Thailand

In this briefing:

1. Semiconductor Sales Dive A Record 7% MoM In December. 2019 Will Be A Low-To-No Growth Year.
2. The Week that Was in ASEAN@Smartkarma – Elections, Inflation, and Indonesian Retail Therapy
3. Capital Flows Return To Asia and India
4. Sathorn Series N: Thai Cryptocurrency Regulations Update

1. Semiconductor Sales Dive A Record 7% MoM In December. 2019 Will Be A Low-To-No Growth Year.

Global Semiconductor Sales for December 2018 amounted to $38.2 billion, down a record 7.0% MoM, according to the latest data published by the Semiconductor Industry Association (SIA). The December data reflects a sharp acceleration of a downward trend which began in November and comes as little surprise following an earnings season characterised by profit warnings led by industry giants such as Apple, Samsung and Nvidia. 

The December decline amounted to ~$3 billion in absolute terms, far less than the roughly $15 billion that failed to materialise in fourth quarter sector revenues and implying that substantial amounts of inventory still remain to be consumed from within the supply chain. 

As such we anticipate monthly semiconductor sales continuing to decline through April-May timeframe before stabilizing and returning to growth thereafter. We now anticipate growth to moderate significantly from the 13.7% experienced in 2018 to just 1% in 2019. 

2. The Week that Was in ASEAN@Smartkarma – Elections, Inflation, and Indonesian Retail Therapy

In the first country piece in elections in a series under Smartkarma Originals, 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?, Virgil Fernandez Esguerra focuses on the upcoming Thai Election.

In part 2 of a series under Smartkarma Originals, 2019 Elections – Part 2. Indonesia: Jokowi’s Policies – Magic Bullet or Bitter Pill?, Virgil Fernandez Esguerra zero in on Indonesia’s upcoming Presidential election. 

In Army Offered Plums / Widodo Hammers ‘propaganda’ / Steady GDP / March KCIC Land Target / Kamil 2024, Kevin O’Rourke comments on the most significant political and economic developments in Indonesia over the last week. 

In Indonesia’s Negative Investment List – “Open For Business” Is Lip-Service Only, Dr Jim Walker zeros in on Indonesia’s negative investment list which has yet to be published. 

In Philippine CPI: Normalization Begins in January with Another Inflation Fade Out, Jun Trinidad provides us with his views on inflation in the Philippines. 

Equity Bottom-Up Insights

In Mitra Adiperkasa (MAPI IJ) – Retail Therapy Is Alive and Well, CrossASEAN Insight provider Angus Mackintosh revisits Mitra Adiperkasa (MAPI IJ) post a meeting with management in Jakarta. 

In BDMN/BBNP Merger Leads to BDMN Buyout Arb, Events Specialist Travis Lundy revisits the ongoing acquisition of Bank Danamon Indonesia (BDMN IJ) by Mitsubishi Ufj Financial Group Inc (ADR) (MTU US) and finds there is a trade to be done.  

In Wilmar: China Listing at ~20x Might Prove Too Optimistic. , commodity specialists Charles Spencer discusses Wilmar International (WIL SP) ‘s China list and os sceptical about lofty valuations. 

In Silverlake Axis Rally Ignition and Hurdles, technical specialist Thomas Schroeder works his magic on Silverlake Axis (SILV SP). 

Sector and Thematic Insights

In Sathorn Series N: Thai Cryptocurrency Regulations Update, Thai Guru Athaporn Arayasantiparb, CFA zeros in on Cryptocurrency regulations in Thailand. 

3. Capital Flows Return To Asia and India

• Latest January ‘flash’ data show cross-border capital returning to Asia
• Asian EM and India favoured
• Reinforces similar evidence in December and helps reverse big outflows a year ago
• Adds support to our view that Asia is leading the Global cycle higher

4. Sathorn Series N: Thai Cryptocurrency Regulations Update

The cryptocurrency regulatory framework in Thailand is still less than a year old, but after going through the details, we find that:

• Operators. Three exchanges have already been licensed. In addition, coins.co.th has already been licensed as both broker-dealer.
• Definitions of cryptos and digital tokens as well as defining industry structure and practices similar to what we already have in equities.
• Flexible application process. Regulators don’t actually define a period by which operators will get licensed by them, but will allow them to operate until their application is rejected.
• Learning process. Given how brief the regulatory outlines are at this phase, we believe they are also learning the ropes at the same time as everyone else. Operators that apply will probably have significant dialog with regulators before they get approved.

In this briefing:

1. Capital Flows Return To Asia and India
2. Sathorn Series N: Thai Cryptocurrency Regulations Update

1. Capital Flows Return To Asia and India

• Latest January ‘flash’ data show cross-border capital returning to Asia
• Asian EM and India favoured
• Reinforces similar evidence in December and helps reverse big outflows a year ago
• Adds support to our view that Asia is leading the Global cycle higher

2. Sathorn Series N: Thai Cryptocurrency Regulations Update

The cryptocurrency regulatory framework in Thailand is still less than a year old, but after going through the details, we find that:

• Operators. Three exchanges have already been licensed. In addition, coins.co.th has already been licensed as both broker-dealer.
• Definitions of cryptos and digital tokens as well as defining industry structure and practices similar to what we already have in equities.
• Flexible application process. Regulators don’t actually define a period by which operators will get licensed by them, but will allow them to operate until their application is rejected.
• Learning process. Given how brief the regulatory outlines are at this phase, we believe they are also learning the ropes at the same time as everyone else. Operators that apply will probably have significant dialog with regulators before they get approved.

In this briefing:

1. Sathorn Series N: Thai Cryptocurrency Regulations Update
2. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook
3. Political Pit Stop (February): Candidate Rosters Out

1. Sathorn Series N: Thai Cryptocurrency Regulations Update

The cryptocurrency regulatory framework in Thailand is still less than a year old, but after going through the details, we find that:

• Operators. Three exchanges have already been licensed. In addition, coins.co.th has already been licensed as both broker-dealer.
• Definitions of cryptos and digital tokens as well as defining industry structure and practices similar to what we already have in equities.
• Flexible application process. Regulators don’t actually define a period by which operators will get licensed by them, but will allow them to operate until their application is rejected.
• Learning process. Given how brief the regulatory outlines are at this phase, we believe they are also learning the ropes at the same time as everyone else. Operators that apply will probably have significant dialog with regulators before they get approved.

2. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook

SNC’s 4Q18 net profit dropped 39%YoY to Bt72m, lowest in past five quarters.  

• The drop in sales to Bt1.288m (-19%YoY) and the rise in SG&A to sales from 6.6% in 4Q17 to 9.6% are major contributors to the drop in earnings.
• Overall, FY18 net profit was Bt431m (+6%YoY) despite 14% decrease in sales. The strong improvement in its 2018 earnings was due mainly to high restructuring costs in 2017.
• We maintain neutral view toward its 2019-20 outlook due to slow recovery in overall industry.

We cut our target price by 17% to Bt14 (9.6xPE’19E) and downgrade from “BUY” to “HOLD” for gloomy outlook. Despite limit upside, current share price is still cheap compared to historical trading and offer an attractive dividend yield (6.5% in 2019-20E).

3. Political Pit Stop (February): Candidate Rosters Out

With royal approval of the election date on March 24, we are finally in the last leg of the election race. Some key developments:

• Candidate roster: Each party is allowed to put up three PM candidates, and it’s no surprise that the three front-runners in the polls, Gen Prayuth (incumbent), Sudarat of the Thaksin faction, and Democrat leader Abhisit, are all there.
• Air pollution in spotlight. Arguably, the most successful campaign message so far has been the Thaksinite attack on the government’s poor handling of air pollution. Definitely get a few brownie points there.
• Different positioning. We observe clearer differences in the campaign positioning of each political parties. Given the negative mood in Thailand over pollution and the economy, it appears that Thaksinite focus on the government-related negatives is working best at the moment.’
• Economic backdrop. Economics can affect election results in Bangkok and in general, it is not favorable to the current government. We expect the Democrats to win easily in Bangkok, though a few seats will be ceded to the Thaksinites and Future Forward.

In this briefing:

1. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook
2. Political Pit Stop (February): Candidate Rosters Out

1. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook

SNC’s 4Q18 net profit dropped 39%YoY to Bt72m, lowest in past five quarters.  

• The drop in sales to Bt1.288m (-19%YoY) and the rise in SG&A to sales from 6.6% in 4Q17 to 9.6% are major contributors to the drop in earnings.
• Overall, FY18 net profit was Bt431m (+6%YoY) despite 14% decrease in sales. The strong improvement in its 2018 earnings was due mainly to high restructuring costs in 2017.
• We maintain neutral view toward its 2019-20 outlook due to slow recovery in overall industry.

We cut our target price by 17% to Bt14 (9.6xPE’19E) and downgrade from “BUY” to “HOLD” for gloomy outlook. Despite limit upside, current share price is still cheap compared to historical trading and offer an attractive dividend yield (6.5% in 2019-20E).

2. Political Pit Stop (February): Candidate Rosters Out

With royal approval of the election date on March 24, we are finally in the last leg of the election race. Some key developments:

• Candidate roster: Each party is allowed to put up three PM candidates, and it’s no surprise that the three front-runners in the polls, Gen Prayuth (incumbent), Sudarat of the Thaksin faction, and Democrat leader Abhisit, are all there.
• Air pollution in spotlight. Arguably, the most successful campaign message so far has been the Thaksinite attack on the government’s poor handling of air pollution. Definitely get a few brownie points there.
• Different positioning. We observe clearer differences in the campaign positioning of each political parties. Given the negative mood in Thailand over pollution and the economy, it appears that Thaksinite focus on the government-related negatives is working best at the moment.’
• Economic backdrop. Economics can affect election results in Bangkok and in general, it is not favorable to the current government. We expect the Democrats to win easily in Bangkok, though a few seats will be ceded to the Thaksinites and Future Forward.

In this briefing:

1. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook
2. Political Pit Stop (February): Candidate Rosters Out
3. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019

1. SNC: Downgrade to “HOLD” to Factor in Gloomy Outlook

SNC’s 4Q18 net profit dropped 39%YoY to Bt72m, lowest in past five quarters.  

• The drop in sales to Bt1.288m (-19%YoY) and the rise in SG&A to sales from 6.6% in 4Q17 to 9.6% are major contributors to the drop in earnings.
• Overall, FY18 net profit was Bt431m (+6%YoY) despite 14% decrease in sales. The strong improvement in its 2018 earnings was due mainly to high restructuring costs in 2017.
• We maintain neutral view toward its 2019-20 outlook due to slow recovery in overall industry.

We cut our target price by 17% to Bt14 (9.6xPE’19E) and downgrade from “BUY” to “HOLD” for gloomy outlook. Despite limit upside, current share price is still cheap compared to historical trading and offer an attractive dividend yield (6.5% in 2019-20E).

2. Political Pit Stop (February): Candidate Rosters Out

With royal approval of the election date on March 24, we are finally in the last leg of the election race. Some key developments:

• Candidate roster: Each party is allowed to put up three PM candidates, and it’s no surprise that the three front-runners in the polls, Gen Prayuth (incumbent), Sudarat of the Thaksin faction, and Democrat leader Abhisit, are all there.
• Air pollution in spotlight. Arguably, the most successful campaign message so far has been the Thaksinite attack on the government’s poor handling of air pollution. Definitely get a few brownie points there.
• Different positioning. We observe clearer differences in the campaign positioning of each political parties. Given the negative mood in Thailand over pollution and the economy, it appears that Thaksinite focus on the government-related negatives is working best at the moment.’
• Economic backdrop. Economics can affect election results in Bangkok and in general, it is not favorable to the current government. We expect the Democrats to win easily in Bangkok, though a few seats will be ceded to the Thaksinites and Future Forward.

3. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019

Increasing risk apparent

• Q4-2018 Small-Mid Cap High-Risk screen ( Screening the Silkroad: Small-Mid Cap – High-Risk Names To Avoid Q4 2018 ) delivered a market cap average share price decline of 4.5%. This compares with the MSCI Asia Pacific Index appreciating 4.2% over the same period. 
• Our screen looks for high valuation multiples presented by candidates, with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. 
• The Risk to this screen: The Financial and Utility sectors are not covered in this screen. Moreover, “risk is not a number, it is a concept or notion”, as James Mortiner cited during his time at Société Genéralé. Hence, some stocks due to their business model being realigned to a more profitable approach may appear on this screen, whilst also be a member of more positive value or quality screens.
• 26-stocks appear in our Q1 2019 screen. Eight (8) of which are new, namely from Korea, Japan and Taiwan. Singapore remains absent from the screen for the third quarter running, whilst New Zealand has only presented one candidate in Q4 2018.

• Our screen suggests that risk is increasing amongst the small-mid cap universe, as the Alman Z average score slips to 1.14 in Q1 2019 from 1.16 in Q4 2018 and 1.38 in Q3 2018. Moreover, our average stock in the list has a ranking of 42.3, compared to 54.9 in Q4 2019. 

Our screening styles

For those that follow us, you will know our Stock Ranking system from our Notes from the Silk Road: Setting Out Our Small-Mid Cap Lemonade Stand  For newcomers to our notes, it is merely a tool for identifying favourable and unfavourable stocks. In addition, to add more depth to our selection process we also monitor a series of “style categories” namely:

■ Growth, 
■ Value, 
■ Quality,
■ Momentum, 
■ Deep Value, 
■ Income,
■ Underperformance.

Within these style categories, we drill down further through a series of alpha momentum screens allowing us to differentiate and identify stock picks. 

In this briefing:

1. Political Pit Stop (February): Candidate Rosters Out
2. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019
3. Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness
4. 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?

1. Political Pit Stop (February): Candidate Rosters Out

With royal approval of the election date on March 24, we are finally in the last leg of the election race. Some key developments:

• Candidate roster: Each party is allowed to put up three PM candidates, and it’s no surprise that the three front-runners in the polls, Gen Prayuth (incumbent), Sudarat of the Thaksin faction, and Democrat leader Abhisit, are all there.
• Air pollution in spotlight. Arguably, the most successful campaign message so far has been the Thaksinite attack on the government’s poor handling of air pollution. Definitely get a few brownie points there.
• Different positioning. We observe clearer differences in the campaign positioning of each political parties. Given the negative mood in Thailand over pollution and the economy, it appears that Thaksinite focus on the government-related negatives is working best at the moment.’
• Economic backdrop. Economics can affect election results in Bangkok and in general, it is not favorable to the current government. We expect the Democrats to win easily in Bangkok, though a few seats will be ceded to the Thaksinites and Future Forward.

2. Screening the Silkroad: Small-Mid Cap – Possible High-Risk Names: Q1 2019

Increasing risk apparent

• Q4-2018 Small-Mid Cap High-Risk screen ( Screening the Silkroad: Small-Mid Cap – High-Risk Names To Avoid Q4 2018 ) delivered a market cap average share price decline of 4.5%. This compares with the MSCI Asia Pacific Index appreciating 4.2% over the same period. 
• Our screen looks for high valuation multiples presented by candidates, with significant earnings growth forecasts, as well as financial indicators that suggest balance sheet distress. 
• The Risk to this screen: The Financial and Utility sectors are not covered in this screen. Moreover, “risk is not a number, it is a concept or notion”, as James Mortiner cited during his time at Société Genéralé. Hence, some stocks due to their business model being realigned to a more profitable approach may appear on this screen, whilst also be a member of more positive value or quality screens.
• 26-stocks appear in our Q1 2019 screen. Eight (8) of which are new, namely from Korea, Japan and Taiwan. Singapore remains absent from the screen for the third quarter running, whilst New Zealand has only presented one candidate in Q4 2018.

• Our screen suggests that risk is increasing amongst the small-mid cap universe, as the Alman Z average score slips to 1.14 in Q1 2019 from 1.16 in Q4 2018 and 1.38 in Q3 2018. Moreover, our average stock in the list has a ranking of 42.3, compared to 54.9 in Q4 2019. 

Our screening styles

For those that follow us, you will know our Stock Ranking system from our Notes from the Silk Road: Setting Out Our Small-Mid Cap Lemonade Stand  For newcomers to our notes, it is merely a tool for identifying favourable and unfavourable stocks. In addition, to add more depth to our selection process we also monitor a series of “style categories” namely:

■ Growth, 
■ Value, 
■ Quality,
■ Momentum, 
■ Deep Value, 
■ Income,
■ Underperformance.

Within these style categories, we drill down further through a series of alpha momentum screens allowing us to differentiate and identify stock picks. 

3. Behaving Predictably – China’s Car Sales in 2018 Were Not a Sign of Economic Weakness

When one is looking for something in an economy it is usually not difficult to find corroborating evidence, any economy and at any time. Economists and analysts are masters of massaging data to suit their own agendas. China’s car sales in 2018 are a case in point.

4. 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?

This insight is Part 1 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets – Thailand, Indonesia, India, South Africa, Greece and Argentina – collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.

Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence – either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.

Please refer to other insights in this series:

• Elections 2019 – Part 1. Thailand: Magic Moment for Democracy’s Return?
• Elections 2019 – Part 2. Indonesia: Jokowi’s Policies – Magic Bullet or Bitter Pill?
• Elections 2019 – Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
• Elections 2019 – Part 4. South Africa: Ramaphosa – ANC’s Magician?
• Elections 2019 – Part 5. Greece: New Democracy Promises Magic Makeover
• Elections 2019 – Part 6. Argentina: Macri Magic and the Peronist Spell

In this briefing:

1. 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?
2. BCP: More Stable Income with an Attractive Yield
3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
4. U.S. Tech Stocks Are Leading Market Higher.

1. 2019 Elections – Part 1. Thailand: Magic Moment for Democracy’s Return?

This insight is Part 1 of a six-part series on 2019 elections in which we evaluate key polls and their potential to re-shape the economic outlook and investment risk profiles. These six markets – Thailand, Indonesia, India, South Africa, Greece and Argentina – collectively represent one-quarter of the world’s population and more than $5 trillion in GDP. We review distinct domestic challenges as well as campaign pledges by incumbents (and their challengers) aimed at addressing them. We also humbly assign probabilities to baseline and alternative scenarios and their implications for macroeconomic outlook and investments.

Even amidst their diversity, these six jurisdictions display some remarkable similarities: subdued economic momentum, bouts of market volatility, signs of voter disquiet and/or disillusionment and an opposition looking to capitalize on all of these forces. In a bid to revive the ‘magic’ that had helped to install their administrations, many incumbent governments are now on the defence – either changing tack (and dialing back past policies) or attempting to convince voters to let their policies work their magic.

Please refer to other insights in this series:

• Elections 2019 – Part 1. Thailand: Magic Moment for Democracy’s Return?
• Elections 2019 – Part 2. Indonesia: Jokowi’s Policies – Magic Bullet or Bitter Pill?
• Elections 2019 – Part 3. India: Modi’s Magic Touch Fades as Populism Makes a Comeback
• Elections 2019 – Part 4. South Africa: Ramaphosa – ANC’s Magician?
• Elections 2019 – Part 5. Greece: New Democracy Promises Magic Makeover
• Elections 2019 – Part 6. Argentina: Macri Magic and the Peronist Spell

2. BCP: More Stable Income with an Attractive Yield

We initiate coverage of BCP with a BUY rating, based on a target price of Bt41, which is derived from a sum-of-the-parts (SOTP) methodology and imply to 10.2xPE’19E to bring it in line with the Thai energy sector.

 The story:

• Attractive dividend yield of 6-7% a year
• Refining business set to recover in 2019
• Hidden value from non-core business

Risks:

• Raw material price fluctuation
• Possibility of impairment losses from investment projects

Background: Established in 1940, Bangchak Corporation Public Company Limited and its subsidiaries ‘ operations include refinery, oil trading, petroleum product marketing and renewable energy businesses. With a capacity of 120,000 barrels per day, Bangchak produces and distributes its products through more than 1,000 service stations nationwide. It also plans to expand the scope of its business to cover food and convenience stores and novel product businesses and to seek investment opportunities in bio-based products and natural resource businesses.

3. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies

Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies.  This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .

4. U.S. Tech Stocks Are Leading Market Higher.

The S&P 500 remains just short of formidable resistance at its 200-day MA. Yet, there are signs of continued breadth improvement.  Technology in particular continues to top our Sector RSR rankings, fueled by strengthening price and RS action for semiconductors, semi-suppliers, and numerous Software groups. Last week we upgraded our weighting for Technology and its strength continues to broaden out. In this week’s report we highlight a number of actionable Technology stocks across our various Groups.

In this briefing:

1. BCP: More Stable Income with an Attractive Yield
2. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies
3. U.S. Tech Stocks Are Leading Market Higher.
4. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

1. BCP: More Stable Income with an Attractive Yield

We initiate coverage of BCP with a BUY rating, based on a target price of Bt41, which is derived from a sum-of-the-parts (SOTP) methodology and imply to 10.2xPE’19E to bring it in line with the Thai energy sector.

 The story:

• Attractive dividend yield of 6-7% a year
• Refining business set to recover in 2019
• Hidden value from non-core business

Risks:

• Raw material price fluctuation
• Possibility of impairment losses from investment projects

Background: Established in 1940, Bangchak Corporation Public Company Limited and its subsidiaries ‘ operations include refinery, oil trading, petroleum product marketing and renewable energy businesses. With a capacity of 120,000 barrels per day, Bangchak produces and distributes its products through more than 1,000 service stations nationwide. It also plans to expand the scope of its business to cover food and convenience stores and novel product businesses and to seek investment opportunities in bio-based products and natural resource businesses.

2. A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies

Our analysis shows that there are an unbelievable 25+ LNG developers that have stated (within the last year) they will take a final investment decision (FID) on their LNG liquefaction plants in 2019. Unless demand surprises to the upside, the expected LNG supply deficit in the mid-2020s could easily turn into a glut. In total there is almost 250 million tonnes per annum (mtpa) of capacity that plans to take FID this year – the equivalent of 80% of current global supply. In total there are ~US$180bn of contracts up for grabs – it should be a bumper year for the oil service (E&C) companies.  This should be positive for the LNG contractors such as Mcdermott Intl (MDR US), TechnipFMC PLC (FTI FP), Chiyoda Corp (6366 JP) and Jgc Corp (1963 JP) .

3. U.S. Tech Stocks Are Leading Market Higher.

The S&P 500 remains just short of formidable resistance at its 200-day MA. Yet, there are signs of continued breadth improvement.  Technology in particular continues to top our Sector RSR rankings, fueled by strengthening price and RS action for semiconductors, semi-suppliers, and numerous Software groups. Last week we upgraded our weighting for Technology and its strength continues to broaden out. In this week’s report we highlight a number of actionable Technology stocks across our various Groups.

4. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

In this briefing:

1. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”
2. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019
3. The Week that Was in ASEAN@Smartkarma – Export Revival, Indonesia Property, and Vietnamese Banks
4. Medco’s “Okay” Offer For Ophir After Fortuna Setback

1. China Strategy of Promising to Buy Stuff Just Might Work on Trump as He Looks for an Easy “victory”

• US-China trade negotiations are focusing on the easy parts to avoid truly difficult discussions on thornier structural issues.
• Beijing is trying to buy their way to a compromise by taking out their checkbook and promising to buy more US products.
• A truly comprehensive trade pact will be difficult, perhaps even impossible, to reach.
  That’s because many of the problems Washington wants resolved in China will require more than a few regulatory tweaks.
• The bureaucratic harassment, theft of intellectual property, and overt favoritism toward local firms that make doing business in China difficult for American chief executives are caused by the very way the Chinese economy works.
• Changing these procedures means changing China’s basic economic system. Beijing’s leaders cannot possibly achieve such an overhaul in the short term—assuming they even want to.

CNBC Interview of David Riedel on US-China Trade

2. RRG Global Macro Weekly – Poland and Malaysia Face External Forces in 2019

• Poland: Could be a beneficiary of Brexit if Poles return to boost domestic demand. Unemployment of 5.5% provides room for workers.
• Brazil: Congress returning to discuss market-friendly policies from Bolsonaro – Pensions are top of list for reform
• Malaysia: Extremely dependent on external trade Malaysia has done well recently but may face headwinds if global growth slows.

3. The Week that Was in ASEAN@Smartkarma – Export Revival, Indonesia Property, and Vietnamese Banks

Macro Insights

In Asian Exports – Ripple Out Effect, Sharmila Whelan analyses the outlook for Asian exports after a weaker end to last year but sees a potential recovery ahead.

In The Dollar Is Already Dead, economist Dr. Jim Walker suggests that the outlook for the dollar is less than rosy and is not as important as it once was in policy making terms.

In Election Body Pressured / Lippo Tested / FDI / AGO Martyrs Foe / SMI on GDP / Matchfixing / CPO Fuel, Kevin O’Rourke comments on the most significant political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In MacroAsia (MAC PM) – Company Visit Highlights Short-Term Headwinds but Core Business on Solid Ground, Lloyd Moffatt circles back to this aircraft Philippines aircraft maintenance player after a conversation with management on the ground. 

In DTAC: Survived 2019 but Pressured on All Sides. Maintain Reduce., our friends at New Street Research revisit Total Access Communication (DTAC TB) after a difficult 2018 and continue to see hurdles ahead. 

In RHT Health Trust – Cash on Sale, Royston Foo looks at RHT Health Trust (RHT SP) after the disposal of its portfolio of Indian assets to Fortis. On 15^th January 2019, RHT Health Trust (RHT SP) announced the completion of the disposal of RHT’s entire asset portfolio of clinical establishments and hospitals in India to Fortis. 

in ACB: Quality at a Reasonable Price, Paul Hollingworth takes a close look at this leading Vietnamese bank and takes a positive view. The fundamental trends at Asia Commercial Bank/Vietnam (ACB VN) are benign and stand out within Vietnam’s improving banking universe. 

Sector and Thematic Insights

In this Smartkarma Original, Indonesia Property – In Search of the End of the Rainbow? Introduction to a Series., Angus Mackintosh and Jessica Irene examine the outlook for Indonesian Property and look for potential catalysts for this laggard sector. 

In INDO Snippets: Social Media on Presidential Debate, Battle of Mobile Payment Platform OVO & Go-Pay, Jessica Irene brings together substantive and significant on the ground chatter that may potentially have a meaningful impact on the Indonesian Equity Market. 

In Singapore Real Deals (Issue 2): The Under-Supplied Executive Condominium Market, property specialist Anni Kum produces a fortnightly property digest that takes you through the peculiarities of Singapore’s real estate market. 

4. Medco’s “Okay” Offer For Ophir After Fortuna Setback

On 30th January 2019, Indonesian oil and gas company Medco Energi Internasional T (MEDC IJ) announced an agreement to acquire Ophir Energy (OPHR LN) in a £390mn cash deal (at an offer price of £0.55/share).  

Medco initially made an unsolicited approach for Ophir at £0.58/share on 22nd October 2018, and indicated a “willingness to consider offering Ophir’s shareholders additional potential consideration via contingent value rights in relation to the Fortuna LNG asset in Equatorial Guinea (which at the time was awaiting an extension approval) subject to further analysis and due diligence“. Given uncertainty that persevered on Fortuna’s license extension, Medco revised its bid to £0.538/share on 20th December 2018.

On 7th January 2019, Ophir announced that it was recording a $300mn non-cash impairment following the denial of the license extension for the Fortuna project by the Equatorial Guinea Ministry of Mines and Hydrocarbons. Ophir had previously written down $310mn back in September. Subsequently, Medco revised its bid further down to £0.485 on 11th January 2019 but this offer was rejected by Ophir’s board.

Medco’s latest offer of £0.55/share is a 66% premium to the closing price of £0.33 on 28 December 2018.  Ophir’s board has unanimously recommended the latest offer stating that the deal offered “upfront cash value” to its shareholders and that the offer price “reflects the future prospects of Ophir’s high-quality assets“.

The deal is conditional on receiving 75% shareholder approval, receiving of clearances from the relevant authorities in Tanzania and Ophir not losing all or substantially all of its Bualuang interests in Thailand. It is expected that the Scheme will become effective in the first half of 2019.

Medco’s offer does provide long-suffering Ophir shareholders with an okay exit in a less-than-ideal situation. Ophir’s shares have been trading at or close to terms. Given Medco’s numerous proposals in short succession – four in three months – a bump cannot be dismissed. And the recent disclosure of a new shareholder may warrant such an outcome. But I’d be disinclined to chase through terms.

In this briefing:

1. Follow The Money
2. Quick Take: Asian LNG Spot Prices Fall Below the UK NBP Gas Price
3. Semiconductor Memory Business Shrinking Fast
4. The Dollar Is Already Dead

1. Follow The Money

• January data on investor positioning show a big improvement in risk appetite for Emerging Markets
• Two-year ahead returns from risk assets likely to be sizeable and positive
• However, not clear that we are yet definitely at the ‘bottom’
• Strongest convictions are to favour EM over US and China over India

2. Quick Take: Asian LNG Spot Prices Fall Below the UK NBP Gas Price

Asian LNG spot prices have dropped for a short time below the UK NBP gas price, reversing the established trend that sees Asian LNG offering a premium to the European LNG price benchmarks. This note takes a look at the latest trends in the LNG markets and the renewed plans unveiled by Qatar to challenge its competitors, in particular, those from the US.

3. Semiconductor Memory Business Shrinking Fast

Earnings have been announced for Intel, Samsung, SK hynix, and Western Digital, and the memory business is clearly undermining all of these companies’ earnings.  In this Insight I review each of the  companies to show where they are, and will explain what the future holds for them as today’s oversupply unfolds.

4. The Dollar Is Already Dead

The past year has all been about dollar strength. That is an accepted wisdom. But the truth of the matter is that the dollar averaged 93.6 on the DXY in 2018 (3 January 2018 to 31 December 2018) and, as we write, stands at 95.5. From 1 January 2015 to 1 July 2017 the DXY averaged 97.2. The dollar is not strong, even by recent history standards. Moreover, it is no longer as important as it once was in policy making terms – and neither is the Federal Reserve.