contained, the consumer companies that have high foreign currency debt and/or inputs may be vulnerable in the meantime. Several Asian currencies could weaken. WIL SP and CPALL TB in particular are exposed to CNY depreciation.