In this briefing:
- 31 January TOPIX & JPX Nikkei 400 Major Index Changes
- Korean Stubs Spotlight: A Pair Trade Between SK Telecom & SK Hynix
- Rides War Has Shifted To Share of Wallet
- Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick
- Z IN
1. 31 January TOPIX & JPX Nikkei 400 Major Index Changes
On December 17th 2018, the TSE announced a somewhat strange and unexpected treatment of the TSE-calculated indices for two companies where shares were issued to shareholders of a foreign company where the Japanese company had acquired the foreign company through a Scheme of Arrangement under foreign jurisdiction.
The two companies were LIFULL (2120 JP) and Takeda Pharmaceutical (4502 JP).
The announcements for TOPIX and JPX Nikkei 400 were made then, and despite the events being entirely similar in construct, but different in month of Scheme Effective Date, they were put in the same month for Mitula and the first tranche of the Takeda inclusion, which was split between two months because of its large impact.
The large IPO last month of Softbank Corp (9434 JP) means there is another large inclusion going effective as of the open of trading on 31 January.
Wednesday is going to be a big day.
If everyone trades their required index amount on the day, it should be a trillion yen plus of flows.
2. Korean Stubs Spotlight: A Pair Trade Between SK Telecom & SK Hynix
In this report, we provide an analysis of our pair trade idea between SK Telecom (017670 KS) and SK Hynix Inc (000660 KS). Our strategy will be to long SK Telecom (017670 KS) and short SK Hynix Inc (000660 KS). Our base case strategy is to achieve gains of 8-10% on this pair trade. Our risk control is to close the trade if it generates 4-5% in combined losses. Cost of commissions are not included in the calculations and closing prices as of January 25th are used in our pair trade. [Long SK Telecom – $0.5 million; Short SK Hynix – $0.5 million for total of $1.0 million].
The following are the major catalysts that could boost SK Telecom shares higher than SK Hynix shares within the next six to twelve months:
- Finally, a Higher DPS for SK Telecom is Likely, but Market Has Not Fully Factored In
- SK Hynix’s Plan for a 40% Lower Capex in 2019 Implies an Excess Inventory Condition
- 5G Service Ready to Start in March; Higher ARPU Typically Results in Higher Share Price
- SK Telecom’s Establishment of an Intermediate Holding Company Will Take Place in 2019
3. Rides War Has Shifted To Share of Wallet
Grab is not just challenging the usual passengers-ride and taxi market; it has upped its game by selling monthly subscription plans, which can build recurring users. It is also looking to take bigger slices of business trips, traditionally the more lucrative pie for local taxi companies and niche car rental companies.
This report explains why Grab has gone into this promotional strategy, and is divided into five parts:
1. Monthly Subscription Plans
2. Better Allocation of Resources
3. The Juicy Corporate Pie
4. Fare comparison between Grab, Go-Jek, CD
5. Conclusions
4. Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick
Over the past three years, an aggressive price war has pushed Indonesian data prices down 80% to unsustainable levels. With the exception of India, and Jio’s moves there, Indonesia now has the cheapest data in markets we track globally. However, there have been signs recently of tariff stability, with Telkomsel’s tariff rising 7%. Investors’ main concern, and the key risk to being bullish on the sector in Indonesia, is the risk a price war breaks out again. We think that is unlikely. The smaller telcos are not making sufficient returns to cover capex and finance costs and market share gains alone will not save them. Something needs to give: either prices rise and/or smaller players consolidate. Rumors swirling around Indosat (ISAT IJ) in recent days suggest consolidation may be under consideration again.
Our view is that the price cycle has turned in Indonesia and consolidation is likely. That underpins our positive view on Indonesian telcos. We look for Telkom Indonesia (TLKM IJ) to deliver strong growth from its two major engines: mobile through Telkomsel and fixed line (broadband). The stock has done reasonably well since mid-2018, but we see upside and rate the shares a Buy with a raised target price of IDR5,250. We continue to like the re-rating story at XL Axiata (EXCL IJ), and remain Buyers with a price target of IDR5,200. Indosat’s share price has soared in recent days and we have now cut the stock to a Sell with the target price retained at IDR2,040.
5. Z IN
In spite of a stellar quarter (Q3 FY19), we remain cautious on Zee Entertainment Enterprises (Z IN) and the prospects of broadcasters in India. Hindi GEC is consolidating, and most of the growth is likely to happen in regional channels which remain competitive. Global data suggests ad spends as a % of revenue for many broadcasters and cable operators has been disrupted and couple of year’s down the line, India should be no exception. Contrary to consensus, driven by millennials and non-affordability of second television, cord cutting in India could accelerate sooner than excepted. With an hyper competitive OTT landscape, uncertainty post TRAI Tariff implementations, in an industry suspect to easy value migration, the long term outlook for Zee Entertainment Enterprises (Z IN) and the broadcast Industry warrants attention. The only near term positive for the stock is the potential stake sale to a strategic partner, which is likely to keep the stock price buoyant but only in the near term.
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