In this briefing:
- Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?
- Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
- 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
1. Sea Ltd: A Surprise Winner in Cut-Throat E-Commerce Battle?
- A big takeaway from our conversations with Indo e-commerce industry sources is that they vouch for Shopee’s (Sea Ltd’s (SE US) e-commerce arm) MS gains story in the country.
- Indo e-commerce market has been enjoying super growth period (94% CAGR in 2015-18E) despite three major challenges (logistics, payment and highly subsidized market).
- With SE’s fund raising a matter of when, not if (2H20 as most likely timetable), Shopee’s tremendous progress in key metrics (MS, take rate) provides comfort.
- Assuming fair valuation of US$3 bn (vs. US$1.4 bn implied in SE’s ADR price) for Shopee, 12-mo PT for SE works out to be US$15.73/ADR, representing 43% upside potential.
2. Global Semiconductor Sales Fall In November 2018. This Is Not A Good Sign.
The Semiconductor Industry Association (SIA) just announced that worldwide sales of semiconductors reached $41.4 billion for the month of November 2018, an increase of 9.8% YoY, but down 1.1% MoM, the first such decline since February 2018. While the decline is modest and total 2018 total semiconductor sales are on track to reach ~$470 billion for a YoY increase of 15.7%, any decline in what should be peak holiday season is not a good sign.
Semiconductor sales historically track Wafer Fab Equipment (WFE) sales with a roughly six month time lag. North American WFE sales have been declining each month for the past six months meaning that this latest semiconductor MoM sales decline is right on schedule.
Leveraging a decade’s worth of historical data, we analyse two key questions that are likely on every investors mind. Firstly,for how long should we expect semiconductor sales to continue their decline. Secondly, how steep should we expect that decline to be?
3. 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
4. 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.
5. 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.
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