In this briefing:
- 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
- The Year of Dithering Dangerously
- Tobacco: A Framework for Analyzing the Sin Sector from an ESG Perspective, with a Focus on ITC
1. 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.
2. 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.
3. 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.
4. The Year of Dithering Dangerously
President Joko Widodo, cabinet-level policymakers and the broader political elite are neglecting the imperative for economic reform at a particularly critical juncture. Prospects for improvement in a second Widodo term are questionable.
5. Tobacco: A Framework for Analyzing the Sin Sector from an ESG Perspective, with a Focus on ITC
Contrary to the perception that the rising adoption of socially responsible investment practices has caused Big Tobacco to be shunned by portfolio managers, our shareholding analysis shows that institutional holding in most of these ‘sin’ stocks has increased in the last 4 and 8 quarters.
Nevertheless, Big Tobacco suffered a pounding in 2018. Investors had bought into tobacco premising reduced risk products (Eg: e-cigarettes, Heat Not Burn products) would reduce regulatory risk and reverse decades of sales decline. As it turned out, regulators frowned at the popularity of vaping amongst teens in the US, calling out companies for baiting youngsters into long-term smoking habits. Regulators also told off companies for marketing e-cigarettes and HNBs as healthier options, as tobacco still kills.
Ethical portfolios with negative screens (for example, ones that will not invest in tobacco stocks) have underperformed in the long-term past. There is a growing tribe of funds committed to responsible investing with positive ESG screens. For such funds, we present in this insight a framework for analyzing the sector from an ESG perspective. A deep dive into ITC Ltd (ITC IN), the only cigarette major to turn in a positive performance this year, vindicates, in our view, its efforts to materially de-risk its asset and revenue profile, coupled with very high levels of commitment towards community development.
