In this briefing:
- Semiconductor WFE Outlook. Things Just Got Really Ugly
- AALI (AALI IJ): Indonesian Biodiesel Mandate to Support CPO Price
- The Week that Was in ASEAN@Smartkarma – Dithering Dangerously, Digital Transformation, and Breadtalk
- Campaign Sparring Re: Islam / KPK on PLN / Gov’t Wants Unicorn IPOs / Loan Growth Uptick / WB on FDI
- Rental Rates for Last Mile Industrial Real Estate Poised to Move Higher in Most Key Global Markets
1. Semiconductor WFE Outlook. Things Just Got Really Ugly
SEMI, the global industry association serving the manufacturing supply chain for the electronics industry, published three different forecasts for wafer fab equipment (WFE) sales in the past week. While the forecasts differ in approach and detail, they all agree on one thing, WFE revenues are continuing to fall and the outlook for 2019 is sharply down on previous estimates.
Specifically, Q4 2018 WFE revenues are set to decline 20.8% or $3.3 billion QoQ and the forecast which had just six months ago predicted 7% growth in 2019 is now calling for an 8% decline next year.
These latest forecasts cast a dark shadow over the predictions of the leading WFE manufacturers that H1 2019 would be stronger than H2 2018 and we anticipate a strong downward revision of forward guidance in the upcoming earnings season.
There may be a glimmer of hope on the horizon however as SEMI forecasts a strong rebound in the second half of 2019 leading to a return to growth of ~20% in 2020. Let’s see.
2. AALI (AALI IJ): Indonesian Biodiesel Mandate to Support CPO Price
- Current price offers a good entry point, relatively strong analyst recommendation, and low earnings expectation relative to its sector
- Successful execution of Indonesia’s biodiesel mandate should drive CPO demand for biodiesel blending, hence driving CPO prices
- Through strong partnerships with smaller estates AALI can increase external FFB (fresh fruit bunch) purchases, reducing fixed costs incurred by plantation
- Attractive at 19CE* 10% ROE/PB compared to ASEAN Consumer staples at 4.6% and AALI offers 4% dividend yield
- Risks: Low palm-based commodities and crude palm oil prices
* Consensus Estimates
3. The Week that Was in ASEAN@Smartkarma – Dithering Dangerously, Digital Transformation, and Breadtalk
This past 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 Kevin O’Rourkewho looks at the last year in Indonesia from a political and economic perspective in The Year of Dithering Dangerously. From an equity bottom-up perspective, the top two include pieces from CrossASEAN Insight Provider Angus Mackintosh on Surya Citra Media Pt Tbk (SCMA IJ) and its upcoming digital transformation and from CrossASEAN Small and Mid-Cap specialist Nicolas Van Broekhovenon Breadtalk (BREAD SP), as the company spreads its wings to London, opening its first Din Tai Fung Restaurant there.
Macro Insights
In his appropriately named insight, The Year of Dithering Dangerously, Kevin O’Rourke suggests that President Joko Widodo, cabinet-level policymakers and the broader political elite are neglecting the imperative for economic reform at a particularly critical juncture.
In Campaign Sparring Re: Islam / KPK on PLN / Gov’t Wants Unicorn IPOs / Loan Growth Uptick / WB on FDI, Kevin O’Rourke comments on the most important political developments over the past week.
In his Insight Indonesia: All Together NowNicholas Chia provides up with an interesting update on the Indonesian Economy.
In Thailand: Wobbles En Route to Slower but Still-Sustained Growth Momentum, Jason Tan writes on Thailand following some faltering GDP numbers.
In Political Pit Stop (December): First Month of Campaigning, our Thai guru Athaporn Arayasantiparb, CFA comments on the state of political activity over the last month in Thailand as campaigning begins for the upcoming election.
In The Philippines: Reforms Under a Political Cloud; BSP May Turn DovishManu Bhaskaran comments on recent economic developments in the Philippines.
In Philippine Monetary Policy: Relief from No Rate Hike, Jun Trinidad comments on the economic outlook in the Philippines following a lack of action at BSP’s last policy meeting.
In Singapore-Malaysia Tensions Rise Anew in Airspace and Maritime Disputes, Jason Tan comments on the resurgence of political tension between Singapore and Malaysia.
Equity Bottom-Up Insights
In SCMA (SCMA IJ) – Biting the Digital Bullet, former Jakartan and CrossASEAN Insight Provider Angus Mackintosh circles back to leading Surya Citra Media Pt Tbk (SCMA IJ) following a conversation with management focusing on its digital aspirations.
In BreadTalk (BREAD SP): As Din Tai Fung Opens in London, CEO Puts Out Target to Double Mkt Cap, Nicolas Van Broekhoven revisits Breadtalk (BREAD SP) following the opening of Din Tai Fung in London.
In MER (MER PM): Solid Fundamentals at No. 1 Philippine Power Producer, Dr. Andrew Stotz, CFA works his magic on this leading Philippines utility company.
In PTT (PTT TB): Planned Listing of Retail Business in 2019, Dr Andrew Stotz, CFA circles back to PTT PCL (PTT TB) following the announcement of its intention to list its retail business.
In SCC (SCC TB): Potential Beneficiary from US-China Trade War, Dr. Andrew Stotz, CFA revisits Siam Cement (SCC TB) as a potential beneficiary souring US-China relations.
In PLANB: Solid Outlook for Music Marketing Business Under BNK48 Office, our friends at Country Group revisit media player Plan B Media (PLANB TB) in Thailand.
In SEAFCO (SEAFCO TB): Solid Backlog, Solid Profitability, Dr. Andrew Stotz, CFA takes a close look at this leading construction player.
In SVI (SVI TB): Production Capacity Expansion Should Continue to Pay Off, Dr. Andrew Stotz, CFA comments on electronics manufacturing company and takes a positive view.
Sector and Thematic Insights
In a fascinating Insight, How the Mighty Fall…Or Should That Be A “Who Will”? Thai Guru Athaporn Arayasantiparb, CFA refers to Jim Collins’ book ‘How the Mighty Fall’ and highlights some interesting pitfalls that see some great companies decline or even collapse and follows them in stages. He applied the approach to companies in Thailand.
In Revisiting the Renewable Energy Space, Athaporn Arayasantiparb, CFA checks out two stocks in the Thai renewable energy space.
In Snippets #17: PTTEP’s Winner Curse, Huawei’s Crisis, Athaporn Arayasantiparb, CFA picks out the most interesting pieces of breaking news over the past week or so in Thailand.
4. Campaign Sparring Re: Islam / KPK on PLN / Gov’t Wants Unicorn IPOs / Loan Growth Uptick / WB on FDI
The Prabowo-Uno campaign are focusing on Central Java while elements on both fringes of the religious spectrum debate poligamy and whether Widodo is ‘criminalizing’ clerics. The KPK is investigating the head of the State Power Company (PLN) after court convicted BlackGold owner Johannes Kotjo. Information Minister Rudiantara wants IPOs for four giant startups. BI cited positive macro indicators, including 13% October credit expansion, but the World Bank warned that FDI inflows are too low.
5. Rental Rates for Last Mile Industrial Real Estate Poised to Move Higher in Most Key Global Markets
- New industry data this week, plus take-aways from our latest discussions with company managements, all confirm that the likely trend in the industrial segment of the global real estate industry is for rental rates to rise.
- The growth in e-commerce is continuing to accelerate globally. In some key market, this is “triggering a land grab for distribution space that experts say is accelerating”.
- Therefore, the increasing scarcity value of well situated industrial real estate in high demand markets is likely to continue to push up rental rates to higher and higher levels.
- Given our expectation that fundamentals driving the growing demand for Last Mile Industrial real estate are likely to persist, we continue to expect this segment to outperform the broader Real Estate sector for the foreseeable future.
