In this briefing:
- Bank Mandiri (BMRI IJ) – Shape Shifting and Millenial Mortgages – On the Ground in J-Town
- A Golden Future?
- Uranium – About to Enter Its Own Nuclear Winter
- Asian Frontier Monitor: One Belt New Road – Here Comes America
- This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain
1. Bank Mandiri (BMRI IJ) – Shape Shifting and Millenial Mortgages – On the Ground in J-Town
A recent meeting with Bank Mandiri Persero (BMRI IJ) in Jakarta confirmed a positive outlook for loan growth and net interest margins for 2019, with continuing incremental improvements to credit quality, especially in the MidCap and SME space.
The bank is optimistic about loan growth in 2019 but with a shift in the shape of growth, with Midcap and SME loans moving into positive territory, a slight tempering of growth from large corporates.
Microlending continues to be a significant growth driver, especially salary-based loans, which have huge potential and are relatively low risk.
Mandiri is switching its focus on smaller sized mortgages and is even offering products specifically targeting millennials. It is also training staff in its branches to promote both mortgages and auto loans, which should help to boost growth in consumer loans.
The bank is investing heavily in growing both Mandiri Online mobile banking, as well as working closely with the major e-commerce players in Indonesia.
Management is optimistic about the outlook for net interest margins and comfortable with its funding requirements, with good visibility on credit quality.
Bank Mandiri Persero (BMRI IJ) remains a key proxy for the Indonesian banking sector, with an increasingly well-diversified portfolio and growing exposure to the potentially higher growth areas of microlending and consumer loans. The bank has fully embraced modern day banking with strong growth in Mandiri Online, which should help the bank grow its transactional business and its current and savings accounts (CASA). Its push to grow salary-based loans is another business with huge potential, given the low penetration of its corporate pay-roll accounts. According to Cap IQ consensus estimates, the bank trades on 12.5x FY19E PER and 11.0x FY20E PER, with forecast EPS growth of +16.5% and +11.8% for FY19E and FY20E. The bank trades on 1.9x FY18E PBV with an FY18E ROE of 13.9%, which is forecast to rise to 15.5% by FY20E. Given its higher growth profile and rising ROE, the bank looks relatively attractive compared to peers.
2. A Golden Future?
The ability to have stable prices has great value.
According to Edward Gibbon, the decaying Roman Empire exhibited five hallmarks: 1) concern with displaying affluence instead of building wealth; 2) obsession with sex; 3) freakish and sensationalistic art; 4) widening disparity between the rich and the poor; and 5) increased demand to live off the state. Most DMs and many EMs display similar symptoms today because fiscal and monetary policies, the foundation of both ancient and modern societies, are identical: increasing welfare outlays by artificially inflating the money supply. The Roman Empire took more than four centuries to destroy what the Republic had built in the previous five centuries because clipping and debasing coins inflated currency supplies slowly. Entering debits and credits in the books of commercial and central banks is much more efficient.
3. Uranium – About to Enter Its Own Nuclear Winter
- Quantifying nuclear statistics with substantial discrepancies
- LT contracts & speculative hoarding driving recent 40% spot price increase
- Primary/secondary Uranium supplies currently 112% of 2017 demand
- Uranium supply deficits extremely unlikely before 2022
- Global Uranium demand to fall 25-40% by 2050
- Primary Uranium sector LT SELL
We have independently audited global nuclear construction statistics in order to determine future Uranium demand. Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies. Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen <2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations. In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases. Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.
4. Asian Frontier Monitor: One Belt New Road – Here Comes America
In our third report in the Belt and Road Initiative (BRI) or One Belt One Road (OBOR) series, we examine a brand-new US strategic initiative to finance emerging markets economies, including OBOR, African, and Latin American countries.
The on-going trade war between China and the US makes the issue very political. Rightfully so, we believe the creation of the International Development Finance Corporation (“IDFC”) could be politically-motivated, but IDFC is no competition to the BRI as the latter deploys much greater funding (about USD40bn a year).
However, we see the merits of IDFC and the positive effects on Emerging Asia. After all, more competition for influence and more fund flow will help fund projects, and, perhaps, help reduce poverty (if good governance is observed). We also expect IDFC’s USD60bn fund to create more investable projects for institutional investors and lower funding cost for countries that need large infrastructure funding and countries that have been suspicious of the BRI such as India, Indonesia, the Philippines, Vietnam, and Sri Lanka.
5. This Week in Blockchain & Cryptos: A Bitcoin Reversal; More Red Flags for Bitmain
The year 2018 was not the brightest for cryptocurrencies; Bitcoin (XBTUSD CURNCY) fell around 70% during 2018 and top altcoins like Ethereum (ETH BGN CURNCY), Ripple and Bitcoin Cash were also down around 80%, 85% and 95% respectively during last year. While it is difficult to pinpoint a single reason for this, a number of factors including, rising security concerns, increased scrutiny, failed institutional support and Bitcoin Cash hash wars have collectively contributed to this bearish sentiment in the cryptocurrency markets last year.
In this note we take a look at several top cryptocurrency and blockchain developments from last year, to see how they would fare going into 2019.
This is a collaborative report between Douglas Kim and myself.
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