Brief India: Moore’s Law May Not Be Dead, After All and more

In this briefing:

1. Moore’s Law May Not Be Dead, After All
2. Embassy Office Parks REIT: Why You Should Avoid It
3. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
4. Bits and Bytes : Facebook Feels the WeChat Burn + Why Does Lyft Want to List ?
5. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

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

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

2. Embassy Office Parks REIT: Why You Should Avoid It

• Embassy Office Parks REIT (EOP IN) boasts an impressive portfolio of office assets with adequate geographic diversification, strong client relationships and sound reputation.
• Constructing/acquiring new office area is an integral part of Embassy’s growth strategy.
• This requires massive capex (e.g. Embassy’s last 3 year’s capex is Rs32bn). Since it pledges to distribute 100% of its EBITDA to unit holders, it will have no cash left for capex or making interest payments.
• Hence, post the IPO borrowings will increase to fund the capex. The interest expenses will lower the NDCF and in turn Dividend per unit.
• Embassy may choose to issue fresh units to fund part of the capex in the future. This will also result in lower Dividend per unit.
• Ascendas India Trust (AIT SP) shows us why you should be conservative while building in capital appreciation of REIT units. Despite revenues growing 3.18x over FY08-18, Ascendas’ Dividend per unit is flat over the period as its borrowings growth (29% Cagr) far outdid its revenue growth (12.3% Cagr). It also diluted equity to the tune of 37% over the period. Its units have seen no capital appreciation over the last decade.
• Embassy’s effective yield (adjusted for interest outgo notwithstanding its proposed workaround) works out to 6.4%- unattractive in our view.

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

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

4. Bits and Bytes : Facebook Feels the WeChat Burn + Why Does Lyft Want to List ?

Facebook Inc A (FB US) : Mark Zuckerberg sees the light or is facing the WeChat burn? It seems like the whole tilt towards ensuring a more safe, secure environment lies in its play to emulate WeChat…eventually. But first, it needs to address specific issues of data protection, security and privacy that plague the company and possibly think around altering its current revenues via the advertisement model.

The company certainly seems to be moving towards making a token/coin and is even hiring blockchain specialists. Could it look to make a Stablecoin? Work on a M-Pesa model ? Target remittances in countries like India? It seems a long road and arduous road ahead- but it has been dropping directional hints along the way.

Lyft Inc (0812823D US) : Why does Lyft Inc (0812823D US) want to list exactly aside locking in money before the number one player swamps the market ? Could it be regulatory changes on the anvil ? And would those be food for thought for Asia plays – Grabtaxi Holdings Pte (0967655D SP)DiDi Chuxing (1284375D CH)  and Olacabs ?

5. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016