In this briefing:
- XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
- Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
- Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
- The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
- LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
1. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.
4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.
Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously.
The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL.
4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18.
The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.
The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.
After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates.
2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
New York based activist investor firm Starboard Value has been intricately involved in shaping the fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.
In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.
On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer.
3. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact. A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race. The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage. Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up.
Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations. He commanded detail without perpetrating major gaffes. Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2). Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list. To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3). Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4).
Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March. This generally corroborates recent findings from the Survey Network (LSI) (p. 5).
Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).
Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft. Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads. If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair. The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now. Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7). Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).
Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>. |
Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further. But capital goods imports have held up (p. 10).
4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
This week’s offering of Insights across ASEAN@Smartkarma is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.
This past week’s highlights include three Smartkarma Originals Insights, with a deep dive on orphan stock Doubledragon Properties (DD PM) by Nicolas Van Broekhoven and Lloyd Moffatt and individual company Insights from Jessica Irene on Pakuwon Jati (PWON IJ) and Angus Mackintosh on Alam Sutera Realty (ASRI IJ) in an ongoing series on Indonesian Property.
Macro Insights
In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.
Equity Bottom-Up Insights
In a Smartkarma Originals Insight, DoubleDragon Properties (DD PM): From Overhyped to Undervalued; Multi-Bagger in the Making?, CrossASEAN Insight Providers Nicolas Van Broekhovenand Lloyd Moffatttake a deep dive into this large-cap orphan stock and present a compelling buy case for the company.
In the third individual company Insight in this Smartkarma Originals Series, Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ), Jessica Irene takes a deep dive into this high-quality property developer.
In the fourth individual company insight in this Smartkarma Originals series, Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ), CrossASEAN Insight Provider Angus Mackintosh takes a deep dive into this leading township developer.
In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement.
in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.
In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.
In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.
In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month.
in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement.
In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue.
Sector and Thematic Insights
in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.
In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore.
5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus.
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