Indonesia Political Risk Analyst

Kevin O’Rourke

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

Finance Minister Sri Mulyani Indrawati will return in the next cabinet, but President Joko Widodo added that “it is time [for her] to have larger responsibility”; if this signals a move from the finance portfolio to the coordinating economics minister, it would actually diminish her clout.  In other details of the imminent cabinet formation, Widodo affirmed that he will move international trade functions into the Foreign Ministry, re‑combine the Ministries of Trade and Industry, upgrade the Investment Coordinating Agency (BKPM) into an Investment Ministry and change the Information Ministry to a Digitalization Ministry.  A current cabinet member will become head of the State Power Company (PLN); this could conceivably refer to Information Minister Rudiantara.  Widodo said he will retain (in various roles) Coordinating Maritime Affairs Minister Lt Gen (ret) Luhut Panjaitan, Industry Minister Airlangga Hartarto and Fisheries Minister Susi Pudjiastuti, among others.  The attorney general will be a non‑party figure.  Widodo equivocated about whether the new roster will come forth soon, or after 20 October.  The president’s electric‑car (EV) program, detailed in Presidential Regulation (Perpres) #55/2019 (translated by Ref Wkly), provides myriad incentives to attract foreign investors to build manufacturing facilities.  And yet it also presents risk, by reserving added incentives for the exclusive benefit of domestically owned ‘national brands’.  A last‑minute change in the final version pushes back an 80 percent local‑content requirement for EVs from 2026 to 2030.  The regulation envisions sweeping changes for vehicular transportation and major responsibilities for PLN – but a lack of broader economic reform may render the goals far‑fetched.  Policymakers intend to bring forward a ban on exports of low‑grade nickel, despite objections from industry.

Finance Minister Sri Mulyani Indrawati will return in the next cabinet, but President Joko Widodo added that “it is time [for her] to have larger responsibility”; if this signals a move from the finance portfolio to the coordinating economics minister, it would actually diminish her clout.  In other details of the imminent cabinet formation, Widodo affirmed that he will move international trade functions into the Foreign Ministry, re‑combine the Ministries of Trade and Industry, upgrade the Investment Coordinating Agency (BKPM) into an Investment Ministry and change the Information Ministry to a Digitalization Ministry.  A current cabinet member will become head of the State Power Company (PLN); this could conceivably refer to Information Minister Rudiantara.  Widodo said he will retain (in various roles) Coordinating Maritime Affairs Minister Lt Gen (ret) Luhut Panjaitan, Industry Minister Airlangga Hartarto and Fisheries Minister Susi Pudjiastuti, among others.  The attorney general will be a non‑party figure.  Widodo equivocated about whether the new roster will come forth soon, or after 20 October.  The president’s electric‑car (EV) program, detailed in Presidential Regulation (Perpres) #55/2019 (translated by Ref Wkly), provides myriad incentives to attract foreign investors to build manufacturing facilities.  And yet it also presents risk, by reserving added incentives for the exclusive benefit of domestically owned ‘national brands’.  A last‑minute change in the final version pushes back an 80 percent local‑content requirement for EVs from 2026 to 2030.  The regulation envisions sweeping changes for vehicular transportation and major responsibilities for PLN – but a lack of broader economic reform may render the goals far‑fetched.  Policymakers intend to bring forward a ban on exports of low‑grade nickel, despite objections from industry. 

Widodo's Cabinet Hints: Plus Ça Change / Auto Sector: Major EV Push Needs Broader Reform / Ore Ban

Tax changes mark a fundamental overhaul of auto-sector regulation, designed to move from taxing based on model and engine size to rates based on emissions and fuel consumption.  Pollution in the capital is placing the governor under pressure, but the scrutiny will affect industries more broadly.  A Labor Ministry source downplayed prospects for a Labor Law revision prior to next year.  Widodo reiterated that numerous seats will go to parties -- even as two ministries headed by party representatives face KPK allegations of graft in import quotas, resulting in the arrest of a PDI-P parliamentarian.  Megawati received a fifth five-year term as PDI-P chair in a congress attended by Prabowo.  Haze is returning.  Plus, a close look at the factors causing the 6-30 blackout that covered Jakarta, Banten and West Java.

Tax changes mark a fundamental overhaul of auto-sector regulation, designed to move from taxing based on model and engine size to rates based on emissions and fuel consumption.  Pollution in the capital is placing the governor under pressure, but the scrutiny will affect industries more broadly.  A Labor Ministry source downplayed prospects for a Labor Law revision prior to next year.  Widodo reiterated that numerous seats will go to parties -- even as two ministries headed by party representatives face KPK allegations of graft in import quotas, resulting in the arrest of a PDI-P parliamentarian.  Megawati received a fifth five-year term as PDI-P chair in a congress attended by Prabowo.  Haze is returning.  Plus, a close look at the factors causing the 6-30 blackout that covered Jakarta, Banten and West Java. 

EV, Hybrid Incentives / Jkt's Air / Seats Promised for Parties / Islamists Slammed / Haze Redux

Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

We visited <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/aisin-seiki-co-ltd" target="_blank" data-smartkarma-citation="entities:11809:1" rel="noopener">Aisin Seiki (7259 JP)</a> on Wednesday to assess conditions the companies were experience in China and the US as well as update on the progress of the numerous reforms ongoing within the Toyota Group.Our takeaway is that macro conditions remain relatively tough but that progress was continuing steadily with internal reforms. Overall, we believe Toyota should make some incremental progress raising profitability in the US and growing volume and profit in China in the face of macro headwinds and that investment costs for CASE could be controlled better than the market generally expects. Aisin's outlook for China has not worsened as such, but while the company was initially guiding conservatively but open to the possibility of a moderate recovery in 2H, current conditions look like the 2H will be relatively flat compared to the 1H.We discuss the details below.

We visited Toyota Motor (7203 JP) and Aisin Seiki (7259 JP) on Wednesday to assess conditions the companies were experience in China and the US as well as update on the progress of the numerous reforms ongoing within the Toyota Group.Our takeaway is that macro conditions remain relatively tough but that progress was continuing steadily with internal reforms. Overall, we believe Toyota should make some incremental progress raising profitability in the US and growing volume and profit in China in the face of macro headwinds and that investment costs for CASE could be controlled better than the market generally expects. Aisin's outlook for China has not worsened as such, but while the company was initially guiding conservatively but open to the possibility of a moderate recovery in 2H, current conditions look like the 2H will be relatively flat compared to the 1H.We discuss the details below.

Toyota: Visit to Toyota City/Aisin Points to Fading Optimism for a China Recovery

Consumer Discretionary / Industrials

Henry Kwon

Thematic (Sector/Industry)

Light Vehicle SAAR in May came in at 17.4m units (+6.1% MoM, +1.2% YoY) which was stronger than consensus expectations.  YTD average SAAR remains below 17.0m units, however, at 16.9m. OEMs engaged in aggressive incentive offers over Memorial Day weekend, which resulted in rising incentives and lower retail inventory.  The following are our initial impressions on May auto demand in the U.S.:<ul>
<li>Based on the first 19 calendar days of the month, JD Powers' estimated retail mix in the industry at 78.7%, suggesting that strong fleet deliveries in the month accounted for at least some portion of the SAAR strength.</li>
<li>Average Incentives/Average Transaction Price (ATP) in the market rose to 10.0% in May based on our observations, which is the first month in 2019 in which Incentives/Transaction Price has risen to double digit percentage range.  </li>
<li>Increasing incentives led to industry-wide de-stocking, but light truck days inventory still remains at elevated levels in our view.</li>
<li>Rising ATP continues to be more reflective of industry mix shift, with declining sales of smaller cars.  We do not see the current rise in ATP as a reflection of strong industry fundamentals and OEM pricing power in the market.</li>
<li>In market share terms, Hyundai-Kia (continued mix shift to light trucks with the Hyundai Kona and the Kia Telluride), Subaru (strong sales of the Ascent) and Mitsubishi (strong sales of the Eclipse Cross) have been share gainers with YoY unit sales gains amongst Asian brands YTD, while D3 and J3 have been witnessing YoY declines. </li>
</ul>Based on our observations, much of the rise in SAAR could be attributed to the strong fleet deliveries and aggressive incentives offered over the Memorial Day weekend.  While MoM SAAR volatility this year has made short term forecasting difficult, our outlook for mid-16m unit SAAR in 2019 remains unchanged.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/542/original/Screen%20Shot%202019-06-03%20at%208.24.23%20PM.png?1559618683" class="editor-image img-responsive" data-smartkarma-image-id="89542"></figure><div class="content-caption">Source: Autodata</div>

Light Vehicle SAAR in May came in at 17.4m units (+6.1% MoM, +1.2% YoY) which was stronger than consensus expectations.  YTD average SAAR remains below 17.0m units, however, at 16.9m. OEMs engaged in aggressive incentive offers over Memorial Day weekend, which resulted in rising incentives and lower retail inventory.  The following are our initial impressions on May auto demand in the U.S.:
Based on the first 19 calendar days of the month, JD Powers' estimated retail mix in the industry at 78.7%, suggesting that strong fleet deliveries in the month accounted for at least some portion of the SAAR strength.
Average Incentives/Average Transaction Price (ATP) in the market rose to 10.0% in May based on our observations, which is the first month in 2019 in which Incentives/Transaction Price has risen to double digit percentage range.  
Increasing incentives led to industry-wide de-stocking, but light truck days inventory still remains at elevated levels in our view.
Rising ATP continues to be more reflective of industry mix shift, with declining sales of smaller cars.  We do not see the current rise in ATP as a reflection of strong industry fundamentals and OEM pricing power in the market.
In market share terms, Hyundai-Kia (continued mix shift to light trucks with the Hyundai Kona and the Kia Telluride), Subaru (strong sales of the Ascent) and Mitsubishi (strong sales of the Eclipse Cross) have been share gainers with YoY unit sales gains amongst Asian brands YTD, while D3 and J3 have been witnessing YoY declines. 
Based on our observations, much of the rise in SAAR could be attributed to the strong fleet deliveries and aggressive incentives offered over the Memorial Day weekend.  While MoM SAAR volatility this year has made short term forecasting difficult, our outlook for mid-16m unit SAAR in 2019 remains unchanged.Source: Autodata

May U.S. Auto Demand:  17.4m Unit SAAR Reflects Rising Incentives over Memorial Day Weekend

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/325/original/2019-06-01_09-16-25.png?1559348196" class="editor-image img-responsive" data-smartkarma-image-id="89325"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/326/original/2019-06-01_09-19-21.png?1559348371" class="editor-image img-responsive" data-smartkarma-image-id="89326"></figure>Source: Japan Analytics
</div>INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/329/original/2019-06-01_10-10-41.png?1559351453" class="editor-image img-responsive" data-smartkarma-image-id="89329"></figure><div class="content-caption">Source: Japan Analytics</div>CURRENCY RISK? - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/330/original/2019-06-01_10-14-50.png?1559351702" class="editor-image img-responsive" data-smartkarma-image-id="89330"></figure><div class="content-caption">Source: Japan Analytics</div>RSI - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/331/original/2019-06-01_10-28-00.png?1559352497" class="editor-image img-responsive" data-smartkarma-image-id="89331"></figure><div class="content-caption">Source: Japan Analytics</div>TORAKU - The Toraku advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/333/original/2019-06-01_10-38-19.png?1559353116" class="editor-image img-responsive" data-smartkarma-image-id="89333"></figure><div class="content-caption">Source: Japan Analytics</div>HIGHS - LOWS - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/089/332/original/2019-06-01_10-32-11.png?1559352742" class="editor-image img-responsive" data-smartkarma-image-id="89332"></figure><div class="content-caption">Source: Japan Analytics</div>VOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Electrical Equipment, and Energy Sectors, the Materials,  Restaurants, and Multi-Industry Sectors are the volume laggards.<div class="content-highlight">In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/kikkoman-corp" target="_blank" data-smartkarma-citation="entities:11720:1">Kikkoman (2801 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1">Inpex (1605 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a>, and <a href="https://www.smartkarma.com/entities/dentsu-inc" target="_blank" data-smartkarma-citation="entities:12434:1">Dentsu (4324 JP)</a>.     </div>


Source: Japan Analytics
INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the nineteen trading days so far. The strength of the Yen has cut that decline to -3.2% for the minority of foreign investors that are unhedged. The Bank of Japan has purchased ETFs on ten days in the new era including on each of the last three trading sessions - the largest such intervention this calendar year.  Having reached a new five-month low, a decisive low above that of December 25th is required. The market took only two trading days to descend from the current level to that 2018 low, and a fall of 6.7% from Friday's close would breach that level. For the time being, it pays to be net short.  Source: Japan AnalyticsCURRENCY RISK? - Much has been made of recent ¥3 move in the US$/JP¥ cross rate in May. The one-year rate of change has been the key driver of the Japanese earnings cycle and, in turn, the market. A rate of ¥108 held through the summer would equate with a breach of the December low and a rate of ¥90 by year-end would be consistent with the low of February 2016 - a 14% decline from the current index level.  Source: Japan AnalyticsRSI - The five-day Relative Strength Index could well be in single digits on Monday, which would be the second-most oversold level this year. A short-term recovery can be expected later in the week. Source: Japan AnalyticsTORAKU - The Toraku advance-decline is also back in Oversold territory, but well above the December 2018 low, suggesting further downside to a new cycle low.Source: Japan AnalyticsHIGHS - LOWS - The 'spread' between New Highs and New Lows is negative, but has yet to reach the most recent peak of 14th May of -549 and is well above the December 2018 low of -2,741. A spread of at least -1,000 is needed to confirm a new cycle low.Source: Japan AnalyticsVOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Electrical Equipment, and Energy Sectors, the Materials,  Restaurants, and Multi-Industry Sectors are the volume laggards.In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on Kikkoman (2801 JP), Inpex (1605 JP), Keyence (6861 JP), Leopalace21 (8848 JP), and Dentsu (4324 JP).     

🇯🇵 JAPAN • Market Update - Retesting the Low

Japan

Honda Motor Co., Ltd. develops, manufactures, and distributes motorcycles, automobiles, and power products such as generators and farm machinery. The Company also operates a financial credit business.  Honda Motor has manufacturing facilities in the US, Canada, the UK, France, Italy, Spain, Brazil, Mexico, India, and Thailand.

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Honda Motor Co Ltd (Adr) (HMC US)

Widodo's Cabinet Hints: Plus Ça Change / Auto Sector: Major EV Push Needs Broader Reform / Ore Ban

Finance Minister Sri Mulyani Indrawati will return in the next cabinet, but President Joko Widodo added that “it is time [for her] to have larger...

Kevin O’Rourke

EV, Hybrid Incentives / Jkt's Air / Seats Promised for Parties / Islamists Slammed / Haze Redux

Tax changes mark a fundamental overhaul of auto-sector regulation, designed to move from taxing based on model and engine size to rates based on...

Kevin O’Rourke

Toyota: Visit to Toyota City/Aisin Points to Fading Optimism for a China Recovery

We visited Toyota Motor (7203 JP) and Aisin Seiki (7259 JP) on Wednesday to assess conditions the companies were experience in China and the US as...

Mio Kato

May U.S. Auto Demand: 17.4m Unit SAAR Reflects Rising Incentives over Memorial Day Weekend

Light Vehicle SAAR in May came in at 17.4m units (+6.1% MoM, +1.2% YoY) which was stronger than consensus expectations. YTD average SAAR remains...

Henry Kwon

🇯🇵 JAPAN • Market Update - Retesting the Low

INAUSPICIOUS - Since the beginning of the Reiwa era (令和時代), Japanese equities have fallen by 6.1% and have seen only six 'up' days out of the...

Campbell Gunn

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52-week Range

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