Indonesia

In this briefing:

1. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?
2. Widodo’s Generals Take Fire / Anti-Foreign Rhetoric Takes Toll / Land Hampers Adhi’s LRT / MRT Near
3. INDO Snippets: Second Presidential Debate, BNLI & PNBN – This Time Is Real?

1. Global EM Special: Andean Condors Vs Asian Elephants – Where Is the Growth in EM?

Global growth is expected to slow over the coming quarters, possibly years – and emerging market economies are certainly not immune from this. Nevertheless, within this diverse universe, the pace of deceleration will be uneven. Whilst some “open” EM economies are generally synchronized with growth dynamics in the rest of the world, others will be shielded by a combination of idiosyncratic forces – including renewed accommodative (monetary and fiscal) policies, cyclical recovery or upswing in domestic growth drivers and – for some – positive political developments and reform progress. Still, other EMs are less fortunate and a growth deceleration is likely to deepen in the near-term – held back by less policy flexibility, political uncertainty and various domestic or external shocks.

With 4Q18 GDP growth reports underway, we sifted through – and synthesized – various growth indicators to introduce a “Growth-Profile Framework” (GPF) to systematically evaluate – and rank – growth profiles in a data-driven, automated and standardized manner. The “GPF” not only takes into account GDP for the most recently-reported four quarters but also forward-looking forecasts and the latest economist revisions, which often take into account the latest data surprises and other material developments.

The observation universe is the “Emerging Markets-25” (EM-25) of large, investable EM countries most often found in benchmark indices such as MSCI EM and JPMorgan (GBI-EM and EMBI) indices. This opportunity set offers a breadth of diversity spanning across Asia, EMEA and LatAm and different stages of development. 

Highlights: 

• Introducing the “EM-25” Growth Profile Framework: This data-driven, automated and standardized model generates a ranking of the “EM-25” economies based on a composite of factors reflecting: 1/ The most recent GDP growth data (in relation to three look-back periods), 2/ Forward-looking consensus growth forecasts (in relation to the most recent four quarters of GDP) and 3/ Upgrades and downgrades to those forecasts.
• Andean condors soar while Asian elephants amble along: LatAm – specifically the Andean economies (plus Brazil) – currently stand out as having the most attractive growth profiles among the EM-25. They are helped by a combination of – largely idiosyncratic – factors ranging from newfound reform optimism (Brazil), improving domestic confidence (Colombia), pent-up domestic demand (Peru) and stabilizing appetite for key commodities (Chile). This contrasts with export-oriented Asian manufacturers that dominate the bottom rankings. Elsewhere, the legacy of past macroeconomic policy choices – both painfully orthodox (Argentina) and otherwise (Turkey, Venezuela, Pakistan) – are taking their unique toll on certain other economies.
• Does growth matter for investment strategy? Yes…: Simplistically speaking, economies with exemplary growth profiles are viable candidates for long or overweight positions in equity markets and external debt. Strong growth is often associated with stronger corporate earnings potential as well as lower debt-to-GDP levels, respectively. Growth implications for FX and local debt are more ambiguous, but to the extent that a robust growth outlook guides central banks to tighten policy or lifts the government’s fiscal revenues over time, then this may also be positive for currencies and rates, respectively.

• …But it’s complicated: However, strong growth can detract asset performance if it is the result of unsustainable policies (e.g. overly loose fiscal or monetary actions) or if it leads to overheating conditions (e.g. runaway inflation or a wider current account deficit). An attractive growth profile, as with all data sets, needs to be judged against its context. Although high and improving growth is an end-goal for many policymakers, the road to strong – and sustainable – growth is far more important for its longevity (and for risk assets over the medium-term). For instance: Are growth prospects improving due to rising productivity (as it might from structural reform)? Or rather from overly-stimulative policies that risk fanning inflation or widening the current account deficit? To what extent do officials have the policy flexibility to stoke growth, smoothen downside growth risks or stave off a recession? We touch upon these questions in the individual country sections below.

• While the narrative is almost always more important than the number itself, this GPF framework nevertheless offers a valuable screening tool that systematically evaluates growth profiles – on a stand-alone and relative basis – across the “EM-25” universe.

2. Widodo’s Generals Take Fire / Anti-Foreign Rhetoric Takes Toll / Land Hampers Adhi’s LRT / MRT Near

Sparring remains lively in the presidential campaign, with the Prabowo camp targeting a liability for Widodo: retired generals in the cabinet.  But Prabowo is still campaigning ineffectively and defections of allied governors shows that some in his camp consider his prospects dim.  Police controversially dropped charges against a chief hard-line Islamic figure.  Anti-foreign rhetoric, chiefly from Prabowo, threatens to tug policy discourse towards his vision of barriers, autarky and state control.  Two forthcoming regulations on the property sector aim to safeguard consumers.  A review of geothermal policies is possible.  Upstream energy investment may be improving.  The IA-Cepa may conclude on 4 March.  Adhi Karya’s Jabodebek LRT faces a thorny land problem in Bekasi, where the China-backed fast train project may have complicated matters by overpaying. 

Politics: Campaign sparring continues apace, as Gerindra Chair Prabowo Subianto criticized infrastructure projects (they enable imports to penetrate further) and reiterated that “Rp11,000 trillion in Indonesian assets reside abroad”.  Campaign officials for President Joko Widodo lambasted the remarks and recalled that both Prabowo and his running mate appeared in the ‘Panama Papers’.  Meanwhile, retired generals from the rival campaigns exchanged jabs about events of May 1998; for Prabowo, the topic contains pitfalls (Page 2).  In a rare example of violence in election campaigning, a fracas outside a rally in Yogyakarta caused three minor injuries among rival youth groups (p. 4).  Elite endorsements matter little, but Widodo has garnered overwhelming support from regional heads (p. 4).  Police controversially dropped charges on hard‑line Islamic leader Slamet Ma’arif (p. 5).  Agus Harimurti Yudhoyono (AHY) takes over Partai Demokrat’s campaigning as Susilo Bambang Yudhoyono attends to his ill spouse (p. 6). 

Surveys: A newly released poll from the Cyrus Network shows Widodo’s lead intact – but the actual data is from mid‑January, a period that other polls already covered (p. 6). 

Policy News: Coordinating Maritime Affairs Minister Lt Gen (ret) Luhut Panjaitan urged greater state investment in geothermal power (p. 7).  Protecting consumers from misleading practices by property developers will reportedly be the focus of two forth­coming regulations (p. 8).  The IA-Cepa is reportedly due for signing on 4 March (p. 9).

Infrastructure: The Jakarta Mass Rapid Transit (MRT) will ramp up operations during a trial from 12-24 March, with commercial operations expected by end‑March (p. 9).  Press reports hint that the China‑financed Bandung fast train project may have overpaid for land in Bekasi, thereby complicating acquisition of nearby land needed for the Jakarta-Area Light Rail Train (LRT) project, which faces delay until April 2021 (p. 9). 

Economics: The trade minister touted FTAs (p. 11).  Upstream Regulatory Agency (SKK Migas) officials expressed optimism about investment flows into oil and gas (p. 12). 

Outlook: Although the winner is not yet clear, the loser thus far in the presidential election appears to be the international community.  Pronounced anti‑foreign rhetoric from the Prabowo camp threatens to cow policy­makers and jeopardize prudent economic management.  Excessive skepticism of international engagement would come at an awkward time: the current account deficit requires capital inflows, while protectionism would augur lower growth (p. 12). 

3. INDO Snippets: Second Presidential Debate, BNLI & PNBN – This Time Is Real?

INDO Snippets brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. 

Today on INDO Snippets:

• The second presidential debate was held last Sunday in Jakarta. Key moments are discussed below.
• Bank Permata (BNLI IJ) stake sale rumor is heating up on Standard Chartered (STAN LN)‘s statement. Both STAN and Astra International (ASII IJ) have been looking for buyers and Bank Mandiri Persero (BMRI IJ) and Sumitomo Mitsui Financial Group (SMFG) are said to be the strongest two candidates in winning the bid.
• ANZ’s divestment in Bank Pan Indonesia (PNBN IJ) may come to a close this year. We discussed the potential impact on holding companies Panin Financial (PNLF IJ) and Paninvest (PNIN IJ).

In this briefing:

1. Jakarta Trip – On the Ground Insight Feb 2019

1. Jakarta Trip – On the Ground Insight Feb 2019

Airport connectivity in Indonesia has reached a milestone last year when they announced the airport express but has there been any improvements in the service and load factor? The management company, Railink, definitely tries its best to upkeep their service level and increase awareness. Indonesian usage of internet through smartphones also tells about how important smartphones as a center of their daily life. 

Blue Bird (BIRD IJ) has gone creative when it comes to increase their online and offline presence; not only having an app that is comparable to Grab and Uber but also creating a dedicated taxi waiting area in a mall. Is Go-jek only a ride hailing app? My experience on Go-send tells otherwise. 

How about the upcoming Presidential election? What will happen in a rematch between Jokowi vs Prabowo? Does Prabowo really have no economic policy? His answer when asked on what sort of supportive policies to help Unicorns grow shed some light on his understandings and knowledge on economic policy. 

In this briefing:

1. Risk of Future LNG Supply Glut as Bubble of New Projects Grows
2. 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate
3. Vietnam Picks up the China Baton
4. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
5. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

1. Risk of Future LNG Supply Glut as Bubble of New Projects Grows

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

2. 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate

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).

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). 

3. Vietnam Picks up the China Baton

The US-China trade dispute simmers on. Regardless of the outcome of talks between the two largest economies on earth, the damage to the existing world manufacturing trading order has already been done. China plus one is no longer a preferential industrial location strategy for multinational companies, it is an imperative. Like Brexit, companies are beginning to relocate out of China even before the dispute is either settled or escalated. Profits can’t wait for governments to behave sensibly.

But where to go? Indonesia and Vietnam are the most obvious potential beneficiaries of the fallout from the ongoing trade dispute between the US and China. There are a number of alternatives but Indonesia and Vietnam both have large, youthful working populations (and really here we are talking about the accessible workforces on Java and in Vietnam) and both are located within easy reach of the existing Asian supply chain. But are both equally ready and equally keen to pick up the China baton? Vietnam is the obvious winner in this contest. Unfortunately, for institutional equity investors the market isn’t included in Asia-Pacific or emerging market benchmarks.

4. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

5. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

In this briefing:

1. 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate
2. Vietnam Picks up the China Baton
3. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
4. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note
5. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC

1. 18pt Lead Mitigates Prabowo-Related Risk / Islamic Parties Declining / PRC Textile Plan / 4th Debate

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).

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). 

2. Vietnam Picks up the China Baton

The US-China trade dispute simmers on. Regardless of the outcome of talks between the two largest economies on earth, the damage to the existing world manufacturing trading order has already been done. China plus one is no longer a preferential industrial location strategy for multinational companies, it is an imperative. Like Brexit, companies are beginning to relocate out of China even before the dispute is either settled or escalated. Profits can’t wait for governments to behave sensibly.

But where to go? Indonesia and Vietnam are the most obvious potential beneficiaries of the fallout from the ongoing trade dispute between the US and China. There are a number of alternatives but Indonesia and Vietnam both have large, youthful working populations (and really here we are talking about the accessible workforces on Java and in Vietnam) and both are located within easy reach of the existing Asian supply chain. But are both equally ready and equally keen to pick up the China baton? Vietnam is the obvious winner in this contest. Unfortunately, for institutional equity investors the market isn’t included in Asia-Pacific or emerging market benchmarks.

3. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

4. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

5. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC

Energy Transfer LP (ET US) and Royal Dutch Shell (RDSA LN) have signed a Project Framework Agreement to further develop a large-scale LNG export facility in Lake Charles, Louisiana and move toward a potential final investment decision (FID). They have started actively engaging with LNG Engineering, Procurement and Contracting (EPC) companies with a plan to issue an Invitation to Tender (ITT) in the weeks ahead. We look at the potential contract size and winners and also the other US LNG projects that could be negatively impacted. More detail on the LNG project queue for this year in: A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies.

In this briefing:

1. INDO Snippets: Second Presidential Debate, BNLI & PNBN – This Time Is Real?
2. Bank Danamon Goes Ex-Rights
3. Memory Chips and the Elasticity Myth
4. Jakarta Trip – On the Ground Insight Feb 2019

1. INDO Snippets: Second Presidential Debate, BNLI & PNBN – This Time Is Real?

INDO Snippets brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. 

Today on INDO Snippets:

• The second presidential debate was held last Sunday in Jakarta. Key moments are discussed below.
• Bank Permata (BNLI IJ) stake sale rumor is heating up on Standard Chartered (STAN LN)‘s statement. Both STAN and Astra International (ASII IJ) have been looking for buyers and Bank Mandiri Persero (BMRI IJ) and Sumitomo Mitsui Financial Group (SMFG) are said to be the strongest two candidates in winning the bid.
• ANZ’s divestment in Bank Pan Indonesia (PNBN IJ) may come to a close this year. We discussed the potential impact on holding companies Panin Financial (PNLF IJ) and Paninvest (PNIN IJ).

2. Bank Danamon Goes Ex-Rights

The process of the merger between Bank Danamon Indonesia (BDMN IJ) and Mitsubishi Ufj Financial (8306 JP)‘s local unit Bank Nusantara Parahyangan (BBNP IJ) is proceeding apace.

Today, the shares go ex-rights for shareholders looking to both vote on March 26th and, assuming the vote goes through, to elect to receive cash of IDR 9,590 instead of continuing to hold shares. BDMN shares are trading down, as expected. 

3. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

4. Jakarta Trip – On the Ground Insight Feb 2019

Airport connectivity in Indonesia has reached a milestone last year when they announced the airport express but has there been any improvements in the service and load factor? The management company, Railink, definitely tries its best to upkeep their service level and increase awareness. Indonesian usage of internet through smartphones also tells about how important smartphones as a center of their daily life. 

Blue Bird (BIRD IJ) has gone creative when it comes to increase their online and offline presence; not only having an app that is comparable to Grab and Uber but also creating a dedicated taxi waiting area in a mall. Is Go-jek only a ride hailing app? My experience on Go-send tells otherwise. 

How about the upcoming Presidential election? What will happen in a rematch between Jokowi vs Prabowo? Does Prabowo really have no economic policy? His answer when asked on what sort of supportive policies to help Unicorns grow shed some light on his understandings and knowledge on economic policy. 

In this briefing:

1. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies
2. Indonesia Property – In Search of the End of the Rainbow – Part 5 –  Summarecon Agung (SMRA IJ)
3. Lead Intact, Says Preponderance of Polls / MRT Tariff Undecided / EU Trade Tension / PDP Bill Sought
4. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump
5. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call

1. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies

Macro Insights

In Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”, Cross ASEAN Insight provider Prasenjit K. Basu discusses the implications of the result of Thailand’s election, which will likely see the incumbent Prime Minister retain his position, this times as a democratically elected leader (result covered in the discussion stream). 

In Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest, Kevin O’Rourke looks at the most important political and economic developments over the past week and provides his value-added comment. 

In Thailand’s Election – Growth Story Plays Wait and See, Dr. Jim Walker discusses the recent monetary moves by the Bank of Thailand and what the result of the election might mean for growth. 

In Philippines: El Niño’s Comeback – How Bad? , Jun Trinidad looks at the potential impact from the predicted comeback of El Nino in the economy. 

In Asian Credit Monitor: The Pad Thai Election, Warut Promboon looks at the potential impact of the results from the Thai election and the implications for credit in that country. 

Equity Bottom-up Insights

In XL Axiata (EXCL IJ) – The Crown Prince of Data, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s most direct play on the rising consumption of mobile data, as pricing in that market starts to look more favourable. 

In Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR, commodities specialist Charles Spencer zeros on the potential positive impact from an impending El Nino.

In Philippine National Bank – The Beginning of Recognition, Daniel Tabbush circles back to this leading but unappreciated Philippines lender, where he sees greater appreciation from investors starting to transpire. 

In Tisco – A Bright Bank in a Dim Rate World, Daniel Tabbush revisit one of his top financial picks in Thailand. 

In SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap. CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this small-cap marina play and finds it to be one of the cheapest stocks listed on the SGX. 

In Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation RangeDelta Electronics Thai (DELTA TB), Arun George circles back to this ongoing tender offer, which he recommends minorities should accept. 

In After You Looks Beyond Thailand For Opportunities, our Thai Guru Athaporn Arayasantiparb, CFA writes on After You Pcl (AU TB) and Amata Corp Public (AMATA TB) following recent meetings with management. The meetings with the two companies whose industries could not have been more different. 

Sector and Thematic Insights

In Thai Telecoms: Slowdown in Mobile Business Continues., our comrades and collaborators at New Street Research circle back to the Thai Telco sector post 4Q18 results. 

In Snippets #21: Bremen, TMB Rights Issue, Thai guru Athaporn Arayasantiparb, CFA highlights five developments/news flows/trends and their potential impact on Thai equities over the past week or so. 

In Phillippine Gaming Tug of War Disguises Vibrant Sector Potential for 2019-2020, gaming specialist Howard J Klein zeros in on the Philippines gaming sector, which currently flies under investor’s radar but has a lot of future potentials, and more especially Bloomberry Resorts (BLOOM PM). 

In Singapore Real Deals (Issue 5): The Largest Condominium in Singapore, Anni Kum presents a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. In this issue, she looks at the launch of Treasure at Tampines in District 18, the largest condominium in Singapore to-date. (Official launch last weekend). 

2. Indonesia Property – In Search of the End of the Rainbow – Part 5 –  Summarecon Agung (SMRA 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 fifth company that we explore is Summarecon Agung (SMRA IJ), a township developer with over 40 years of track record and a combined development area of over 2,700ha. The company benefits from its exposure to the popular Serpong district, but an over expansion, coupled with tightening property regulations caused its balance sheet to suffer in the following years. Earnings have declined by -19% Cagr over the past five years as a consequence of lower margins and burgeoning debt levels.

The company has plans to divest its retail mall division, which can serve as a positive catalyst in the near term. Improving sentiment and better interest rate environment, as well as positive regulatory tailwinds should be a driver to SMRA’s share price this year. We see a 44% upside to our target price of IDR1,408 per share.

Summary of this insight:

• The success of SMRA’s first township, Kelapa Gading, paved way for the next six township development. The same township model is replicated to its Serpong, Bekasi, Bandung, Karawang, Makassar, and soon Bogor. 
• During the height of the property boom, every cluster launch in the Serpong area is 2-3x oversubscribed. Buyers were a mix of speculators and end-users, and both were happy customers benefiting from over 400% land price appreciation over the course of 2009-2013. Land ASP in 2009 was just below IDR3mn versus IDR12-15mn in 2013.
• Driven by the positive momentum of the property boom, SMRA ambitiously launched three new townships at the trough of the property market (2015-2018), growing its total township development area by more than a third. Poor cashflow management, stemming from the over-expansion during the property downturn took a massive toll on the balance sheet. SMRA turned from net cash in 2013 to holding IDR8.6tn of debt in 9M18 (1.2x gearing) with interest costs making up a chunky 49% of EBIT. 
• We have also seen a massive shift to the end-user market since 2014, as the company started to sell more smaller houses and affordable apartments rather than land lots and shophouses. At the peak, shophouses and land lots made up more than 50% of the company’s development revenues. As of 9M18, that number has declined to a mere 7% of revenues, while 93% comes from houses and apartments. Housing units launched in 2016-2017 are 36% cheaper than units launched in 2011-2014, as the company downsized in the area.

• SMRA has the second biggest retail mall portfolio in our coverage after Pakuwon Jati (PWON IJ) with 258,000sqm net leasable area (NLA). The three malls generate about IDR1.3tn revenue per year, returning 42% EBITDA margin. About 40% of tenants in Bekasi and Serpong are up for a rental renewal in the next three years, and this could serve as a potential upside on the average rental rates. 

• Pros: Bank Indonesia (BI)’s move to loosen mortgage regulations last year, and plans to reduce luxury taxes and allow for friendlier foreign ownership scheme should give a breath of fresh air over the medium term. SMRA targets 18% presales growth in 2019, but they have been missing their presales target by an average of 22% over the past three years. We expect a more modest 5% presales recovery this year.
• Pros: Margin on houses show a massive improvement from 51% in 2014 to 59% in 9M18. The improvement brings up the consolidated property development margin by 600bps YoY. As a segment, this is the first margin uptick since 2014, leading to 44% YoY EBIT growth and 115% YoY NPAT growth in 9M18.
• Cons: The stellar property development growth, however, is diluted by the poor performances from the investment property division that recorded 14% YoY EBIT decline. Despite some improvements on the gross margin level and healthy topline growth, opex has doubled YoY, leading to 700bps reduction in the EBITDA margin. 
• Recommendation & catalyst: SMRA has underperformed the JCI by a steep 71% over the past 36 months as earnings and presales continue to disappoint. Discount to NAV, PE, and PB valuation are standing at -1 standard deviation below mean. Improving risk appetite for high beta stocks, better interest rate environment, accomodative policies from the government, and potential pick up of activity after the election are a few of the key catalysts for the stock and sector re-rating. The divestment of its retail arm should also help to clear some debt off the balance sheet and unlock value. We have a BUY recommendation.

3. Lead Intact, Says Preponderance of Polls / MRT Tariff Undecided / EU Trade Tension / PDP Bill Sought

The presidential race is unchanged as data from a premier polling firm, SMRC, shows a 26 percentage point lead for Widodo.  Thus far only one poll has shown a narrow lead — 12 percent, according to Kompas — but until other data corroborates this, it appears to be an outlier that does not change the outlook.  Widodo is heavily touting the MRT opening, but provincial leaders are struggling to set a tariff rate — it will therefore still be free when it opens for public use on 25 March.  The Religion Ministry appointments-graft scandal threatens to implicate the minister.  Trade acrimony with the EU is escalating.  West Java Governor Ridwan Kamil, a 2024 presidential contender, garnered negative publicity for appointing relatives.  Legislators and stakeholders are clamoring for government progress on a draft Bill on Personal Data Protection.

Politics: Eager to maximize advantages from the imminent commercial start of Jakarta’s Mass Rapid Transit (MRT) line, President Joko Widodo claimed credit for having made a “political decision” to take on the project’s cost.  In fact, the magnitude of those costs to the province remains unclear: three days from the start of operations, policymakers have yet to set the tariff for riders (Page 2).  The corruption scandal enveloping the Islamic United Development Party (PPP) – at the worst possible time in the election cycle – could further depress the clout of Islamic interests in the next parliament (p. 3).  West Java Governor Ridwan Kamil invited criticism by appointing two relatives to a high-profile Development Acceleration Team (TAP) under his aegis (p. 4).

Surveys: The large lead for President Joko Widodo appears intact, based on findings from three recent polls, although one reputable agency produced divergent results.  Widodo has a lead of at least 19 percentage points according to three surveys in late February and March: in addition to the Survey Network (LSI) and Alvara Research (discussed in recent Ref Wkly editions), new data has emerged from Saiful Mujani Research and Consulting (SMRC) placing Widodo’s margin over Prabowo at 26 percentage points.  A poll conducted simultaneously by Kompas measured the lead at only 12 percentage points – but until other polling corroborates this, it constitutes an outlier that lacks significance.  In any event, even if Widodo’s lead has shrunk as much as Kompas claims, he would still enjoy a comfortable cushion (p. 4). 

Justice: Religion Minister Lukman Saefuddin is under scrutiny after investigators discovered Rp600 million in cash in his office desk drawer.  Meanwhile, former PPP Chair Romahurmuziy failed to appear for questioning as a suspect (p. 7).

Policy News: Public officials clamored for a long-awaited Bill on Protecting Personal Data (RUU PDP) (p. 8).  Energy Minister Ignatius Jonan welcomed a parliamentary suggestion to subsidize the higher-octane petroleum product Pertamax, rather than Premium – but he remained noncommittal about implementation (p. 9).

Infrastructure: Jakarta’s governor rejected suggestions from provincial legislators that the MRT should be free, or at least free for Jakarta residents (p. 10). 

International: Policymakers denounced the European Union (EU) for allegedly discriminating against biodiesel from crude palm oil (CPO).  The planned Comprehensive Partnership Agreement with Europe (IEU‑Cepa) could be at risk (p. 11).

4. Gold May Rise on Lower Real Ylds; Canada Leads Fall in Real Ylds; Aust Inflation Expectations Slump

• The broad decline in global bond yields and curve flattening suggest that the market has become more concerned about weak global economic growth.
• The fall in yields is at odds with the rise in equity and commodity prices this year, but the later may have lost upward momentum.
• Safe haven currencies, gold and JPY, have strengthened this week and are likely to perform well if yields remain low.
• US real yields have fallen more than nominal yields this year, with a partial recovery in inflation expectations from their fall in Q4 last year. Lower real yields point to weaker fundamental support for the USD, and further support safe havens like gold.
• Canadian real long term yields have fallen more abruptly than in the USA, into negative territory, suggesting the outlook for the Canadian economy has deteriorated more than most. This may relate to concern over a peaking in the Canadian housing market. The fall in real yields suggests further downside risk for the CAD.
• Long term inflation breakevens have fallen in Australia sharply since September last year to now well below the RBA’s 2.5% inflation target.
• Australian leading indicators of the labour market have turned lower, albeit from solid levels, and may be enough, combined with broader evidence of weaker growth, for the RBA to announce an easing bias as soon as April.
• Asian trade data and flash PMI data for major countries point to ongoing and significant weakness in global trade.

5. RRG Weekly – Fed Highlights Headwinds – Greece Greases Growth – Thai Election Sun Too Close to Call

• US: Fed Sees Tailwinds from Global Growth Shifting to Headwinds from China and Europe.
• Greece: Growth supported by ‘Golden Visa’ (5-year visa for investing 250,000 Euro) and strong tourism arrivals. 2.3% GDP in 2020.
• Thailand: Sunday election between Shinawatra-linked Pheu Thai Party and military backed Palang Pracharat Party. Too close to call.
• Brazil: Former Brazilian President Michel Temer has been arrested in São Paulo as part of the Car Wash corruption investigation. Brazil stocks fell on the news.

In this briefing:

1. Vietnam Picks up the China Baton
2. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
3. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note
4. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC
5. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward

1. Vietnam Picks up the China Baton

The US-China trade dispute simmers on. Regardless of the outcome of talks between the two largest economies on earth, the damage to the existing world manufacturing trading order has already been done. China plus one is no longer a preferential industrial location strategy for multinational companies, it is an imperative. Like Brexit, companies are beginning to relocate out of China even before the dispute is either settled or escalated. Profits can’t wait for governments to behave sensibly.

But where to go? Indonesia and Vietnam are the most obvious potential beneficiaries of the fallout from the ongoing trade dispute between the US and China. There are a number of alternatives but Indonesia and Vietnam both have large, youthful working populations (and really here we are talking about the accessible workforces on Java and in Vietnam) and both are located within easy reach of the existing Asian supply chain. But are both equally ready and equally keen to pick up the China baton? Vietnam is the obvious winner in this contest. Unfortunately, for institutional equity investors the market isn’t included in Asia-Pacific or emerging market benchmarks.

2. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

3. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

4. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC

Energy Transfer LP (ET US) and Royal Dutch Shell (RDSA LN) have signed a Project Framework Agreement to further develop a large-scale LNG export facility in Lake Charles, Louisiana and move toward a potential final investment decision (FID). They have started actively engaging with LNG Engineering, Procurement and Contracting (EPC) companies with a plan to issue an Invitation to Tender (ITT) in the weeks ahead. We look at the potential contract size and winners and also the other US LNG projects that could be negatively impacted. More detail on the LNG project queue for this year in: A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies.

5. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward

Leong Hup International (LEHUP MK) (LHI) plans to raise up to US$400m in its Malaysian IPO. LHI is one of the largest integrated poultry producer in Southeast Asia. 

LHI was listed on Bursa Malaysia from 1990 to 2012.  Since delisting, it has consolidated  its Southeast Asia operations under a single entity and is now looking to relist the larger entity.

While revenue has been growing steadily, margins have been volatile. In addition, its difficult to pinpoint which products are performing well in which geographies. The feedmills business seems to be a more consistent performer as compared to the livestock business. It’s also a larger revenue contributor in the faster growing regions.

In this briefing:

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished
2. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note
3. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC
4. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward
5. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies

1. The Dollar IS the Story; Gold Confounds, A Brexit Rabbit Hole; EUR Punished

• The dollar IS the story
• EUR punished for negative yields
• Chasing Brexit down a rabbit hole
• Gold confounds
• Bitcoin at an interesting juncture

The fact that the dollar has strengthened despite the dovish turn at the Fed this year and the significant fall in US rates and bond yields has confounded many analysts.

2. Climate Action – School Strikes Hit a Spot, Carbon Emitters Face Heat. Investors Take Note

On Friday, March 15th, an estimated 1.6 million students in over 120 countries (source: Time magazine) walked out of classrooms and took to streets demanding radical climate action. Climate change activism rarely grabbed headlines or wider public attention as it is doing now. Rising climate activism will continue to train the spotlight on industries/businesses associated with carbon-emission making it increasingly difficult for them to expand capacities or secure funding. Large institutional investors – sovereign funds, pension funds, insurance companies – have begun to incorporate climate risk into investment policy and are limiting exposure to sectors that directly contribute to carbon emissions – primarily coal, crude oil producers and power plants based on them. Expect sector devaluation; active investors may well look beyond juicy near term earnings and dividend yield.

Even as scientists and meteorological organisations keep warning of dire consequences unless concrete action is taken to limit carbon emissions to stall climate change, political establishment/regulators in most countries are in denial while others are doing little more than lip service.  If so, should corporates care? even though businesses are the ones that play a direct role in escalating carbon emissions. With rising consumer awareness and activism, several industries associated with carbon emissions are already facing operational and funding challenges; we believe, it pays for all businesses to be above par on ‘climate action’ – it would be in their own self-interest, not just general good. And do Investors bother? Under the aegis of Climate Action 100+, an investor initiative with 320 signatories having more than USD33 trillion in assets collectively under management, they have been engaging companies on improving governance, curbing emissions and strengthening climate-related financial disclosures. It has listed out Oil & Gas, Mining, Utilities and Auto manufacturers as target sectors. Investors have already been making an impact – by vote or exit. It sure makes logical sense to effect positive change and minimise climate risk when you have a long term investment horizon.

In the detailed note below we

• discuss how rising consumer/investor activism and/or political/regulatory changes are posing challenges to key sectors –Coal, Oil & Gas, Automobiles/Aviation, Consumer goods –  that are associated with carbon emissions. 
• analyse how rising climate activism is negatively impacting growth prospects and valuation of companies in these sectors.
• highlight the opportunities for businesses to capitalise on changing consumer preferences for products that minimise carbon footprint and differentiate themselves by being on the right side of climate action.
• present a quick primer on climate change and lay down the key facts and data on climate change as presented by World Meteorological Organisation, NASA and IPCC. 

3. US Lake Charles LNG Liquefaction Plant Tendering for Contractors: Positive for TechnipFMC

Energy Transfer LP (ET US) and Royal Dutch Shell (RDSA LN) have signed a Project Framework Agreement to further develop a large-scale LNG export facility in Lake Charles, Louisiana and move toward a potential final investment decision (FID). They have started actively engaging with LNG Engineering, Procurement and Contracting (EPC) companies with a plan to issue an Invitation to Tender (ITT) in the weeks ahead. We look at the potential contract size and winners and also the other US LNG projects that could be negatively impacted. More detail on the LNG project queue for this year in: A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies.

4. Leong Hup Pre-IPO – Hard to Pinpoint What’s Going to Be the Revenue Driver Going Forward

Leong Hup International (LEHUP MK) (LHI) plans to raise up to US$400m in its Malaysian IPO. LHI is one of the largest integrated poultry producer in Southeast Asia. 

LHI was listed on Bursa Malaysia from 1990 to 2012.  Since delisting, it has consolidated  its Southeast Asia operations under a single entity and is now looking to relist the larger entity.

While revenue has been growing steadily, margins have been volatile. In addition, its difficult to pinpoint which products are performing well in which geographies. The feedmills business seems to be a more consistent performer as compared to the livestock business. It’s also a larger revenue contributor in the faster growing regions.

5. The Week that Was in ASEAN@Smartkarma – Thailand’s Election, Philippine Banks, and Data Junkies

Macro Insights

In Thailand: Elections Are Not Irrelevant; This One Too Pits Faster Growth Vs. Military “Stability”, Cross ASEAN Insight provider Prasenjit K. Basu discusses the implications of the result of Thailand’s election, which will likely see the incumbent Prime Minister retain his position, this times as a democratically elected leader (result covered in the discussion stream). 

In Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest, Kevin O’Rourke looks at the most important political and economic developments over the past week and provides his value-added comment. 

In Thailand’s Election – Growth Story Plays Wait and See, Dr. Jim Walker discusses the recent monetary moves by the Bank of Thailand and what the result of the election might mean for growth. 

In Philippines: El Niño’s Comeback – How Bad? , Jun Trinidad looks at the potential impact from the predicted comeback of El Nino in the economy. 

In Asian Credit Monitor: The Pad Thai Election, Warut Promboon looks at the potential impact of the results from the Thai election and the implications for credit in that country. 

Equity Bottom-up Insights

In XL Axiata (EXCL IJ) – The Crown Prince of Data, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s most direct play on the rising consumption of mobile data, as pricing in that market starts to look more favourable. 

In Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR, commodities specialist Charles Spencer zeros on the potential positive impact from an impending El Nino.

In Philippine National Bank – The Beginning of Recognition, Daniel Tabbush circles back to this leading but unappreciated Philippines lender, where he sees greater appreciation from investors starting to transpire. 

In Tisco – A Bright Bank in a Dim Rate World, Daniel Tabbush revisit one of his top financial picks in Thailand. 

In SUTL: Puteri Harbor Construction Started Last Week, Membership Sales to Follow, Cash = 84% of MktCap. CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this small-cap marina play and finds it to be one of the cheapest stocks listed on the SGX. 

In Delta Electronics (DELTA TB): Thoughts on the IFA’s Valuation RangeDelta Electronics Thai (DELTA TB), Arun George circles back to this ongoing tender offer, which he recommends minorities should accept. 

In After You Looks Beyond Thailand For Opportunities, our Thai Guru Athaporn Arayasantiparb, CFA writes on After You Pcl (AU TB) and Amata Corp Public (AMATA TB) following recent meetings with management. The meetings with the two companies whose industries could not have been more different. 

Sector and Thematic Insights

In Thai Telecoms: Slowdown in Mobile Business Continues., our comrades and collaborators at New Street Research circle back to the Thai Telco sector post 4Q18 results. 

In Snippets #21: Bremen, TMB Rights Issue, Thai guru Athaporn Arayasantiparb, CFA highlights five developments/news flows/trends and their potential impact on Thai equities over the past week or so. 

In Phillippine Gaming Tug of War Disguises Vibrant Sector Potential for 2019-2020, gaming specialist Howard J Klein zeros in on the Philippines gaming sector, which currently flies under investor’s radar but has a lot of future potentials, and more especially Bloomberry Resorts (BLOOM PM). 

In Singapore Real Deals (Issue 5): The Largest Condominium in Singapore, Anni Kum presents a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. In this issue, she looks at the launch of Treasure at Tampines in District 18, the largest condominium in Singapore to-date. (Official launch last weekend). 

In this briefing:

1. Bank Danamon Goes Ex-Rights
2. Memory Chips and the Elasticity Myth
3. Jakarta Trip – On the Ground Insight Feb 2019

1. Bank Danamon Goes Ex-Rights

The process of the merger between Bank Danamon Indonesia (BDMN IJ) and Mitsubishi Ufj Financial (8306 JP)‘s local unit Bank Nusantara Parahyangan (BBNP IJ) is proceeding apace.

Today, the shares go ex-rights for shareholders looking to both vote on March 26th and, assuming the vote goes through, to elect to receive cash of IDR 9,590 instead of continuing to hold shares. BDMN shares are trading down, as expected. 

2. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

3. Jakarta Trip – On the Ground Insight Feb 2019

Airport connectivity in Indonesia has reached a milestone last year when they announced the airport express but has there been any improvements in the service and load factor? The management company, Railink, definitely tries its best to upkeep their service level and increase awareness. Indonesian usage of internet through smartphones also tells about how important smartphones as a center of their daily life. 

Blue Bird (BIRD IJ) has gone creative when it comes to increase their online and offline presence; not only having an app that is comparable to Grab and Uber but also creating a dedicated taxi waiting area in a mall. Is Go-jek only a ride hailing app? My experience on Go-send tells otherwise. 

How about the upcoming Presidential election? What will happen in a rematch between Jokowi vs Prabowo? Does Prabowo really have no economic policy? His answer when asked on what sort of supportive policies to help Unicorns grow shed some light on his understandings and knowledge on economic policy. 

In this briefing:

1. Memory Chips and the Elasticity Myth
2. Jakarta Trip – On the Ground Insight Feb 2019

1. Memory Chips and the Elasticity Myth

During recent earnings calls memory chip makers have postulated that the market will return to higher margins once price elasticity causes demand to increase.  This popular myth needs to be treated with great skepticism since, as this Insight will reveal, short-term price elasticity has a negligible impact upon memory chip sales if it has any impact at all.

2. Jakarta Trip – On the Ground Insight Feb 2019

Airport connectivity in Indonesia has reached a milestone last year when they announced the airport express but has there been any improvements in the service and load factor? The management company, Railink, definitely tries its best to upkeep their service level and increase awareness. Indonesian usage of internet through smartphones also tells about how important smartphones as a center of their daily life. 

Blue Bird (BIRD IJ) has gone creative when it comes to increase their online and offline presence; not only having an app that is comparable to Grab and Uber but also creating a dedicated taxi waiting area in a mall. Is Go-jek only a ride hailing app? My experience on Go-send tells otherwise. 

How about the upcoming Presidential election? What will happen in a rematch between Jokowi vs Prabowo? Does Prabowo really have no economic policy? His answer when asked on what sort of supportive policies to help Unicorns grow shed some light on his understandings and knowledge on economic policy.