ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

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

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The week that was in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a> is filled with another eclectic mix of differentiated, substantive, and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.
We add below a NEW section, which includes emerging themes in ASEAN and selects important news flow or developments for commentary, which may impact SE Asian companies and markets.  
</div><h3>Macro Insights</h3>In <a href="https://www.smartkarma.com/insights/agong-asserts-himself-preventing-change-of-pm-but-disallowing-emergency-rule" target="_blank" data-smartkarma-citation="insights:44572" rel="noopener">Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule,</a> CrossASEAN Chief Economist <a href="https://www.smartkarma.com/profiles/prasenjit-k-basu" target="_blank" data-smartkarma-citation="accounts:612" rel="noopener">Prasenjit K. Basu</a> comments on the ongoing political upheaval in Malaysia. In <a href="https://www.smartkarma.com/insights/trouble-down-south-it-s-not-just-the-virus" target="_blank" data-smartkarma-citation="insights:44698" rel="noopener">Trouble Down South: It's Not Just the Virus,</a><a href="https://www.smartkarma.com/profiles/dr-jim-walker" target="_blank" data-smartkarma-citation="accounts:1628" rel="noopener">Dr. Jim Walker</a> gives his prescriptions on why South East Asia has been such a poor performer this year. In <a href="https://www.smartkarma.com/insights/thai-strategy-2021-part-1-key-themes" target="_blank" data-smartkarma-citation="insights:40842" rel="noopener">Thai Strategy 2021 (Part 1): Key Themes,</a> out Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> lays out his thoughts for the outlook for the Thai market next year. <h3>Equity Bottom-Up Insights</h3>In his Indonesian Insight, <a href="https://www.smartkarma.com/insights/matahari-department-store-lppf-ij-too-early-to-be-early" target="_blank" data-smartkarma-citation="insights:44460" rel="noopener">Matahari Department Store (LPPF IJ) - Too Early to Be Early,</a> Cross ASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> circles back to the country's largest department store operator post its recent results. In <a href="https://www.smartkarma.com/insights/akr-corporindo-akra-ij-great-omnibus-expectations" target="_blank" data-smartkarma-citation="insights:44611" rel="noopener">AKR Corporindo (AKRA IJ) - Great Omnibus Expectations,</a> CrossASEAN insight provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" rel="noopener">Angus Mackintosh</a> revisits <a href="https://www.smartkarma.com/entities/akr-corporindo-tbk-pt" target="_blank" rel="noopener">AKR Corporindo (AKRA IJ)</a> after its recent 3Q2020 results that continued to demonstrate its resilience, with an across the board improvement in margins, despite a decline in sales.In a Malaysian Insight, <a href="https://www.smartkarma.com/insights/ql-resources-ql-take-profit" target="_blank" data-smartkarma-citation="insights:44598" rel="noopener">QL Resources (QL): Take Profit?,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/henry-soediarko" target="_blank" data-smartkarma-citation="accounts:1006" rel="noopener">Henry Soediarko</a> revisits this commodity turned retail play, through its Family Mart business. In <a href="https://www.smartkarma.com/insights/far-east-hospitality-trust-feht-beneficiary-of-opening-up" target="_blank" data-smartkarma-citation="insights:44649" rel="noopener">Far East Hospitality Trust (FEHT): Beneficiary of Opening Up,</a> CrossASEAN Insight Provider<a href="https://www.smartkarma.com/profiles/henry-soediarko" target="_blank" rel="noopener"> Henry Soediarko</a> takes an initial look at<a href="https://www.smartkarma.com/entities/far-east-hospitality-trust" target="_blank" rel="noopener"> Far East Hospitality Trust (FEHT SP),</a> the only hospitality REIT in Singapore with a 100% domestic hospitality exposure and a higher fixed rental component, offering a defensive exposure during this difficult market environment. In <a href="https://www.smartkarma.com/insights/bca-profit-returns" target="_blank" data-smartkarma-citation="insights:44605" rel="noopener">BCA – Profit Returns,</a> banking specialist <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> revisits <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ)</a> and finds the bank clawing back some of the ROA it lost during 2Q2020 in the most recent quarter. In <a href="https://www.smartkarma.com/insights/bts-potential-positive-catalysts-ahead" target="_blank" data-smartkarma-citation="insights:44691" rel="noopener">BTS: Potential Positive Catalysts Ahead,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisit this Thai transportation play with a more positive slant.In <a href="https://www.smartkarma.com/insights/pttep-4q20-earnings-to-soften-from-lower-asp-and-volume-sales" target="_blank" data-smartkarma-citation="insights:44740" rel="noopener">PTTEP: 4Q20 Earnings to Soften from Lower ASP and Volume Sales,</a> our friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> assess the prospects for <a href="https://www.smartkarma.com/entities/ptt-exploration-and-production-public-company-limited" target="_blank" data-smartkarma-citation="entities:261:1" rel="noopener">PTT E&amp;P (PTTEP TB)</a> going into the end of the year.<h3>Credit Insights</h3>In this Insight, <a href="https://www.smartkarma.com/insights/japfa-comfeed-earnings-flash-9m-fy-2020-results-lucror-analytics" target="_blank" data-smartkarma-citation="insights:44743" rel="noopener">Japfa Comfeed - Earnings Flash - 9M FY 2020 Results,</a> Senior Credit Analyst<a href="https://www.smartkarma.com/profiles/trung-nguyen" target="_blank" rel="noopener"> Trung Nguyen</a> discusses <a href="https://www.smartkarma.com/entities/japfa-comfeed-indonesia-tbk-pt" target="_blank" data-smartkarma-citation="entities:8258:1" rel="noopener">Japfa Comfeed Indonesia (JPFA IJ)'</a>s 9M2020 results, which came in worse than expected (following a dismal Q22020), as the impact of COVID-19 reduced consumers' purchasing power and hit demand. In <a href="https://www.smartkarma.com/insights/pan-brothers-earnings-flash-9m-fy-2020-results-lucror-analytics" target="_blank" data-smartkarma-citation="insights:44708" rel="noopener">Pan Brothers - Earnings Flash - 9M FY 2020 Results,</a><a href="https://www.smartkarma.com/companies/lucror-analytics" target="_blank" rel="noopener">Lucror Analytics</a> zeros in on the Pan Brothers’ Q3 and 9M2020 earnings. Pan Brothers’ cash flow generation remained poor, and it continued to report large working capital weakness. It appears unlikely that Pan Brothers will be able to increase the size of its syndication facility, given the low commitment from banks at the moment.


The week that was in ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive, and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up and credit insights over the past week.
We add below a NEW section, which includes emerging themes in ASEAN and selects important news flow or developments for commentary, which may impact SE Asian companies and markets.  
Macro InsightsIn Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule, CrossASEAN Chief Economist Prasenjit K. Basu comments on the ongoing political upheaval in Malaysia. In Trouble Down South: It's Not Just the Virus,Dr. Jim Walker gives his prescriptions on why South East Asia has been such a poor performer this year. In Thai Strategy 2021 (Part 1): Key Themes, out Thai guru Athaporn Arayasantiparb, CFA lays out his thoughts for the outlook for the Thai market next year. Equity Bottom-Up InsightsIn his Indonesian Insight, Matahari Department Store (LPPF IJ) - Too Early to Be Early, Cross ASEAN Insight Provider Angus Mackintosh circles back to the country's largest department store operator post its recent results. In AKR Corporindo (AKRA IJ) - Great Omnibus Expectations, CrossASEAN insight provider Angus Mackintosh revisits AKR Corporindo (AKRA IJ) after its recent 3Q2020 results that continued to demonstrate its resilience, with an across the board improvement in margins, despite a decline in sales.In a Malaysian Insight, QL Resources (QL): Take Profit?, CrossASEAN Insight Provider Henry Soediarko revisits this commodity turned retail play, through its Family Mart business. In Far East Hospitality Trust (FEHT): Beneficiary of Opening Up, CrossASEAN Insight Provider Henry Soediarko takes an initial look at Far East Hospitality Trust (FEHT SP), the only hospitality REIT in Singapore with a 100% domestic hospitality exposure and a higher fixed rental component, offering a defensive exposure during this difficult market environment. In BCA – Profit Returns, banking specialist Daniel Tabbush revisits Bank Central Asia (BBCA IJ) and finds the bank clawing back some of the ROA it lost during 2Q2020 in the most recent quarter. In BTS: Potential Positive Catalysts Ahead,Country Group revisit this Thai transportation play with a more positive slant.In PTTEP: 4Q20 Earnings to Soften from Lower ASP and Volume Sales, our friends at Country Group assess the prospects for PTT E&amp;P (PTTEP TB) going into the end of the year.Credit InsightsIn this Insight, Japfa Comfeed - Earnings Flash - 9M FY 2020 Results, Senior Credit Analyst Trung Nguyen discusses Japfa Comfeed Indonesia (JPFA IJ)'s 9M2020 results, which came in worse than expected (following a dismal Q22020), as the impact of COVID-19 reduced consumers' purchasing power and hit demand. In Pan Brothers - Earnings Flash - 9M FY 2020 Results,Lucror Analytics zeros in on the Pan Brothers’ Q3 and 9M2020 earnings. Pan Brothers’ cash flow generation remained poor, and it continued to report large working capital weakness. It appears unlikely that Pan Brothers will be able to increase the size of its syndication facility, given the low commitment from banks at the moment. 

The Week that Was in ASEAN@Smartkarma - South East Asia Lags, the Bank's Return, and Nimble Staples

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/akr-corporindo-tbk-pt" target="_blank" data-smartkarma-citation="entities:13338:1" rel="noopener">AKR Corporindo (AKRA IJ)</a> continues to prove its metal releasing a strong set of 9M2020 results, which saw an across the board improvement in margins, despite a decline in sales.  
This was achieved by healthy contributions from all businesses, strict operating expenses control, tight Working Capital Management, together with lower leverage.
Petroleum volumes remained very healthy, with an increasingly diverse customer mix, whilst chemical volumes were slower given its more economically sensitive. 
The company's JIIPE industrial estate (Jakarta Integrated Industrial and Port Estate) saw further land sales but we should expect further plot sales in 4Q2020 and a much higher number in 2021. 
The <a href="https://www.smartkarma.com/entities/freeport-mcmoran-inc" target="_blank" data-smartkarma-citation="entities:12491:1" rel="noopener">Freeport Mcmoran (FCX US)</a> smelter is making progress with <a href="https://www.smartkarma.com/entities/chiyoda-corp" target="_blank" data-smartkarma-citation="entities:6232:1" rel="noopener">Chiyoda Corp (6366 JP)</a> appointed as EPC contractor and lease payments coming through on schedule. 
<a href="https://www.smartkarma.com/entities/akr-corporindo-tbk-pt" target="_blank" data-smartkarma-citation="entities:13338:1" rel="noopener">AKR Corporindo (AKRA IJ)</a>'s retail petroleum JV with <a href="https://www.smartkarma.com/entities/bp-plc" target="_blank" data-smartkarma-citation="entities:21847:1" rel="noopener">BP PLC (BP/ LN)</a> is recovering with expectations of higher growth in 2021 and 2022. 
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<a href="https://www.smartkarma.com/entities/akr-corporindo-tbk-pt" target="_blank" data-smartkarma-citation="entities:13338:1" rel="noopener">AKR Corporindo (AKRA IJ)</a> trades on 11.0x FY21E PER versus its 3-year average forward PER of 15.8x, with the expectation of +16.2% EPS growth in FY21E.  This is an interesting proxy for Indonesia's economic recovery, as well as a play on the potential pick-up in foreign investment on the back of the passage of the Omnibus Law. 
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AKR Corporindo (AKRA IJ) continues to prove its metal releasing a strong set of 9M2020 results, which saw an across the board improvement in margins, despite a decline in sales.  
This was achieved by healthy contributions from all businesses, strict operating expenses control, tight Working Capital Management, together with lower leverage.
Petroleum volumes remained very healthy, with an increasingly diverse customer mix, whilst chemical volumes were slower given its more economically sensitive. 
The company's JIIPE industrial estate (Jakarta Integrated Industrial and Port Estate) saw further land sales but we should expect further plot sales in 4Q2020 and a much higher number in 2021. 
The Freeport Mcmoran (FCX US) smelter is making progress with Chiyoda Corp (6366 JP) appointed as EPC contractor and lease payments coming through on schedule. 
AKR Corporindo (AKRA IJ)'s retail petroleum JV with BP PLC (BP/ LN) is recovering with expectations of higher growth in 2021 and 2022. 

AKR Corporindo (AKRA IJ) trades on 11.0x FY21E PER versus its 3-year average forward PER of 15.8x, with the expectation of +16.2% EPS growth in FY21E.  This is an interesting proxy for Indonesia's economic recovery, as well as a play on the potential pick-up in foreign investment on the back of the passage of the Omnibus Law. 


AKR Corporindo (AKRA IJ) - Great Omnibus Expectations

Asian Insight Provider - Actionable ideas, CrossASEAN Research

Henry Soediarko

Asian Insight Provider - Actionable ideas

The company benefits from its ties in MT with Alfamart and Indomart as it has higher hygiene perception and less chance of contact with another person which is appreciated during COVID-19. <a href="https://www.smartkarma.com/entities/industri-jamu-dan-farmasi-sido-muncul-tbk-pt" target="_blank" data-smartkarma-citation="entities:6033:1" rel="noopener">Sido Muncul (SIDO IJ)</a> Q2 2020 had a nice surprise where consumers switched from Tolak Angin to other products such as Vitamin C 1000 powder drink and Ginger-flavor beverages.Bintang Toedjoe's clinical trial on red ginger may have a negative impact in the short term but it presents a long term opportunity in the long run that Tolak Angin and other SIDO's products have an improved global acceptance, therefore, easier to sell in other countries. Post a share price increase from IDR 500 to 1400 in the past three years, the management feels that a 1 to 2 stock split is appropriate and it will happen sometime this month. This will create more liquidity and a share price that is affordable for retail investors (around IDR 700) thus a new entry point for investors who think they missed out on SIDO as the share price was deemed too expensive.

The company benefits from its ties in MT with Alfamart and Indomart as it has higher hygiene perception and less chance of contact with another person which is appreciated during COVID-19. Sido Muncul (SIDO IJ) Q2 2020 had a nice surprise where consumers switched from Tolak Angin to other products such as Vitamin C 1000 powder drink and Ginger-flavor beverages.Bintang Toedjoe's clinical trial on red ginger may have a negative impact in the short term but it presents a long term opportunity in the long run that Tolak Angin and other SIDO's products have an improved global acceptance, therefore, easier to sell in other countries. Post a share price increase from IDR 500 to 1400 in the past three years, the management feels that a 1 to 2 stock split is appropriate and it will happen sometime this month. This will create more liquidity and a share price that is affordable for retail investors (around IDR 700) thus a new entry point for investors who think they missed out on SIDO as the share price was deemed too expensive.

Sido Muncul (SIDO): Switch, Competitor and Split

<a href="https://www.smartkarma.com/entities/kino-indonesia" target="_blank" data-smartkarma-citation="entities:1083:1" rel="noopener">Kino Indonesia (KINO IJ)</a> is a less well-covered but very interesting consumer player in Indonesia, with an interesting stable of brands spanning beverages, personal care, baby products, foods, and pharmaceuticals. 
The company was quick to adapt to the changing COVID-19 landscape by rapidly switching to production of hand-sanitiser in 1Q2020 and increasing output for handwash products.
<a href="https://www.smartkarma.com/entities/kino-indonesia" target="_blank" data-smartkarma-citation="entities:1083:1" rel="noopener">Kino Indonesia (KINO IJ)</a> saw some impact on its sales in 1H2020, with sales declining by -1.3% after an +11% increase in 1Q2020 but it improved margins through increased efficiencies together with price increases for its products leading to +21% growth in net profit. 
Its focus on switching production to hand sanitiser and letting distributors run down inventory in other areas had a positive impact on overall sales. Its Instance hand sanitiser is one of the market leaders in Indonesia after the company increased capacity more than 10x early in the year. 
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<a href="https://www.smartkarma.com/entities/kino-indonesia" target="_blank" data-smartkarma-citation="entities:1083:1" rel="noopener">Kino Indonesia (KINO IJ)</a> is already experiencing a post PSBB recovery albeit a relatively slow one but its change in product mix has saved it from any sharp decline in sales.
Management suggests that the recovery will continue towards the end of the year but we would expect mid-single-sales growth this year, slower than previous guidance but with improved margins, so profits should increase at a greater pace.
This is not a bad result and next year should see a sharper recovery across the board, just with hand sanitiser also a new core product. If we conservatively assume +10% growth in core earnings this year and next then valuations attractive, with the stock trading on 14.3x FY21E PER versus its 3-year average forward PER of 18x.
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Kino Indonesia (KINO IJ) is a less well-covered but very interesting consumer player in Indonesia, with an interesting stable of brands spanning beverages, personal care, baby products, foods, and pharmaceuticals. 
The company was quick to adapt to the changing COVID-19 landscape by rapidly switching to production of hand-sanitiser in 1Q2020 and increasing output for handwash products.
Kino Indonesia (KINO IJ) saw some impact on its sales in 1H2020, with sales declining by -1.3% after an +11% increase in 1Q2020 but it improved margins through increased efficiencies together with price increases for its products leading to +21% growth in net profit. 
Its focus on switching production to hand sanitiser and letting distributors run down inventory in other areas had a positive impact on overall sales. Its Instance hand sanitiser is one of the market leaders in Indonesia after the company increased capacity more than 10x early in the year. 

Kino Indonesia (KINO IJ) is already experiencing a post PSBB recovery albeit a relatively slow one but its change in product mix has saved it from any sharp decline in sales.
Management suggests that the recovery will continue towards the end of the year but we would expect mid-single-sales growth this year, slower than previous guidance but with improved margins, so profits should increase at a greater pace.
This is not a bad result and next year should see a sharper recovery across the board, just with hand sanitiser also a new core product. If we conservatively assume +10% growth in core earnings this year and next then valuations attractive, with the stock trading on 14.3x FY21E PER versus its 3-year average forward PER of 18x.


Kino Indonesia (KINO IJ) - Sanitised Recovery

A recent meeting in Jakarta with <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> management revealed a company still relatively optimistic about the outlook for 2020, although flagging the risk to potential disruption if there are another two months of disruption. 
Inventory levels have seen a significant improvement even from 9M19 to the end of the year, with the successful clearance of old stock. This should mean a drop in interest expenses going into the end of the year and into 2020. 
The company has successfully restructured its relationship with Xiaomi, which means it will no longer be burdened with importing and assembling its products. It will purely act as a retailer, meaning there will be less inventory risk. 
The company remains optimistic about its expansion planning a similar number of new stores in 2020 as in 2019. The expansion will be focused on areas outside Java, where smartphone penetration is lower.
The crackdown on the black market is potentially a major positive together with a more beneficial relationship with Xiaomi. Valuations look appealing on existing forecasts but we should expect some downgrades to come. On a forward PER basis, we are nudging on 5-year lows even after potential downgrades of 20% for 2020 and 10% in 2021.

A recent meeting in Jakarta with Erajaya Swasembada (ERAA IJ) management revealed a company still relatively optimistic about the outlook for 2020, although flagging the risk to potential disruption if there are another two months of disruption. 
Inventory levels have seen a significant improvement even from 9M19 to the end of the year, with the successful clearance of old stock. This should mean a drop in interest expenses going into the end of the year and into 2020. 
The company has successfully restructured its relationship with Xiaomi, which means it will no longer be burdened with importing and assembling its products. It will purely act as a retailer, meaning there will be less inventory risk. 
The company remains optimistic about its expansion planning a similar number of new stores in 2020 as in 2019. The expansion will be focused on areas outside Java, where smartphone penetration is lower.
The crackdown on the black market is potentially a major positive together with a more beneficial relationship with Xiaomi. Valuations look appealing on existing forecasts but we should expect some downgrades to come. On a forward PER basis, we are nudging on 5-year lows even after potential downgrades of 20% for 2020 and 10% in 2021. 

Erajaya Swasembada (ERAA IJ) - A Badly Timed Recovery

Indonesia

PT Sumber Alfaria Trijaya Tbk operates a chain of retail supermarkets.

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Sumber Alfaria Trijaya Tbk Pt (AMRT IJ)

The Week that Was in ASEAN@Smartkarma - South East Asia Lags, the Bank's Return, and Nimble Staples

The Week that Was in ASEAN@Smartkarma is filled with an eclectic mix of differentiated, substantive, and actionable insights from across South East...

Angus Mackintosh

AKR Corporindo (AKRA IJ) - Great Omnibus Expectations

AKR Corporindo is a key proxy for Indonesia's economic recovery and a play on the potential pick-up in foreign investment on the back of the...

Angus Mackintosh

Sido Muncul (SIDO): Switch, Competitor and Split

Structure: sales does not go as planned?

Henry Soediarko

Kino Indonesia (KINO IJ) - Sanitised Recovery

Kino Indonesia (KINO IJ) is a less well-covered but very interesting consumer player in Indonesia, with an interesting stable of brands spanning...

Angus Mackintosh

Erajaya Swasembada (ERAA IJ) - A Badly Timed Recovery

A recent meeting in Jakarta with Erajaya Swasembada (ERAA IJ) management revealed a company still relatively optimistic about the outlook for 2020,...

Angus Mackintosh

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