Daily TMT & Internet: Rides War Has Shifted To Share of Wallet and more

In this briefing:

1. Rides War Has Shifted To Share of Wallet
2. Indonesian Telcos: Mobile Pricing Should Continue to Recover. Telkom Remains Our Top Pick
3. Z IN
4. GER Upcoming EVENTS and Earnings Calendar
5. RRG Proprietary Corporate Governance Scoring System Identifies Poor Governance in Korea

1. 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

2. 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.

3. 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.

4. GER Upcoming EVENTS and Earnings Calendar

Next week promises to be a large catalyst driven week, with Apple Inc (AAPL US), NTT Docomo Inc (9437 JP) and Tesla Motors (TSLA US) expected to report results, among others. We have provided a list below of the key equity catalysts for next week as well as potential drivers for M&A deals and stubs. If you are interested in importing this directly into Outlook or have any further requests, please let us know. 

Kind regards, Rickin Arun and Venkat

5. RRG Proprietary Corporate Governance Scoring System Identifies Poor Governance in Korea

• Our proprietary corporate governance scoring system now covers over 1,985 stocks including over 200 in Korea.
• We recently added a coverage of 28 new names in Korea.
• The two lowest scores in this group are Samsung Electro-Mechanics and Advanced Process Systems both with scores of 40/100.
• The involvement of a former executive at Samsung Electro-Mechanics in the Park scandal and ouster highlights the governance risk.
• Companies with good governance include LS Corp, and Lotte Shopping. Past issues with the founding family of Lotte should be noted and taken into consideration.
  We welcome requests from clients of names they want to see added to the universe.