In this briefing:
- The Week that Was in ASEAN@Smartkarma – Vietnam Rising, Indonesian M&A, and Data Pricing
- 2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables
- Snippets #18: Naughty CEOs, Southern Crusades
- Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
- Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
1. The Week that Was in ASEAN@Smartkarma – Vietnam Rising, Indonesian M&A, and Data Pricing
This 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.
This week’s highlights include a focus on Vietnam and its prospects, with two insights from Dr. Jim Walker and one from Frontier specialist Dylan Waller, with another obvious focus being the analysis of the first Presidential debate in Indonesia, with some in-depth commentary from Political specialist Kevin O’Rourke. Former Jakartan Angus Mackintosh revisits Ramayana Lestari Sentosa (RALS IJ) post a company visit and remains positive. Travis Lundy circles back to the Bank Danamon Indonesia (BDMN IJ) given the ongoing M&A situation there and our friends at New Street Research revisit the Indonesian Telecoms sector and data pricing in particular.
Macro Insights
In Vietnam: Economic Prestidigitation, Dr. Jim Walker analyses the GDP growth numbers out of Vietnam and concludes that even if there is some artistic license in the number itself, underlying growth in that country remains strong.
In Vietnam: Still China Plus One?, Dr. Jim Walker revisits the China Vietnam connection from an economic standpoint and asks whether the “Plus one” is still justified.
In Vietnam’s Economy Trounces Other Frontier Markets: 2018 Pullback Provides Solid Entry Point, Frontiersman Dylan Waller comments on the prospects for the Vietnamese stock market following the recently recent GDP numbers and a pullback in the market.
In Widodo Prevails in 1st Debate / Reform Discussed / BI Holds Rate / Poll Margins Steady / PSI Emerges, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.
In Indo Politics: Key Takeaways from First Presidential Debate, Johannes Salim, CFA lays out his takeaways from the first Presidential debate in Indonesia.
In The Bull Case for 2019: If Household Spending Stands Out (And Funding Finally Flows In), Kevin O’Rourke analyses the prospects for the Indonesian economy and stock market in light of a potential tailwind from domestic household spending.
Equity Bottom-Up Insights
In Ramayana Lestari Sentosa (RALS IJ) – The Changeling, former Jakartan Angus Mackintosh comments on this leading Indonesian low-end department store operator and remains convinced that this time, its transformation will yield positive results.
In Golden Agri: Reduced Risk of El Niño Pushes Out CPO Price Recovery into 2020, Commodities specialist Charles Spencer circles back to this leading Crude Palm Oil plantation company and remains positive in the longer term.
In Thailand – KTC Defies the Sceptics, Daniel Tabbush circles back to this leading Thai Finance company, which continues to show strong growth prospects.
In AFFIN Bank: To Affinity and Beyond, Paul Hollingworth zeros in on this Malaysia lender and comes away with a positive view.
In BDMN/BBNP Merger Leads to BDMN Buyout Arb, Travis Lundy circles back to this ongoing Indonesian M&A situation.
In Keppel-KBS US REIT – Positioned for Defensive Growth. Still Attractively Priced., Royston Foo circles back to this REIT following some better than expected results.
In REIT Discover: Frasers Commercial Trust (FCOT SP) At Inflection Point, Anni Kum zooms in on Frasers Commercial Trust (FCOT SP), which she suggests is at an inflection point, after seven consecutive quarters of falling net property income stemming from a downward trending occupancy rate.
Sector and Thematic Insights
In Singapore Property – 4Q18 Residential Statistics Support View of Weakness in High-End Segment, Royston Foo circles back to the sector following the releases of residential numbers.
In Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick, our friends at New Street Research revisit the sector and update their views.
In Thai Telcos: Outstanding Liabilities to CAT/TOT Loom Post DTAC’s Partial Settlement, our friends at New Street Research zero in on the Thai Telco sector following the settlement of numerous outstanding court cases but still see further liabilities along the line.
In StubWorld: Intouch Gains On Possible Sale of Thaicom, David Blennerhassett takes a look at this potential M&A transaction in Thailand. A sale of Thaicom, Thailand’s only satellite operator, by Intouch Holdings (INTUCH TB) potentially to CAT (Communications Authority of Thailand) would make sense given political sensitivities.
2. 2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables
We run through our views on the main themes that will impact the oil and gas market in 2019 and the stocks to play these through. We outline the 10 key themes including oil demand, US oil supply growth, OPEC+ policy, base production decline rates, exploration potential and the outlook for new project final investment decisions. We also look at the refining market, LNG supply and demand, the M&A prospects and the impact of the energy transition. We outline 12 stocks (7 bullish and 5 bearish calls) that we think you can play the themes through.
We examine some of the key drivers of the oil price and on the whole we are relatively bullish as although we see some risk to demand growth forecasts in 2019, in the absence of a recession we think that supply has more room to surprise to the downside. Geopolitics and financial markets will play a huge role in prices. We think that US oil supply growth will be lower y/y in 2019, OPEC+ compliance with cuts will be high and maybe helped by unplanned disruptions and base production will decline more rapidly than forecast. Companies will accelerate the sanctioning of new projects in 2019 and also will increase exploration spending, despite a number of years of poor success rates – overall the trend should be positive for the offshore oil service companies. We expect strong LNG supply growth in 2019 to hit spot pricing but still expect a large number of projects to be sanctioned helping the LNG engineering and construction companies. It will be a very interesting year for the refining industry as new regulations limiting shipping sulphur emissions should lead to a spike in diesel and to some extent gasoline margins towards the end of the year, helping complex refiners. Major oil companies will continue to embrace renewables as investors continue to push for companies to plan for the energy transition.
The main stocks that we come out positive on are Hess Corp (HES US), Valero Energy (VLO US), TechnipFMC PLC (FTI FP), Kosmos Energy (KOS US), Transocean Ltd (RIG US), Golar Lng Ltd (GLNG US) and Galp Energia Sgps Sa (GALP PL).
We are more negative on Cenovus Energy Inc (CVE CN) , Royal Dutch Shell (RDSA LN) , Cheniere Energy (LNG US); Eog Resources (EOG US) and Ecopetrol SA (ECOPETL CB) .
3. Snippets #18: Naughty CEOs, Southern Crusades
In this review, we highlight five new unrelated developments that might impact the Thai stock market if you happen to hold the affected stocks.
- Skeletons in the closet. CIMB’s Thai CEO went on voluntary leave to clear his name regarding a legacy case back in his KTB days, while one of Thailand’s highest profile tycoon Dr. Prasert has been implicated in a stock manipulation case of Bangkok Airways from way back in 2015.
- Religious wars? As the southern insurgency spreads to economically vibrant province of Songkhla, insurgents attack a Buddhist temple and kill two monks, possibly in an effort to turn the crisis into a religious war. Doesn’t sound great for overall stability.
- A rare bump in the Baht. Despite QE unwinding, the Baht has risen almost 3% against the greenback. Bad news for exporters (eg. TUF, DELTA) good news for serial acquirers (think Thai Beverage, Banpu).
- Government-inspired deals. Is the government driving M&A in Thailand these days? They certainly had a hand in the TMB-Thanachart deal and now are rumored to be buying Thaicom, the country’s only satellite operator.
- Air quality takes a dive thanks to diesel and aggressive skytrain construction programs. Stores selling face mask and companies that substitute ethanol to diesel are set to benefit, while BTS might hit headwinds as government forces them to slow down construction.
4. Monthly Geopolitical Comment: Too Early to Expect Lasting Improvements in US-China Relationship
In our base case, we do not expect the trade war between the US and China to end soon. The next bilateral meeting between Liu He and US Trade Representative Robert Lighthizer is scheduled at the end of this month. If the Chinese side is hoping to placate the US with promises to purchase US commodities, this is unlikely to be sufficient to achieve a lasting improvement in the relationship. We are sceptical that the Chinese leadership will agree to launch structural reforms under pressure from the US.
Elsewhere, we are concerned with growing geopolitical and security risks in Nigeria where both presidential and parliamentary elections are scheduled in February. The relations between Turkey and the US have also soured ahead of the Turkish local elections. In Poland, the assassination of the Gdansk mayor put the polarisation of the society into the spotlight ahead of the parliamentary elections due this autumn. There are signs that the US is about to ramp up pressure on Russia after newly elected Democratic House members filled their seats earlier this month.
5. Semiconductor WFE Billings Decline Reverses Course in December, First Bullish Signal in Six Months
On January 24’th 2019, SEMI announced that Wafer Fab Equipment (WFE) billings for North America-based manufacturers of semiconductor equipment amounted to $2.11 billion worldwide in December 2018. This represents an 8.5% MoM increase, although still lower YoY by 12.1%. December’s data marks the reversal of a six month long downtrend in monthly billings, a bullish signal that the WFE segment has bottomed and better times lie ahead.
This latest billings data coincides with WFE bellwether Lam Research (LRCX US)‘s latest earnings report which slightly exceeded guidance with revenues of $2.5 billion, up 8.7% sequentially. On the call, company executives stated that first quarter CY 2019 would mark the trough from a gross margin perspective, strongly implying that it would be the same for revenues.
LRCX shares surged 15.7% in overnight trading triggering a rising tide that lifted large swathes of semiconductor stocks, particularly those within the WFE sector. Two swallows don’t necessarily mean it’s Spring, but for now, the markets are betting that it does.
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