In this briefing:
- Are US Stocks A Buy Yet?
- Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
- Kalbe Farma (KLBF IJ): Navigating Through the New Pharma Dynamics
- Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
- The Festive Week the Was in ASEAN@Smartkarma – Thailand Rising, Frail DBS, and Small Cap Picks
1. Are US Stocks A Buy Yet?
- 5%-like rallies on Wall Street are signs of a bear market not a bull market
- Bull markets require strong liquidity and low risk appetite, neither yet apply
- Risk appetite readings at minus 12.6 are still above the minus 40 criterion for an upturn
- Recent large fall in risk appetite consistent with upcoming economic recession
2. Monthly Geopolitical Comment: Redrafting of Global Map of Political Alliances to Continue in 2019
The year 2018 has proven tumultuous for global markets. Rapidly changing geopolitical priorities of the US, an erstwhile hegemon, have played a role no less significant than the withdrawal of liquidity by leading central banks or US monetary policy tightening. The US has openly declared that it is in a state of “cold war” with China. Despite the recent truce, signs are abundant that the confrontation between the two global superpowers will continue into 2019 and beyond. In 2019, we expect more countries to find themselves in a position where they must choose who they want to side with, the US or China. There are other tectonic shifts, too, which are causing re-alignment of global geopolitical alliances.
3. Kalbe Farma (KLBF IJ): Navigating Through the New Pharma Dynamics
The healthcare industry in Indonesia has undergone a massive change since the introduction of the National Health Insurance (JKN) in 2014. Although the program allows for better healthcare access for over 200mn Indonesians, the industry dynamics have shifted and Kalbe Farma (KLBF IJ) is one of the companies that has been on the losing side during this adjustment period.
With the Health and Social Security (BPJS) deficit forecast to grow to IDR16t by end of 2018, and with a continuing roll out of coverage to 250mn people by end of 2019, all parties in the healthcare industry are expected to continue subsidizing the program. Hospitals and drug manufacturers have had to cope with relatively flat pricing from the INA-CBG (reimbursement) tariff since 2014, despite cost pressures stemming from the currency depreciation and inflation. KLBF has reported declines in its overall pharmaceutical margin, as well as low growth rates for its licensed and OTC (over the counter) drugs over the past five years.
Our recent meeting with the company revealed that to mitigate the JKN impact, KLBF has launched several strategies, including expanding into niche specialty products such as oncology and biosimilar drugs, as well as preventive and herbal supplements. We are also at a tipping point where KLBF’s non-OTC consumer health and nutritionals revenues are finally larger than the pharmaceutical revenues for the first time. In this insight, we will discuss whether the worst is already behind us, and if it is now time to take another look at the stock.
4. Autonomous Driving. Waymo Leading The Charge With Ten Million Miles Driven And Counting
Waymo CEO John Krafcik made some bold decisions after taking the helm at Alphabet‘s self-driving project in September 2015. Chief among them was the fact that the company abandon its plans for Level 3 automated driving and focus exclusively on levels 4 & 5. Furthermore, he decreed that Waymo would no longer manufacture its own vehicles but would instead integrate their technology into those of other automakers. Three years later, those decisions would appear to be finally paying off.
On October 10 2018, Waymo reached a significant milestone having completed 10 million self-driving miles across 25 cities in the US. While their first million self-driving miles took 18 months to complete, Waymo now clocks up over a million self-driving miles per month. The company also recently announced the launch of its robo taxi service in Phoenix, Arizona and looks set to quickly follow suit in California. Plans to extend its self-driving technology beyond robotaxis, most notably for trucks and last-mile transportation solutions are also in the works. Furthermore, the company has begun laying down a framework of innovative B2B revenue models which should help accelerate the speed with which they can eventually monetize their technology.
It hasn’t been smooth sailing all the way for Waymo however. Earlier this year, the company was derided for the driving style of its autonomous vehicles and faced the criticism that its driverless cars continue to have safety drivers. There was also an embarrassing incident where one of those very safety drivers caused the self-driving car he was monitoring to hit a motorcyclist when he attempted to take control of the vehicle. According to Waymo’s own analysis of the vehicle log files, the accident would not have happened had he not intervened.
With ten million self-driving miles under their belt and a thoughtful, strategic approach to monetizing their technology beginning to emerge, Waymo remains firmly ahead of their peers in leading the autonomous driving charge.
5. The Festive Week the Was in ASEAN@Smartkarma – Thailand Rising, Frail DBS, and Small Cap Picks
This past Festive 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.
The top Macro Insight this week comes from Dr Jim Walker who zeros in on Thailand, where he sees an economy that is about to take off. In the equity bottom-up space, Daniel Tabbush revisits DBS GroupHoldings (DBS SP) in light of falling oil prices, which he sees as potentially leading to higher credit costs. I would also highlight Nicolas Van Broekhoven ‘s overview of his winners and losers over the past year, as well as his top picks for 2019.
Macro Insights
In Thailand: The Sandbox Economic Insight provider Dr Jim Walker circles back to the Thai economy, which he suggests is about to take off.
In The Philippines: Reform Impetus Gives Way to Politicking, Manu Bhaskaran explores the risks ahead for the Philippine Economy.
In IDR, CPI, Oil, Trans-Java & Freeport Strengthen Widodo / Lippo Case Escalates / Efta Cepa / Debates, Kevin O’Rourke provides his value-added comment on economic and political developments in Indonesia over the last week.
In Malaysia: Implosion of Former Ruling Party Could Create Tensions in Ruling Coalition, Manu Bhaskaran zeros in on rising political risks in Malaysia.
Equity Bottom-Up Insights
In Global Banks – DBS Frail Against Global PeersDaniel Tabbush looks at DBS Group Holdings (DBS SP) in light of falling oil prices and assesses the potential impact in credit quality.
In AALI (AALI IJ): Indonesian Biodiesel Mandate to Support CPO PriceDr. Andrew Stotz, CFA works his magic on Astra Agro Lestari (AALI IJ) and comes back with a positive view.
In SPH REIT Nibbles at Blackstone’s PortfolioAnni Kum revisits SPH REIT (SPHREIT SP) in light of its recent acquisition in Australia.
In CKP (CKP TB): Powerful Expansion to Drive Earnings GrowthDr. Andrew Stotz, CFA takes a close look at CK Power Pcl (CKP TB) which offers stronger growth relative to its peers.
In UTP (UTP TB): Continued Gain from Tight Global Paper Supply, Dr. Andrew Stotz, CFA zeros in on paper manufacturer United Paper (UTP TB) and sees an improving picture.
In BAUTO (BAUTO MK): New Models to Keep Strong Sales Momentum, Dr. Andrew Stotz, CFA takes a close look at this Malaysian and Philippines auto player. BAUTO sells Mazda vehicles in Malaysia and via its subsidiary Bermaz Auto Philippines Inc (BAP) in the Philippines.
In COM7 (COM7 TB): Acquisition to Support Aggressive Expansion, Dr. Andrew Stotz, CFA looks at this Thai retailer and finds it an attractive prospect.
Sector and Thematic Insights
In Overview of My Winners and Losers in 2018…and 5 High Conviction Ideas Going into 2019, CrossASEAN Insight Provider Nicolas Van Broekhoven looks back over his stock ideas over the past year and lays out his picks for 2019.
In Small Cap Diary: MEGA, Eastwater, Thai Guru Athaporn Arayasantiparb, CFA looks at a number of interesting better know small caps in Thailand, including Mega Lifesciences (MEGA TB) and Eastern Water Resources Dev (EASTW TB).
In Sathorn Series M: TMB-Thanachart Courtship, Athaporn Arayasantiparb, CFA investigates talks if a merger between Thanachart Capital (TCAP TB), Krung Thai Bank Pub (KTB TB), and TMB Bank PCL (TMB TB) and gives us his views.
In Singapore REIT – Preferred Picks 2019, Anni Kum provides us with her top picks for 2019 in the Singapore REIT space.
