Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Cross Asset Strategy

Boris Johnson has secured the strongest Conservative mandate since Margaret Thatcher in 1987, with an 80-seat majority in the House of Commons and a nationwide vote-share of 43.6% (the highest for the Conservatives since 1970). Britain has voted emphatically for Brexit, with the Liberal Democrats (the one party clearly repudiating Brexit) slumping to just 11 of the 650 Commons seats, and losing their leader Jo Swinson's parliamentary seat. PM Johnson's pledge to govern as a "One-Nation Conservative" is credible, given his record as Mayor of London, although his initial focus will be securing Brexit by Christmas and an FTA with the EU in 2020. Although the Scottish National Party (SNP) won 48 of the 59 seats in Scotland, the Conservatives finished second there for the second consecutive time, with 6 seats and 25.6% of the vote (versus 45% for SNP). Labour had dominated Scotland until the 2015 election (in which the SNP won 50% of the vote and 56 seats, up from 6 seats in 2010 to 41 for Labour), but slumped to a single seat and 18% of the vote this time. With 45% of Scottish votes in 2019, the SNP claim that it has a mandate for a second referendum on Scottish independence (after the first in 2014) does not stand up to scrutiny. In Northern Ireland, however, the Irish nationalist parties have won more seats and votes than the Unionists for the first time since the Partition of Ireland in 1922.    Given PM Johnson's clear mandate and large majority, he is likely to surprise the commentariat by delivering not only Brexit this month, but also an FTA with the EU by the end of 2020. Irish PM Leo Varadkar will be a key ally in securing both outcomes, given that Irish commercial reunification is assured by the end of this month, and political reunification becomes a likely outcome before too long. Scotland, however, will not have a second referendum on independence during the next 5 years; instead, the FTA with the EU is likely to ameliorate Scottish concerns about Brexit. Britain will be free to negotiate additional trade deals with other key partners (the US, ASEAN, India, Japan, Australia and New Zealand) by the end of 2020. The removal of uncertainty will provide a strong boost to investment spending in the UK. We are solidly positive about British economic and market prospects in 2020.

Boris Johnson has secured the strongest Conservative mandate since Margaret Thatcher in 1987, with an 80-seat majority in the House of Commons and a nationwide vote-share of 43.6% (the highest for the Conservatives since 1970). Britain has voted emphatically for Brexit, with the Liberal Democrats (the one party clearly repudiating Brexit) slumping to just 11 of the 650 Commons seats, and losing their leader Jo Swinson's parliamentary seat. PM Johnson's pledge to govern as a "One-Nation Conservative" is credible, given his record as Mayor of London, although his initial focus will be securing Brexit by Christmas and an FTA with the EU in 2020. Although the Scottish National Party (SNP) won 48 of the 59 seats in Scotland, the Conservatives finished second there for the second consecutive time, with 6 seats and 25.6% of the vote (versus 45% for SNP). Labour had dominated Scotland until the 2015 election (in which the SNP won 50% of the vote and 56 seats, up from 6 seats in 2010 to 41 for Labour), but slumped to a single seat and 18% of the vote this time. With 45% of Scottish votes in 2019, the SNP claim that it has a mandate for a second referendum on Scottish independence (after the first in 2014) does not stand up to scrutiny. In Northern Ireland, however, the Irish nationalist parties have won more seats and votes than the Unionists for the first time since the Partition of Ireland in 1922.    Given PM Johnson's clear mandate and large majority, he is likely to surprise the commentariat by delivering not only Brexit this month, but also an FTA with the EU by the end of 2020. Irish PM Leo Varadkar will be a key ally in securing both outcomes, given that Irish commercial reunification is assured by the end of this month, and political reunification becomes a likely outcome before too long. Scotland, however, will not have a second referendum on independence during the next 5 years; instead, the FTA with the EU is likely to ameliorate Scottish concerns about Brexit. Britain will be free to negotiate additional trade deals with other key partners (the US, ASEAN, India, Japan, Australia and New Zealand) by the end of 2020. The removal of uncertainty will provide a strong boost to investment spending in the UK. We are solidly positive about British economic and market prospects in 2020. 

Tory Landslide Prepares the Ground for an Economic Rebound for GB and Ireland

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. We offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors. 

Morningstar provides data on more than 500,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 16 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries, with more than $180 billion in assets under advisement or management as of June 30, 2015. We have operations in 27 countries.

Download the Morningstar Fact Sheet : http://corporate.morningstar.com/US/documents/MarketingFactSheets/AboutMorningstarFactsheet.pdf

Equity Bottom-Up

HK Electric Investments / Equity Bottom-Up

We are initiating coverage on narrow moat-rated <a href="https://www.smartkarma.com/entities/20985" target="_blank" data-smartkarma-citation="entities:20985:1">HK Electric Investments (2638 HK)</a>, or HKEI, with a fair value of HKD 5 and a 1-star recommendation. Our fair value of HKD 5 represents a fair distribution yield of 7.5% and enterprise value/EBITDA of 10.6 times. We apply weighted average cost of capital of 5.6%, which is at the low end of peers within our global utilities coverage.Our 1-star recommendation is based purely on valuation grounds as we view the vertically integrated electricity operator's assets as high-quality and possessing efficient scale, underpinning its narrow economic moat. Electricity generated from its predominantly coal and gas-powered power plant on Lamma Island is distributed to the Hong Kong Island through its difficult-to-replicate transmission and distribution network, which is mostly underground. The underground network minimizes vulnerability to weather conditions and underpins HKEI's high reliability rating. We also like the consistent and favorable regulatory regime in Hong Kong, allowing HKEI to earn reasonable returns and underpin its steady distribution payout.While investors continue to favor yield-plays such as regulated utilities in this ultra-low interest rate environment, we expect investor interest in HKEI to wane as U.S. policy rates normalize in the medium term and the U.S. Federal Reserve begins to unwind its balance sheet. Given the fixed exchange rate system in Hong Kong, the Hong Kong Interbank Offer Rate, or HIBOR, should move in line with the U.S. depending on the level of liquidity in the system. Short-term HIBOR edged higher post the Fed's meeting last week but three-month and six-month rates held steady at 0.76% and 0.96%, respectively. We believe the normalization of U.S. interest rates is the main driver for the trust's unit price to converge toward our fair value.With the rate of return of 8% locked in from fiscal 2019 for the next 15 years, the main driver of profit and distribution is the level of capital expenditure and increase in its regulatory asset base. Over the next two years, we expect HKEI to spend the remaining HKD 6.6 billion of allocated capital expenditure in the 2014 to 2018 Development Plan. Current run rate is tracking slightly below with close to HKD 7 billion incurred since 2014. We estimate the slightly higher capital expenditure in fiscal 2017 and 2018 should see its Scheme of Control asset base increase by 2% annually in the two years. Post 2018, the next Development Plan for 2019 to 2023 will encompass HKEI's long-term return. With the number of domestic households in Hong Kong increasing steadily at a slow pace of 1.1% annually and both total electricity demand and peak demand largely flat over the last 10 years, capital expenditure will be underpinned by maintenance expenditure for the transmission and distribution electricity network and increments driven by the replacement of coal-fired generating units to gas fired units.HKEI currently earns a predetermined permitted return on average net fixed assets of 9.99%, but the regulator has lowered the permitted return to 8% from 2019 onwards, for 15 years. However, HKEI will continue to earn return on invested capital of 5.8% and above its weighted average cost of capital of 5.6%. The difference between the permitted return and return on invested capital is due to the asset base of the company, which was revalued higher at the time of listing. The regulator did not account for the revaluation in assessing HKEI's regulated asset base and the company's returns are calculated off this lower asset base. However, we forecast HKEI's return on invested capital to increase towards 8% over the medium term as ongoing capital expenditure will lift the regulated asset base towards the accounting asset base. We estimate the decline in permitted return in 2019 should lead to a 18% decline in distribution in fiscal 2019 to HKD 0.31 and be sustained at this level going forward.Analyst: Michael Wu, CAIA

We are initiating coverage on narrow moat-rated HK Electric Investments (2638 HK), or HKEI, with a fair value of HKD 5 and a 1-star recommendation. Our fair value of HKD 5 represents a fair distribution yield of 7.5% and enterprise value/EBITDA of 10.6 times. We apply weighted average cost of capital of 5.6%, which is at the low end of peers within our global utilities coverage.Our 1-star recommendation is based purely on valuation grounds as we view the vertically integrated electricity operator's assets as high-quality and possessing efficient scale, underpinning its narrow economic moat. Electricity generated from its predominantly coal and gas-powered power plant on Lamma Island is distributed to the Hong Kong Island through its difficult-to-replicate transmission and distribution network, which is mostly underground. The underground network minimizes vulnerability to weather conditions and underpins HKEI's high reliability rating. We also like the consistent and favorable regulatory regime in Hong Kong, allowing HKEI to earn reasonable returns and underpin its steady distribution payout.While investors continue to favor yield-plays such as regulated utilities in this ultra-low interest rate environment, we expect investor interest in HKEI to wane as U.S. policy rates normalize in the medium term and the U.S. Federal Reserve begins to unwind its balance sheet. Given the fixed exchange rate system in Hong Kong, the Hong Kong Interbank Offer Rate, or HIBOR, should move in line with the U.S. depending on the level of liquidity in the system. Short-term HIBOR edged higher post the Fed's meeting last week but three-month and six-month rates held steady at 0.76% and 0.96%, respectively. We believe the normalization of U.S. interest rates is the main driver for the trust's unit price to converge toward our fair value.With the rate of return of 8% locked in from fiscal 2019 for the next 15 years, the main driver of profit and distribution is the level of capital expenditure and increase in its regulatory asset base. Over the next two years, we expect HKEI to spend the remaining HKD 6.6 billion of allocated capital expenditure in the 2014 to 2018 Development Plan. Current run rate is tracking slightly below with close to HKD 7 billion incurred since 2014. We estimate the slightly higher capital expenditure in fiscal 2017 and 2018 should see its Scheme of Control asset base increase by 2% annually in the two years. Post 2018, the next Development Plan for 2019 to 2023 will encompass HKEI's long-term return. With the number of domestic households in Hong Kong increasing steadily at a slow pace of 1.1% annually and both total electricity demand and peak demand largely flat over the last 10 years, capital expenditure will be underpinned by maintenance expenditure for the transmission and distribution electricity network and increments driven by the replacement of coal-fired generating units to gas fired units.HKEI currently earns a predetermined permitted return on average net fixed assets of 9.99%, but the regulator has lowered the permitted return to 8% from 2019 onwards, for 15 years. However, HKEI will continue to earn return on invested capital of 5.8% and above its weighted average cost of capital of 5.6%. The difference between the permitted return and return on invested capital is due to the asset base of the company, which was revalued higher at the time of listing. The regulator did not account for the revaluation in assessing HKEI's regulated asset base and the company's returns are calculated off this lower asset base. However, we forecast HKEI's return on invested capital to increase towards 8% over the medium term as ongoing capital expenditure will lift the regulated asset base towards the accounting asset base. We estimate the decline in permitted return in 2019 should lead to a 18% decline in distribution in fiscal 2019 to HKD 0.31 and be sustained at this level going forward.Analyst: Michael Wu, CAIA

Initiating Coverage on Narrow-Moat HK Electric Investments with HKD 5 and 1-Star Rating

Hong Kong

HK Electric Investments and HK Electric Investments Limited is a fixed single investment trust in Hong Kong with a focus on the power industry. The Trust is a vertically integrated power utility and its operations comprise the generation, transmission, distribution, and supply of electricity to Hong Kong Island and Lamma Island.

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HK Electric Investments (2638 HK)

Tory Landslide Prepares the Ground for an Economic Rebound for GB and Ireland

Boris Johnson has secured the strongest Conservative mandate since Margaret Thatcher in 1987, with an 80-seat majority in the House of Commons and...

Prasenjit K. Basu

Initiating Coverage on Narrow-Moat HK Electric Investments with HKD 5 and 1-Star Rating

We are initiating coverage on narrow moat-rated HK Electric Investments (2638 HK), or HKEI, with a fair value of HKD 5 and a 1-star recommendation....

Morningstar, Inc.

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