Indonesia

In this briefing:

1. Medco’s Bump For Ophir Won’t Sway Petrus
2. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
3. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
5. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

1. Medco’s Bump For Ophir Won’t Sway Petrus

The boards of Medco Energi Internasional T (MEDC IJ) and Ophir Energy (OPHR LN) have agreed to increase the Offer price to £0.575 from £0.55, representing a 73.2% premium to the undisturbed price.

All other details of the scheme remain unchanged. The court meeting is to take place on the 25 March, while the long stop is the 20 June – unless both companies agree to an extension.

On Petrus

Petrus has yet to respond to the Offer increase; however, it would be surprising if its stance against the takeover has altered. 

In its prior letter to Ophir on the 14 January, Petrus recommended selling the South-East Asian (SEA) assets to Medco – excluding the Tanzanian and Mexican investments – with a low-end fair value, before synergies, of £0.64/share, through to £1.42/share on a blue sky basis.

Shortly before the increase, Petrus was quoted (paywalled) it would vote its 3.95% against the takeover, while adding “Our satisfaction with the value our board deems as satisfactory has decreased further“, with reference to the release of Ophir’s full-year results on the 12 March.

On Sand Grove/Coro

Subsequent to the bump, Coro Energy PLC (CORO LN), which had previously submitted a non-binding cash/scrip reverse takeover offer on the 8 March, declared it has no intention to bid.

Sand Grove has also announced it has given an irrevocable undertaking to vote its 18.73% in favour of the scheme. Coro held discussions with Sand Grove before abandoning its bid.

Trading Tight – Upside Less Assured

Medco’s Offer is conditional on 75%+ approval from Ophir’s shareholders, which appears less tenuous following the 4.5% bump and Sand Grove’s irrevocable undertaking. While I consider the offer for Ophir sub-optimal – and shares have closed above terms on 30% of the trading days since Medco’s initial offer – Petrus alone cannot disrupt the vote. Of note, the next three largest shareholders behind Sand Grove have reduced their holdings since end-December 2018.

The gross/annualised spread is tight at 0.7%/2.6%, assuming early-July payment. The risk/reward in punting at or just below terms is now less attractive following this Offer Price increase and the irrevocable undertaking.

2. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

3. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town

A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.

4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.

Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously. 

The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL. 

4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18. 

The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.

The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.  

After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates. 

4. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

5. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

In this briefing:

1. Free Money Has Flown

1. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

In this briefing:

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

1. Uzbekistan Is a Promising Latecomer, but Investors Need to Watch Out and Stay on Top of Data

In this briefing:

1. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
2. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
4. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

1. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

2. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town

A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.

4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.

Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously. 

The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL. 

4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18. 

The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.

The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.  

After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates. 

3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

4. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

In this briefing:

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

Xl Axiata’s  (EXCL IJ) 4Q18 results triggered a very strong rally last week that continues this week. The market has been very concerned about competitive pressures in Indonesia and extremely low data prices. We believe that Indonesia is now past the worst and there is evidence that data pricing is starting to rise modestly. That is delivering a powerful tail wind for Indonesian telcos in 2019, with XL Axiata likely to report several very strong quarters.

XL Axiata now reporting strong sequential revenue growth (% QoQ)

In this briefing:

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia
2. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

Xl Axiata’s  (EXCL IJ) 4Q18 results triggered a very strong rally last week that continues this week. The market has been very concerned about competitive pressures in Indonesia and extremely low data prices. We believe that Indonesia is now past the worst and there is evidence that data pricing is starting to rise modestly. That is delivering a powerful tail wind for Indonesian telcos in 2019, with XL Axiata likely to report several very strong quarters.

XL Axiata now reporting strong sequential revenue growth (% QoQ)

2. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

Macro Insights

In Indonesia: Waiting To Unleash The Potential, our friends at River Valley Asset Management cast their learned eye over the prospects for the Indonesian Stock market. 

In Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position, CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this consumer electronics player and highlights the risks from the US-China Trace War. 

In Puregold Price Club: Steady Grower with Provincial Expansion Story, Johannes Salim, CFA comments on this leading Philippines consumer play. 

in Silverlake Axis (SILV SP): 2Q19 Results Again Confirm New 3-Year Growth Cycle; HNA Overhang Removed, Nicolas Van Broekhoven revisits Silverlake Axis (SILV SP) and sees blue skies ahead post its recent results. 

In Delta’s Less-Than-Straightforward Tender Offer, events specialist David Blennerhassett comments on Delta Electronics Thai (DELTA TB) following a tender offer for the company. 

In Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies, Anish Kapadia examines the recent sale of a stake in Mako gas field in Indonesia and its implication for other SE Asian energy plays such as Medco Energi Internasional T (MEDC IJ). 

In Catch-Up Session with Intuch Group, Thai guru Athaporn Arayasantiparb, CFA revisits Intouch Holdings (INTUCH TB) following a meeting with management. 

In GPSC To Proceed With Glow Takeover, But At What Price?, events specialist David Blennerhassett looks at the ongoing takeover of Glow Energy Pcl (GLOW TB) by Global Power Synergy Company Ltd (GPSC TB). 

In UG Healthcare: Weak 2Q19 Driven by One-Off Issue, If 10% NPM Achieved in FY20 Trades at 4x FY20 P/E, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits UG Healthcare (UGHC SP) after some weak results but remains positive on the long term story.  

In M1 Ltd (M1 SP): Axiata Throws in the Towel, Delisting Looms, Arun George circles back to the acquisition of M1 Ltd (M1 SP) by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) after Axiata Group (AXIATA MK) decided to accept the offer. 

In OUE C-REIT – Beware of the CPPU Timebomb, Royston Foo revisits this REIT and highlights some potential DPU dilution ahead for minorities.  

in MINT Placement – Well Flagged Placement but Only Marginally Accretive, Past Deals Have Done Well, Sumeet Singh zeros in on a recent placement by Mapletree Industrial Trust (MINT SP).  

Sector and Thematic Insights

In Top Consumer Themes in Vietnam, Dylan Waller looks at this high growth sector and highlights his top picks.

In Singapore Property – January Developers’ Sales Data Continues to Point Towards a Bleak Outlook, Royston Foo revisits the sector after January’s sales data. 

In Singapore Real Deals (Issue 3): Integrated Mixed-Use Development in Pasir Ris, Anni Kum looks at a recent white site launch in Pasir Ris.

In this briefing:

1. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
3. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

1. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town

A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.

4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.

Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously. 

The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL. 

4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18. 

The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.

The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.  

After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates. 

2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

3. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

In this briefing:

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
2. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
4. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
5. Moore’s Law May Not Be Dead, After All

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

2. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

4. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

5. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

In this briefing:

1. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
2. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
3. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
4. Moore’s Law May Not Be Dead, After All
5. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

1. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

2. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

3. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

4. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

5. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

In this briefing:

1. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
2. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
3. Moore’s Law May Not Be Dead, After All
4. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
5. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

1. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

2. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

3. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

4. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

5. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

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 fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road. 

Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story. 

Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township.  This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.

The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.

It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term. 

Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.

Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali. 

The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.

One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022. 

From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties.