Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.
Five interesting trends/developments that could impact Thai equities in the recent period:
Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.
Five interesting trends/developments that could impact Thai equities in the recent period:
Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Our positive view of the Asian region in 2018 was not reflected in stock market performance. But now is not the time to discard fundamentals and fundamental analysis. Unlike the US, the Asian region is in the early stages of a profit upcycle. As we have argued on many occasions, that is the building block required to kick start the investment cycle. But theoretical explanations of the growth process aside, is there any empirical support for the argument that profits and investment, and therefore growth, are related? We would answer in the affirmative and, in the following report, we try to show how the process works and where Asia stands on two of our Austrian Stress Indicators (ASIs). Market volatility aside, the conditions for good growth gains are firmly in place in most of the region.
Five interesting trends/developments that could impact Thai equities in the recent period:
Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit, this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
This week’s offering of Insights across ASEAN@Smartkarmais 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.
The highlights of this week are comments on the Thai elections with differing perspectives from CrossASEAN Economist Prasenjit K. Basu, Thailand based Athaporn Arayasantiparb, CFA, and Dr Jim Walker. Dr Jim Walker also gives us his views on the key beneficiaries and the ongoing US-China trade dispute and singles out Indonesia and Vietnam. On this theme, Kevin O’Rourke highlights a potentially significant announcement of a US$400m investment in Kendal, Central Java by a Chinese Textile company of its intention to relocate a shirt manufacturing facility there from China. Kawasan Industri Jababeka (KIJA IJ) and Sembcorp Industries (SCI SP) have a JV industrial estate there, which stands potentially to benefit should this move should it transpire. More importantly, it could signal the start of a more promising future for Indonesia’s manufacturing sector.
In Vietnam Picks up the China Baton, Dr. Jim Walker lays out his thoughts on which countries are set to benefit the most from the ongoing trade dispute between the US and China. Indonesia and Vietnam would seem to be the most obvious beneficiaries.
The rapidly improving outlook in the LNG industry over the last few years, reinforced towards the end of 2017 by the unexpected growth of demand from China, has set off a proliferation of new LNG projects especially from the US (Exhibit 1).
In its latest LNG Outlook report, Royal Dutch Shell (RDSA LN) is projecting from 2023 onwards a significant gap between the future LNG demand and the existing supply including the capacity under construction that could require up to 100mtpa of new LNG project sanctions by 2023.
The race to gain market share in the projected LNG demand-supply gap has produced an aggregated capacity of proposed new projects of up to 475mtpa, a number larger than the total LNG traded volume in 2018 of 319mtpa and way above the capacity required to meet the future growth in LNG demand.
Exhibit 1: Funnel of proposed LNG projects getting bigger
Source: Energy Market Square, interpretation of data from Shell LNG Outlook 2019, public filings. Higher probability rating depending on oil majors backing, level of offtake agreements, positive news flow catalysts (e.g. regulatory approval, equity financing, EPC agreements). Demand projection assumes 90% capacity utilization. Bubble size proportional to project capacity. The position of the bubbles within the probability ranges is random.
Two new and credible polls show Widodo leading by margins of 18-19 percentage points over Prabowo. This mitigates — but does not entirely eliminate — risks surrounding the 17 April election outlook. Polls show PDI-P and Gerindra gaining at the expense of Islamic parties. The 4th debate on 30 March could help Prabowo draw slightly closer. The planned US$400 million relocation of a textile plant from China to Central Java bodes well, but whether central government policies are supportive remains to be seen. Two SOEs are under corruption scrutiny: Krakatau Steel Persero Tbk (KRAS IJ) and Pupuk Indonesia. A reasonable MRT tariff is in place.
Politics: Coordinating Security Minister Wiranto threatened to invoke the Terrorism Law on those who advocate abstaining on election day. He may believe that high turnout will benefit President Joko Widodo – but the draconian threat will harm Widodo’s image more than it helps (Page 2). The next presidential debate on 30 March will likely feature discussion of Widodo’s proposal to place active military officers in civilian bureaucratic posts (Page 2). Vice‑presidential nominee Sandiaga Uno promised fisheries operators that he and Prabowo Subianto would overturn a ban on dragnet trawling (p. 4). Constitutional Court justices will prioritize the resolution of legislative election disputes (p. 5).
Surveys: With less than three weeks remaining until the 17 April election day, two more new polls show the lead for President Joko Widodo remains intact. A poll by the Center for Strategic and International Studies (CSIS) took place from 15-22 March; it shows Widodo ahead by 18 percentage points, with 15 percent undecided. Similarly, a poll by Charta Politik showed Widodo leading by 19 points; it also implies that Islamic and Islamic‑oriented parties will shrink by a third on aggregate. Both polls indicate that the reform‑minded Solidarity Party (PSI) is unlikely to pass the four‑percent threshold required to occupy parliamentary seats; incumbent parties at risk of falling short are Hanura, the National Mandate Party (Pan) and the United Development Party (PPP) (p. 6).
Justice: Investigators from the Anti-Corruption Commission (KPK) made arrests in cases involving the state enterprises PT Krakatau Steel Tbk and PT Pupuk (p. 10).
Jakarta: Policymakers finally decided upon a reasonable tariff for the new Mass Rapid Transit (MRT) – Rp10,000 per 10 kilometers, with a maximum fare of Rp14,000 (p. 11).
Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news.
Delivered electronically every Friday, Reformasi Weekly is written by Kevin O’Rourke, author of the book Reformasi.
Reformasi Weekly is a product of PT Reformasi Info Sastra.
Economics: Plans to relocate a sizeable Chinese textile plant in Central Java send a positive signal about manufacturing – but whether central‑government policies will be adequately supportive remains to be seen (p. 12).
Outlook: Plentiful poll data shows that Widodo has a comfortable margin of 55‑60 percent, with few factors likely to alter circumstances in the final three weeks. But his opponent is brazen and risks therefore exist. Widodo winning by only a very narrow margin is a scenario with a low probability – but a high potential impact. Prabowo has a penchant for protesting angrily, hard‑line supporters can inundate Jakarta and the Constitutional Court has a protracted schedule for resolving disputes (its deadline is 8 August) (p. 14).
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The 4Q18 numbers released by the Malaysia wireless operators, showed stable trends vs 3Q. Market service revenue growth of -1.1% YoY was stable, with Maxis (MAXIS MK) the only operator able to slightly increase its market share (again). While 2H18 marked a small break in the Malaysian wireless sector recovery, guidance for 2019 looks broadly encouraging.
Axiata (AXIATA MK) expects a “promising 2019” with revenue and profit growth momentum (across the board),
Maxis guides for a slight improvement of revenues, albeit with EBITDA declining due to new business opportunities, and
DIGI (DIGI MK) which is a bit more cautious, expects flat revenues.
Data usage is already very high in Malaysia, but we expect growth to continue (at a slower pace) supported by youthful demographics (younger people use more video on mobile). The Malaysian operators have done a reasonable job at monetizing data growth so far.
Chris Hoare turned more positive on Malaysian telcos in early 2019 as affordability has improved and there is a new profitable growth opportunity in fibre wholesale (with Telekom Malaysia (T MK) being forced to offer at low prices). Operating trends have also improved and we expect this to continue. In January, we upgraded Axiata to Buy and both Maxis and Digi to Neutral. None of them are “cheap” with Maxis (MAXIS MK) and DIGI (DIGI MK) on 11-13x EV:EBITDA, and Axiata on a more reasonable 6.5x.
Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States. Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress.
The future of the US and China relationship remains the most significant geopolitical and economic issue watched by the markets. While the markets prefer to focus on the positives, the eventual outcome of the talks may yet prove disappointing. Meanwhile, a rift is emerging among EU members who have diverging attitudes to cooperation with China. Authorities in Turkey have again spooked investors with their ham-fisted approach to markets. In Ukraine, comedian Zelensky has won in the first round of the presidential poll. In India, sabre-rattling continues ahead of parliamentary elections despite the de-escalation of tensions with neighbouring Pakistan.
CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.
Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ). The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The sixth company that we explore is Intiland Development (DILD IJ), a property developer that focuses on landed residential, industrial estates, high-end condominiums, and offices in Jakarta and Surabaya. DILD has a good track record in building and operating high-end condominiums and offices. But the property market slowdown, tighter mortgage regulations, and rising construction costs took a massive toll on the company’s balance sheet and margin.
DILD shows the worst operating cashflow performance versus peers. The operating cashflow is running at a massive deficit after the property market peak in 2013, driven mostly by worsening working capital cycle. Both consolidated gross margin and EBIT margin are also trending down over the past five years, showing the company’s inability to pass on costs. The biggest margin decline is visible in the offices, landed residential, and condominiums.
The total net asset value (NAV) for company’s landbank and investment properties is about IDR10.5tn, equivalent to IDR1,018 NAV per share. Despite an attractive Price-to-Book (PB) valuation and a chunky 65% discount to NAV, DILD still looks expensive on a Price-to-Earnings (PE) basis. Analysts have been downgrading earnings on lower margin expectation and weaker than expected cashflow generation that cause debt levels to remain high.
Consensus expects 16% EPS growth this year with revenues growing by 22%. We may see further downgrades post FY18 results as 9M18 EBIT only makes up 51% of consensus FY18 forecast. The government’s plan to reduce luxury taxes and allowing foreigners to hold strata title on Indonesian properties should bode well for DILD and serve as a potential catalyst in the short term. Our estimated fair value for DILD is at IDR 404 per share, suggesting 14% upside from the current levels.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Despite some signs of stabilization in China’s factory gauges the primary trend is still weakness and it might be rash for investors to read too much into the recent data given the apparent weakness in the Eurozone and the moderation form a high level of growth in the United States. Quantitative tightening is on hold in the United States but a sharp “U-turn” to easing has not happened yet and is politically embarrassing. As inflation falls real rates are rising. Housing markets are showing signs of price weakness. Investors need to watch for signs of credit quality decay that could be an indicator of the next period of severe financial distress.
The future of the US and China relationship remains the most significant geopolitical and economic issue watched by the markets. While the markets prefer to focus on the positives, the eventual outcome of the talks may yet prove disappointing. Meanwhile, a rift is emerging among EU members who have diverging attitudes to cooperation with China. Authorities in Turkey have again spooked investors with their ham-fisted approach to markets. In Ukraine, comedian Zelensky has won in the first round of the presidential poll. In India, sabre-rattling continues ahead of parliamentary elections despite the de-escalation of tensions with neighbouring Pakistan.
CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.
Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ). The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The sixth company that we explore is Intiland Development (DILD IJ), a property developer that focuses on landed residential, industrial estates, high-end condominiums, and offices in Jakarta and Surabaya. DILD has a good track record in building and operating high-end condominiums and offices. But the property market slowdown, tighter mortgage regulations, and rising construction costs took a massive toll on the company’s balance sheet and margin.
DILD shows the worst operating cashflow performance versus peers. The operating cashflow is running at a massive deficit after the property market peak in 2013, driven mostly by worsening working capital cycle. Both consolidated gross margin and EBIT margin are also trending down over the past five years, showing the company’s inability to pass on costs. The biggest margin decline is visible in the offices, landed residential, and condominiums.
The total net asset value (NAV) for company’s landbank and investment properties is about IDR10.5tn, equivalent to IDR1,018 NAV per share. Despite an attractive Price-to-Book (PB) valuation and a chunky 65% discount to NAV, DILD still looks expensive on a Price-to-Earnings (PE) basis. Analysts have been downgrading earnings on lower margin expectation and weaker than expected cashflow generation that cause debt levels to remain high.
Consensus expects 16% EPS growth this year with revenues growing by 22%. We may see further downgrades post FY18 results as 9M18 EBIT only makes up 51% of consensus FY18 forecast. The government’s plan to reduce luxury taxes and allowing foreigners to hold strata title on Indonesian properties should bode well for DILD and serve as a potential catalyst in the short term. Our estimated fair value for DILD is at IDR 404 per share, suggesting 14% upside from the current levels.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Five interesting trends/developments that could impact Thai equities in the recent period:
Legalization of medicinal marijuana. Thailand legalized medicinal use of marijuana at end of February and has already received immense interest from potential growers. At some point, pharma and healthcare companies could be beneficiaries of this trend.
Rumbles in the airline industry. Asia Aviation (AAV TB) , parent company of Thai Air Asia, acquires a stake in competitor Nok Air. This is one of the few signs of industry consolidation in this sector.
MOU signed between TMB and Thanachart. The deal may take longer than initially expected, but the two sides have agreed on some basics such as 70% equity financing and deal size of roughly Bt130-140bn.
Read-through from US Election 2020. Some of the Democrat policies advocated by candidates in 2020 could turn out to be positive for Asian equities.
BGrimm acquires Glow SPP1 for a bargain price of Bt3.3bn, or 55% of the expected price, opening the way for the GPSC-Glow merger, potentially the largest deal of 2019.
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit, this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
The future of the US and China relationship remains the most significant geopolitical and economic issue watched by the markets. While the markets prefer to focus on the positives, the eventual outcome of the talks may yet prove disappointing. Meanwhile, a rift is emerging among EU members who have diverging attitudes to cooperation with China. Authorities in Turkey have again spooked investors with their ham-fisted approach to markets. In Ukraine, comedian Zelensky has won in the first round of the presidential poll. In India, sabre-rattling continues ahead of parliamentary elections despite the de-escalation of tensions with neighbouring Pakistan.
CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.
Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ). The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The sixth company that we explore is Intiland Development (DILD IJ), a property developer that focuses on landed residential, industrial estates, high-end condominiums, and offices in Jakarta and Surabaya. DILD has a good track record in building and operating high-end condominiums and offices. But the property market slowdown, tighter mortgage regulations, and rising construction costs took a massive toll on the company’s balance sheet and margin.
DILD shows the worst operating cashflow performance versus peers. The operating cashflow is running at a massive deficit after the property market peak in 2013, driven mostly by worsening working capital cycle. Both consolidated gross margin and EBIT margin are also trending down over the past five years, showing the company’s inability to pass on costs. The biggest margin decline is visible in the offices, landed residential, and condominiums.
The total net asset value (NAV) for company’s landbank and investment properties is about IDR10.5tn, equivalent to IDR1,018 NAV per share. Despite an attractive Price-to-Book (PB) valuation and a chunky 65% discount to NAV, DILD still looks expensive on a Price-to-Earnings (PE) basis. Analysts have been downgrading earnings on lower margin expectation and weaker than expected cashflow generation that cause debt levels to remain high.
Consensus expects 16% EPS growth this year with revenues growing by 22%. We may see further downgrades post FY18 results as 9M18 EBIT only makes up 51% of consensus FY18 forecast. The government’s plan to reduce luxury taxes and allowing foreigners to hold strata title on Indonesian properties should bode well for DILD and serve as a potential catalyst in the short term. Our estimated fair value for DILD is at IDR 404 per share, suggesting 14% upside from the current levels.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
This week’s offering of Insights across ASEAN@Smartkarmais 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.
The highlights of this week are comments on the Thai elections with differing perspectives from CrossASEAN Economist Prasenjit K. Basu, Thailand based Athaporn Arayasantiparb, CFA, and Dr Jim Walker. Dr Jim Walker also gives us his views on the key beneficiaries and the ongoing US-China trade dispute and singles out Indonesia and Vietnam. On this theme, Kevin O’Rourke highlights a potentially significant announcement of a US$400m investment in Kendal, Central Java by a Chinese Textile company of its intention to relocate a shirt manufacturing facility there from China. Kawasan Industri Jababeka (KIJA IJ) and Sembcorp Industries (SCI SP) have a JV industrial estate there, which stands potentially to benefit should this move should it transpire. More importantly, it could signal the start of a more promising future for Indonesia’s manufacturing sector.
In Vietnam Picks up the China Baton, Dr. Jim Walker lays out his thoughts on which countries are set to benefit the most from the ongoing trade dispute between the US and China. Indonesia and Vietnam would seem to be the most obvious beneficiaries.
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
Last Friday, Sea Ltd (SE US) unveiled plans to raise around $1 billion (based on the closing price on 28 February) through an underwritten public offering of 50 million ADS. The fundraising was inevitable due to the high cash burn and net cash position.
We are positive on Sea as digital entertainment (Garena), the cash cow, remains in rude health and its newer e-commerce business (Shopee) is a market leader, rapidly growing and reducing its losses. Overall, we would participate in the public offering at or below the last close price of $23.
Historically, Germany and China have depended on exports to lead growth. With the US unwilling to play the role of consumer of last resort and being determined to limit its current account deficit, this avenue is not available anymore. In the absence of a rethink by German policy makers as to how to make German growth more self -sustaining a deflationary feedback loop is developing between the EU and China.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.
CVC is looking to raise about US$353m through the sale of about 648m Map Aktif Adiperkasa PT (MAPA IJ) shares in the follow-on offering.
Map Aktif (MAPA) is a sports, leisure, and kids retailer in Indonesia. It is a subsidiary of Mitra Adiperkasa (MAPI IJ). The selldown might not be totally unexpected as CVC planned to exit its investment by 2020. However, post this selldown it will still have 192m share left.
In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.
The sixth company that we explore is Intiland Development (DILD IJ), a property developer that focuses on landed residential, industrial estates, high-end condominiums, and offices in Jakarta and Surabaya. DILD has a good track record in building and operating high-end condominiums and offices. But the property market slowdown, tighter mortgage regulations, and rising construction costs took a massive toll on the company’s balance sheet and margin.
DILD shows the worst operating cashflow performance versus peers. The operating cashflow is running at a massive deficit after the property market peak in 2013, driven mostly by worsening working capital cycle. Both consolidated gross margin and EBIT margin are also trending down over the past five years, showing the company’s inability to pass on costs. The biggest margin decline is visible in the offices, landed residential, and condominiums.
The total net asset value (NAV) for company’s landbank and investment properties is about IDR10.5tn, equivalent to IDR1,018 NAV per share. Despite an attractive Price-to-Book (PB) valuation and a chunky 65% discount to NAV, DILD still looks expensive on a Price-to-Earnings (PE) basis. Analysts have been downgrading earnings on lower margin expectation and weaker than expected cashflow generation that cause debt levels to remain high.
Consensus expects 16% EPS growth this year with revenues growing by 22%. We may see further downgrades post FY18 results as 9M18 EBIT only makes up 51% of consensus FY18 forecast. The government’s plan to reduce luxury taxes and allowing foreigners to hold strata title on Indonesian properties should bode well for DILD and serve as a potential catalyst in the short term. Our estimated fair value for DILD is at IDR 404 per share, suggesting 14% upside from the current levels.
China’s current efforts to gain prominence in the semiconductor market targets memory chips – large commodities. This three-part series of insights examines how China determined its strategy and explains which companies are the most threatened by it.
In the first part of this series we will see what motivated China to enter the market and how it plans to do so.
This week’s offering of Insights across ASEAN@Smartkarmais 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.
The highlights of this week are comments on the Thai elections with differing perspectives from CrossASEAN Economist Prasenjit K. Basu, Thailand based Athaporn Arayasantiparb, CFA, and Dr Jim Walker. Dr Jim Walker also gives us his views on the key beneficiaries and the ongoing US-China trade dispute and singles out Indonesia and Vietnam. On this theme, Kevin O’Rourke highlights a potentially significant announcement of a US$400m investment in Kendal, Central Java by a Chinese Textile company of its intention to relocate a shirt manufacturing facility there from China. Kawasan Industri Jababeka (KIJA IJ) and Sembcorp Industries (SCI SP) have a JV industrial estate there, which stands potentially to benefit should this move should it transpire. More importantly, it could signal the start of a more promising future for Indonesia’s manufacturing sector.
In Vietnam Picks up the China Baton, Dr. Jim Walker lays out his thoughts on which countries are set to benefit the most from the ongoing trade dispute between the US and China. Indonesia and Vietnam would seem to be the most obvious beneficiaries.
Global Liquidity bottoming out, but Central Banks not yet easing
US Fed only withdrew $30bn in Q1, versus $350 bn in Q4
PBoC still tightening through OMOs
ECB on ‘pause’
QE4 is coming in 2019, but no evidence it has started yet
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