Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

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

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/erajaya-swasembada-tbk-pt" target="_blank" data-smartkarma-citation="entities:18869:1" rel="noopener">Erajaya Swasembada (ERAA IJ)</a> ​has benefited from the 4G implementation in Indonesia that resulted in a demand surge for smartphones. In this report we will discuss the following:<ul>
<li>Investment Thesis and summary</li>
<li>Description of industry and regulation <ul>
<li>Prepaid and postpaid</li>
<li>Big and Small Cities</li>
<li>Online Ecosystem</li>
<li>Government response and enforcement</li>
<li>Local content rule</li>
</ul>
</li>
<li>Company description <ul>
<li>Key Products</li>
<li>Sales by top 3 brands</li>
<li>Business process flow and Xiaomi</li>
<li>Expansion to the smaller cities</li>
</ul>
</li>
<li>Key Cash Flow Driver <ul>
<li>Profitability</li>
<li>Revenue by products and margin</li>
<li>Affordability</li>
<li>Interest expense </li>
</ul>
</li>
<li>Why is it undervalued? <ul>
<li>Historical valuation</li>
<li>Local comparables</li>
<li>Q1 2019 - temporary rather than structural </li>
<li>Regional peers</li>
</ul>
</li>
<li>Conclusion <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/297/original/share%20price%20new.PNG?1563354087" class="editor-image img-responsive" data-smartkarma-image-id="93297"></figure>
</li>
</ul>

Erajaya Swasembada (ERAA IJ) ​has benefited from the 4G implementation in Indonesia that resulted in a demand surge for smartphones. In this report we will discuss the following:
Investment Thesis and summary
Description of industry and regulation 
Prepaid and postpaid
Big and Small Cities
Online Ecosystem
Government response and enforcement
Local content rule


Company description 
Key Products
Sales by top 3 brands
Business process flow and Xiaomi
Expansion to the smaller cities


Key Cash Flow Driver 
Profitability
Revenue by products and margin
Affordability
Interest expense 


Why is it undervalued? 
Historical valuation
Local comparables
Q1 2019 - temporary rather than structural 
Regional peers


Conclusion 



Erajaya (ERAA): Growing Sustainable Smartphone Demand in Indonesia - On the Ground Findings

Asia Long-Short PM/Analyst

Curtis Lehnert

Event-Driven

At the end of May, I closed my trade on <a href="https://www.smartkarma.com/entities/first-pacific-co-ltd" target="_blank" data-smartkarma-citation="entities:173:1" rel="noopener">First Pacific Co (142 HK)</a> ​ with a 5.33% return on gross notional over roughly six months, equating to 11.3% on gross notional in annualized terms in the insight <a href="https://www.smartkarma.com/insights/trade-idea-first-pacific-142-hk-stub-parent-pops-close-the-trade" target="_blank" data-smartkarma-citation="insights:30105" rel="noopener">TRADE IDEA - First Pacific (142 HK) Stub: Parent Pops, Close the Trade</a>.
Now, roughly four weeks later, I propose getting back into the trade as the discount has widened again and the long-term fundamentals continue to support a long position in the undervalued holding company.
There have been significant developments (catalysts) that affect both the holding company and some of its major listed subsidiaries that I will explore in the body of this note.
This is, yet again, an exciting trade and catalysts abound!

At the end of May, I closed my trade on First Pacific Co (142 HK) ​ with a 5.33% return on gross notional over roughly six months, equating to 11.3% on gross notional in annualized terms in the insight TRADE IDEA - First Pacific (142 HK) Stub: Parent Pops, Close the Trade.
Now, roughly four weeks later, I propose getting back into the trade as the discount has widened again and the long-term fundamentals continue to support a long position in the undervalued holding company.
There have been significant developments (catalysts) that affect both the holding company and some of its major listed subsidiaries that I will explore in the body of this note.
This is, yet again, an exciting trade and catalysts abound! 

TRADE IDEA - First Pacific Stub (142 HK): Round Two with Catalysts

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: Nexon, Japan Display, NTT/Docomo, Naspers, Harbin Electric, Glow Energy

Travis Lundy

NTT (Nippon Telegraph & Telephone) / Event-Driven

<a href="https://www.smartkarma.com/entities/ntt-docomo-inc" target="_blank" data-smartkarma-citation="entities:1089:1">NTT Docomo Inc (9437 JP)</a> announced a <a href="https://www.nttdocomo.co.jp/english/info/media_center/pr/2019/0426_00.html" target="_blank">buyback program</a> when it release earnings at the end of April. The buyback amount of ¥300 billion was as predicted - large enough to matter but a smaller number than the ¥400 billion "Return to Customers" - and given the ¥600 billion tender offer conducted last year, matched what was appropriate from the point of view of buying back two-thirds of the shares bought back from NTT and one-third from the market.The expected evolution (slow and steady throughout the period (May 7, 2019 to April 30, 2020) and basic impact of this buyback was discussed in <a href="https://www.smartkarma.com/insights/ntt-vs-docomo-where-to-from-here" target="_blank" data-smartkarma-citation="insights:29324">NTT Vs Docomo: Where To From Here?</a> and <a href="https://www.smartkarma.com/insights/ntt-docomo-buybacks-to-start-fy19" target="_blank" data-smartkarma-citation="insights:29738">NTT &amp; Docomo Buybacks To Start FY19</a>. At a max buyback of 3.85% of shares out, it wasn't small but wasn't enormous. But as discussed there are other considerations making it worth your attention.On 10 May 2019 when <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone" target="_blank" data-smartkarma-citation="entities:623:1">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> announced results, the company <a href="http://www.ntt.co.jp/news2019/1905e/190510a.html" target="_blank">announced</a> a 53 million share ¥250 billion buyback program to start the 13th of May and to continue til the end of July 2019. In my pre-earnings piece talking about the balance of forces of the respective buybacks, I had initially expected that near-term pressure would favor NTT Docomo because I expected the NTT buyback of up to ¥200 billion would be for the purpose of buying back shares from the government, which had originally <a href="https://www.nikkei.com/article/DGXMZO39093220Y8A211C1EE8000/" target="_blank">proposed</a> a budgeted amount of ¥160 billion.That is no longer the case as of the May 10 announcement, and now the "calendar" looks different. The NTT/Docomo ratio is now at a high point (1% below a recent high), ~5% below a 5+year high, but NTT remains 2 PE turns cheaper than Docomo, growing faster, and the incremental EPS upside due to buybacks may still belong to NTT this year.

NTT Docomo Inc (9437 JP) announced a buyback program when it release earnings at the end of April. The buyback amount of ¥300 billion was as predicted - large enough to matter but a smaller number than the ¥400 billion "Return to Customers" - and given the ¥600 billion tender offer conducted last year, matched what was appropriate from the point of view of buying back two-thirds of the shares bought back from NTT and one-third from the market.The expected evolution (slow and steady throughout the period (May 7, 2019 to April 30, 2020) and basic impact of this buyback was discussed in NTT Vs Docomo: Where To From Here? and NTT &amp; Docomo Buybacks To Start FY19. At a max buyback of 3.85% of shares out, it wasn't small but wasn't enormous. But as discussed there are other considerations making it worth your attention.On 10 May 2019 when NTT (Nippon Telegraph &amp; Telephone) (9432 JP) announced results, the company announced a 53 million share ¥250 billion buyback program to start the 13th of May and to continue til the end of July 2019. In my pre-earnings piece talking about the balance of forces of the respective buybacks, I had initially expected that near-term pressure would favor NTT Docomo because I expected the NTT buyback of up to ¥200 billion would be for the purpose of buying back shares from the government, which had originally proposed a budgeted amount of ¥160 billion.That is no longer the case as of the May 10 announcement, and now the "calendar" looks different. The NTT/Docomo ratio is now at a high point (1% below a recent high), ~5% below a 5+year high, but NTT remains 2 PE turns cheaper than Docomo, growing faster, and the incremental EPS upside due to buybacks may still belong to NTT this year. 

'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

Nippon Telegraph and Telephone Corporation provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales, and related services. The Company provides both local and long distance telephone services within Japan.

NTT (Nippon Telegraph & Telephone) (9432 JP)

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

NTT (Nippon Telegraph & Telephone) (9432 JP)

Erajaya (ERAA): Growing Sustainable Smartphone Demand in Indonesia - On the Ground Findings

Erajaya Swasembada (ERAA IJ) has benefited from the 4G implementation in Indonesia that resulted in a demand surge for smartphones. In this report...

Henry Soediarko

TRADE IDEA - First Pacific Stub (142 HK): Round Two with Catalysts

At the end of May, I closed my trade on First Pacific Co (142 HK) with a 5.33% return on gross notional over roughly six months, equating to...

Curtis Lehnert

Last Week in Event SPACE: Nexon, Japan Display, NTT/Docomo, Naspers, Harbin Electric, Glow Energy

Last Week in Event SPACE ... Media coverage of the Nexon (3659 JP) deal has been strangely uninformative, which means this situation is riskier...

David Blennerhassett

NTT/Docomo Ratio & Buyback Progress

NTT Docomo Inc (9437 JP) announced a buyback program when it release earnings at the end of April. The buyback amount of ¥300 billion was as...

Travis Lundy

🇯🇵 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

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Erajaya (ERAA): Growing Sustainable Smartphone Demand in Indonesia - On the Ground Findings

Erajaya Swasembada (ERAA IJ) ​has benefited from the 4G implementation in Indonesia that resulted in a demand surge for smartphones. In this report...

Henry Soediarko

TRADE IDEA - First Pacific Stub (142 HK): Round Two with Catalysts

At the end of May, I closed my trade on First Pacific Co (142 HK) ​ with a 5.33% return on gross notional over roughly six months, equating to...

Curtis Lehnert

Last Week in Event SPACE: Nexon, Japan Display, NTT/Docomo, Naspers, Harbin Electric, Glow Energy

Last Week in Event SPACE ... Media coverage of the Nexon (3659 JP) deal has been strangely uninformative, which means this situation is riskier...

David Blennerhassett

NTT/Docomo Ratio & Buyback Progress

NTT Docomo Inc (9437 JP) announced a buyback program when it release earnings at the end of April. The buyback amount of ¥300 billion was as...

Travis Lundy

🇯🇵 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

Erajaya Swasembada (ERAA IJ) has benefited from the 4G implementation in Indonesia that resulted in a demand surge for smartphones. In this report...

At the end of May, I closed my trade on First Pacific Co (142 HK) with a 5.33% return on gross notional over roughly six months, equating to...