In this briefing:
- Forecasting the Semiconductor Market
- The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
- Strong Revenues / Benign CPI / Indrawati’s Award / Prabowo’s Arabic / Scandals Mount / Tsunami Toll
- Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance
- Global Equity Strategy: Bearish with the Exception of EM.
1. Forecasting the Semiconductor Market
This is the time of year that Objective Analysis releases its semiconductor forecast. This post is based upon a video posted on the WeSRCH website that explains the Objective Analysis 2019 semiconductor forecast.
Although accurate semiconductor forecasts are straightforward to produce, the consistently-accurate methodology spelled out in this Insight is rarely used.
The forecast predicts that the downturn that the industry is currently entering will be longer than most, with profits eluding chip companies until 2022.
2. The New Year’s Week that Was in ASEAN@Smartkarma – Indo Pharma, Industrials, and Weaker Oil
This pre and post-Hogmanay 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 three Equity Bottom-up ideas this weak come from CrossASEAN Insight Provider Jessica Irene on Indonesian pharma and consumer health play Kalbe Farma (KLBF IJ), CrossASEAN Insight Provider Angus Mackintosh on high-quality industrial Selamat Sempurna (SMSM IJ), and Daniel Tabbush‘s Insight on high ROA Indonesian finance company PT BFI Finance Indonesia (BFIN IJ). In the Sector and Thematic section, Athaporn Arayasantiparb, CFA presents his top picks in Thailand on the back of the weaker oil price.
Macro Insights
In Strong Revenues / Benign CPI / Indrawati’s Award / Prabowo’s Arabic / Scandals Mount / Tsunami Toll, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.
Equity Bottom-up Insights
In Kalbe Farma (KLBF IJ): Navigating Through the New Pharma Dynamics, CtossASEAN analyst, Jessica Irene zeros in on Indonesia’s largest pharma company as its consumer health division overtakes pharmaceuticals as a source of revenue and asks whether now is the time to revisit the stock.
In Selamat Sempurna (SMSM IJ) – Truly Industrious, former Jakartan Angus Mackintosh circles back to Indonesia’s largest filter manufacturer, which he sees as one of the country’s best quality listed industrials.
In Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance, banking specialist Daniel Tabbush circles back to PT BFI Finance Indonesia (BFIN IJ), which he suggests is an attractive prospect.
In Reality Check 2019: What Premium Does Thanachart Deserve from TMB’s Takeover? , out Thai guru Athaporn Arayasantiparb, CFA takes a look at Thanachart Capital (TCAP TB) as TMB Bank PCL (TMB TB) comes close to concluding its takeover.
In Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?, Johannes Salim, CFA takes another looks at US-listed South East Asian e-commerce player Sea Ltd (SE US) and sees the company gaining ground in Indonesia, which is its most important growth market.
In Jardine C&C (JCNC SP): Close the Stub Trade, Curtis Lehnert revisits his recommendation on Jardine Cycle & Carriage (JCNC SP) and suggests now is the time to close the trade idea.
In M1 Offer Coming – Market Odds Suggest a Bump But… Travis Lundy investigates that the take over of Konnectivity Pte. Ltd. by leading Singapore telecoms firm M1 Ltd (M1 SP).
In Tuan Sing: Beneficiary of Exuberant Demand for Prime Office Investment Properties, Property Specialist Insight Provider Anni Kum suggests that recent large office acquisition by Gaw Capital in Singapore should benefit office player Tuan Sing Holdings (TSH SP).
In Hotel Properties Ltd– Dissolution of Wheelock-OBS Partnership Could Pave Way for Privatization Offer, event-driven specialist David Blennerhassett zeros in on Hotel Properties (HPL SP) after a recent change in shareholding.
Sector and Thematic Insights
In Thai Macro Watch: Traditional ‘Weak Oil’ Plays in Thailand, Thai guru Athaporn Arayasantiparb, CFA searches for beneficiaries of the weaker oil price in Thailand.
In The Four Vulnerabilities in Thai Property, Athaporn Arayasantiparb, CFA looks takes a step back to look at the Thai Property Sector and explores a number of vulnerabilities.
3. Strong Revenues / Benign CPI / Indrawati’s Award / Prabowo’s Arabic / Scandals Mount / Tsunami Toll
Relatively benign inflation benefits Widodo as the 17 April election approaches, but a succession of scandals in ministries threatens to weaken his image for clean governance. Prabowo is suffering embarassment from a proposal for a Koran-reading contest (he is illiterate in Arabic) — while Widodo’s readiness to take part sets a negative precedent for upholding pluralism. Indrawati is The Banker’s 2019 Finance Minister of the Year, despite the problematic investment climate. Revenue collection was strong in 2018, suppressing the fiscal deficit to 1.8% of GDP.
Politics: Hard‑line Islamic backers of Gerindra Chair Prabowo Subianto risked appearing hypocritical when Acehnese clerics proposed a Koran‑reading contest for presidential contenders. The foreign‑educated Prabowo is apparently unable to read Arabic, and he rejects the contest. In contrast, campaign aides to President Joko Widodo gleefully agreed to it, perceiving an opportunity to impugn Prabowo’s religious credentials Widodo himself is non-committal, but the stance of his campaign officials serves, in effect, to legitimize the Acehnese practice of requiring that leaders be literate in Arabic. The president and his advisors are again willing to sacrifice principles of pluralism to make perceived campaign gains (Page 2). Authorities debunked a claim from a Partai Demokrat official that a voting‑fraud conspiracy is underway. The episode reflects poorly on a prominent Demokrat vice secretary general, Andi Arief – but, for the pro‑Prabowo alliance, it deflects critical press attention from Prabowo’s Koran‑reading predicament (p. 3). In a speech in Jakarta, Prabowo reiterated dire environmental warnings (p. 5). Finance Minister Sri Mulyani Indrawati is The Banker’s 2019 Finance Minister of the Year (p. 5).
Disasters: The Sunda Straits tsunami, triggered by the eruption of Anak Krakatau Volcano, caused 437 fatalities on 22 December (p. 6).
Justice: For the third time in six months, a ministry faces investigation from the Anti‑Corruption Commission (KPK). Unseemly revelations affect the Public Works Ministry, as investigators believe that kickbacks occurred on the procurement of water pipes for disaster relief in Palu. Corruption in disaster relief is potentially subject to capital punishment. The succession of ministerial‑level scandals risks jeopardizing Widodo’s crucial image for clean governance (p. 7). The sentence for PT Nusa Konstruksi Enginiring Tbk (NKE) fell short of what prosecutors sought (p. 7).
Policy News: At last, the administration is invoking new reformist rules on managing the civil service, by dismissing 480 personnel convicted of corruption. A joint ministerial decree on the matter shows welcome attention to issues of institutional dysfunctions (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: Fueled by commodity prices, state revenues attained 100 percent of the budget target in 2018, while spending reached 97 percent – producing a deficit equivalent to 1.8 percent of GDP (p. 10). Inflation was low again in December, resulting in a 3.1 percent annual rate for 2018 (p. 11).
Jakarta: The odd‑even license‑plate restrictions on traffic will remain in effect for at least another three months (p. 13).
4. Indonesia Banks – Exceptional ROA Still Unrecognized at PT BFI Finance
PT BFI Finance Indonesia (BFIN IJ) has the second highest ROA of all 107 banks and finance companies in our Indonesia database, at 8.2% as at 2017. It is a specialty lender, focussing on leasing and consumer financing. It provides financing for new cars, used cars, motorcycles through dealers and sales representatives, consumer loans and investment leasing for new and used heavy equipment, trucks, medical devices and machinery. The range of sectors in which its clients operate includes mining, trading, construction, services, agriculture, manufacturing, transportation and infrastructure. As at 3Q18 approximately 60% of lending is consumer finance or collateralized lending, with the remainder including vehicle financing and lease financing. BFIN is the old PT Bunas Finance, before changing its name in 2001. The company stands out in Indonesia and in Asia on a multitude of variables. Its ROA last year was 8.6x higher than the full industry average in Indonesia, and even outside this profitable banking market, there are few that compare. The company appears unrecognized despite consistently superior operating metrics, perhaps due to limited analyst coverage (two analysts) and low market capitalization (US$682m). This can create an opportunity.
5. Global Equity Strategy: Bearish with the Exception of EM.
Our cautious outlook and expectation for continued downward consolidation for global equities remains intact. Broad global indexes (MSCI ACWI, ACWI ex-U.S., EAFE, and EM) are all trading within patterns of lower highs and lower lows, leading us to believe the most likely scenario is that this near-term bounce is likely nothing more than a countertrend rally before longer-term downtrends reassert themselves. The one bright spot is EM. In this report we highlight a number of attractive set-ups within the Financial, Communication, Engineering & Construction, and Transportation Sectors.
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