Chief Economist & Political Strategist, CrossASEAN Research

Prasenjit K. Basu

Chief Economist & Political Strategist

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Thematic (Sector/Industry)

The remarkable political pact (MoU) signed between PM Ismail Sabri Yaakob and 4 leaders of the constituent parties of the PH opposition alliance ensures political and economic-policy stability until the end of July 2022. PH gained an assurance of political reforms (an anti-defection law, lowering the voting age to 18, greater representation in parliamentary committees and equal funding for opposition and ruling-party MPs) in exchange for its conditional pledge not to dislodge the government for nearly 11 months, and support the Budget for 2022. The pact does not contain any steps to counter the gerrymandering of constituencies that UMNO and BN have effected over the past five decades. And it says nothing about policies other than purely budgetary matters. The UMNO-PAS-Bersatu alliance (a pure Malay-Muslim ruling group) has since moved swiftly to exploit those loopholes -- by advancing a series of discriminatory steps that deepen the racist underpinnings of Malaysia's constitution (negotiated by the departing British in 1948-57). A key policy being advanced requires all freight-forwarding and logistics companies to be 51% Bumiputera owned by end-2021; this will have a severely negative impact on non-Muslim-owned companies big and small (with most conglomerates having a freight-forwarding unit, and numerous small-businesses being based on trucking and logistics).The 12th Malaysia Plan (tabled last month) includes a policy requiring that all Bumiputera companies only be sold to Bumiputeras. And the infamous RUU 355 legislation (enhancing the powers of Shariah Courts over criminal cases, and allowing them to use traditional Islamic punishments) is progressing rapidly under this government.  These 3 legislations may endear the UMNO-PAS alliance to Malays nationally. They are aimed at putting PH's leader Anwar Ibrahim on the spot, as (despite founding the Islamic students' movement ABIM in the 1970s) Anwar leads an explicitly multi-racial party (at the head of a genuinely multi-racial alliance) and has eloquently advocated a race-neutral Malaysia over the past decade. More enduringly, these policies (unless reversed by a future PH government) risk permanently alienating much of Malaysia's business community (who will then choose to invest outside Malaysia rather than within it, turning Malaysia increasingly into an economy of generally-inefficient GLCs and foreign-owned MNCs). Despite the appearance of policy stability from this pact, the policies of this government are permanently handicapping Malaysia and threaten its longer-term economic viability.

The remarkable political pact (MoU) signed between PM Ismail Sabri Yaakob and 4 leaders of the constituent parties of the PH opposition alliance ensures political and economic-policy stability until the end of July 2022. PH gained an assurance of political reforms (an anti-defection law, lowering the voting age to 18, greater representation in parliamentary committees and equal funding for opposition and ruling-party MPs) in exchange for its conditional pledge not to dislodge the government for nearly 11 months, and support the Budget for 2022. The pact does not contain any steps to counter the gerrymandering of constituencies that UMNO and BN have effected over the past five decades. And it says nothing about policies other than purely budgetary matters. The UMNO-PAS-Bersatu alliance (a pure Malay-Muslim ruling group) has since moved swiftly to exploit those loopholes -- by advancing a series of discriminatory steps that deepen the racist underpinnings of Malaysia's constitution (negotiated by the departing British in 1948-57). A key policy being advanced requires all freight-forwarding and logistics companies to be 51% Bumiputera owned by end-2021; this will have a severely negative impact on non-Muslim-owned companies big and small (with most conglomerates having a freight-forwarding unit, and numerous small-businesses being based on trucking and logistics).The 12th Malaysia Plan (tabled last month) includes a policy requiring that all Bumiputera companies only be sold to Bumiputeras. And the infamous RUU 355 legislation (enhancing the powers of Shariah Courts over criminal cases, and allowing them to use traditional Islamic punishments) is progressing rapidly under this government.  These 3 legislations may endear the UMNO-PAS alliance to Malays nationally. They are aimed at putting PH's leader Anwar Ibrahim on the spot, as (despite founding the Islamic students' movement ABIM in the 1970s) Anwar leads an explicitly multi-racial party (at the head of a genuinely multi-racial alliance) and has eloquently advocated a race-neutral Malaysia over the past decade. More enduringly, these policies (unless reversed by a future PH government) risk permanently alienating much of Malaysia's business community (who will then choose to invest outside Malaysia rather than within it, turning Malaysia increasingly into an economy of generally-inefficient GLCs and foreign-owned MNCs). Despite the appearance of policy stability from this pact, the policies of this government are permanently handicapping Malaysia and threaten its longer-term economic viability.          

Malaysia: Stability Paves Way for Better Policy; UMNO-PAS Long-Term Challenge

External broker reports(aggregated public sources), TA Securities Holdings Berhad

TA Securities Holdings Bhd

External broker reports(aggregated public sources)

Equity Bottom-Up

<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Macroeconomics

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including <a href="https://www.smartkarma.com/entities/inari-amertron-bhd" target="_blank" data-smartkarma-citation="entities:10265:1" rel="noopener">Inari Amertron (INRI MK)</a>, <a href="https://www.smartkarma.com/entities/malaysian-pacific-industries-berhad" target="_blank" data-smartkarma-citation="entities:18893:1" rel="noopener">Malaysian Pacific Industries (MPI MK)</a> and <a href="https://www.smartkarma.com/entities/globetronics-technology-bhd" target="_blank" data-smartkarma-citation="entities:10571:1" rel="noopener">Globetronics Technology (GTB MK)</a> ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).

Malaysia's Leader of the Opposition, Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and immediately after the Asian Financial Crisis (1997-98), but then spent many years in prison on trumped-up charges of "sodomy" (which is illegal in Malaysia), has announced at a press conference on 23 September that he has the support of a majority of MPs, and hence has informed the King (Agong) that he is ready to form a government. The normal procedure would be a Vote of No-Confidence in the Dewan Rakyat (parliament), but the King had picked Muhyiddin as PM at the beginning of March 2020 based on a list of MPs, so Anwar is following the same route. The Sabah state election on Saturday (26th September) will be an important barometer of the national political tide. Sabah and Sarawak had traditionally constituted the "fixed deposit" for the erstwhile ruling coalition, Barisan Nasional (National Front). But in 2018, Sabah narrowly voted for a PH slate led by Warisan (Sabah Heritage Party), a new party established by Shafi Apdal, a former Vice President of UMNO who had resigned in 2015 over Najib's corruption. In this week's Sabah state election, Warisan and its PH (Pakatan Harapan) allies appear to have the upper-hand, with Warisan's "Sabah-nationalist" campaign gaining strong support -- especially at a time when the Philippines' House of Representatives had re-staked a historical claim to Sabah. If the Warisan-led PH coalition wins the state election in Sabah, it won't change the federal equation, but will strengthen PH's hand -- and likely lead to more defections to Anwar's side. A number of uncertainties remain: Mahathir hasn't declared support for Anwar, and he is close to Shafi Apdal, so there could be yet another twist if Mahathir again throws his hat into the prime ministerial ring. But if Anwar truly has statutory declarations from more than 112 MPs, then he will become Prime Minister. Anwar's government will be more inclusive of all the races and religions in Malaysia, but he has stressed that it will have a Malay-Muslim majority. Anwar is a more experienced figure with an international reputation, and has built Malaysia's first truly multi-racial party (PKR) in alliance with multi-racial (but Chinese-Malaysian-dominated) DAP. An Anwar government thus promises to be fundamentally different from all that came before -- holding out the prospect of transforming Malaysia into a more meritocratic and race-neutral nation, a massive long-term positive for the country and its economy. Substantially greater integrity and reduced corruption will be the main positive from an Anwar administration. But Penang and its electronic sector (including Inari Amertron (INRI MK), Malaysian Pacific Industries (MPI MK) and Globetronics Technology (GTB MK) ) will be beneficiaries, and the cash-rich Hong Leong group (closely associated with Anwar throughout his career) are likely to benefit too, likely investing much more in Malaysia (having invested mainly in Hong Kong, Singapore and the UK over the past two decades).    

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

Independent Asian Credit Research, Bondcritic

Warut Promboon

Independent Asian Credit Research

Asian Fixed Income/Frontier Market Research

Bondcritic

Bondcritic, established in 2009, is designed to be an independent credit research voice that helps investors gain insights and unbiased analyses on Asian fixed income market. Our mission is to discover deep-value Asian high-yield and distressed bonds with a bottom-up approach, together with the help of our proprietary ESG (Environmental, Social Development, and Governance) model. At the same time, we focus on bringing investment cases of unrated and unloved issuers to the general public.

Credit

We initiate our coverage of CIMB Bank Bhd (CIMB) and analyze the impact of COVID-19 on the bank’s credit fundamentals. As the 2nd-largest bank in Malaysia, a leading consumer bank in Southeast Asia and a flagship bank within <a href="https://www.smartkarma.com/entities/cimb-group-holdings-bhd" target="_blank" data-smartkarma-citation="entities:68:1" rel="noopener">CIMB Group Holdings (CIMB MK)</a>, and the fifth largest banking group in Southeast Asia both in terms of assets, we believe CIMB, among Malaysian banks, will be least impacted by the COVID-19 pandemic fallout.
We believe the bank’s management can bring its cost-to-income ratio down to 45%, from 50%+. CIMB’s head start in digital banking will enable the bank to increase its customer base in the era of social distancing, not to mention nearly 200m unbanked citizens throughout ASEAN. We also expect responsible banking to become a norm, especially in Malaysia, and CIMB’s commitment to driving customer value and sustainable banking will stand out from the crowd.
Malaysian banks as a whole will be less affected than its regional peers from the COVID-19 fallout as long as we expect Malaysia’s unemployment rate to remains under control. We believe CIMB has the balance sheet and lending profile that can ride out this COVID-19 crisis better than its country peers can.
Fitch revised Malaysia’s sovereign rating outlook to negative from stable on April 9 while S&amp;P and Moody’s kept the stable outlook. Moody’s, however, revised the outlook of the Malaysian banking system to negative from stable on April 1. Both actions did not surprise us as we have been expecting a negative rating action across the sovereign space and see the actions as a precaution. Fitch downgraded <a href="https://www.smartkarma.com/entities/malayan-banking-bhd" target="_blank" data-smartkarma-citation="entities:600:1" rel="noopener">Malayan Banking (MAY MK)</a> Bhd (Maybank)’s senior debt rating to BBB+ from A- on 13-April. The outlook is stable. Since Moody’s and S&amp;P maintained a stable outlook on Malaysia, CIMB’s senior unsecured debt rating of A-/A3 (by S&amp;P and Moody’s) is not under an immediate downgrade threat, in our view. CIMB is not publicly-rated by Fitch. As we expect more negative rating pressure in the banking sector, we believe it is conservative to price CIMB as one notch below at “BBB+”.
CIMB’s CIMBMK complex appears fully-valued against its regional BBB+ bank peers. We like the direction the bank is heading and will see any further sell-off as a buying opportunity. As such, we initiate our coverage on the complex with a NEUTRAL recommendation.

We initiate our coverage of CIMB Bank Bhd (CIMB) and analyze the impact of COVID-19 on the bank’s credit fundamentals. As the 2nd-largest bank in Malaysia, a leading consumer bank in Southeast Asia and a flagship bank within CIMB Group Holdings (CIMB MK), and the fifth largest banking group in Southeast Asia both in terms of assets, we believe CIMB, among Malaysian banks, will be least impacted by the COVID-19 pandemic fallout.
We believe the bank’s management can bring its cost-to-income ratio down to 45%, from 50%+. CIMB’s head start in digital banking will enable the bank to increase its customer base in the era of social distancing, not to mention nearly 200m unbanked citizens throughout ASEAN. We also expect responsible banking to become a norm, especially in Malaysia, and CIMB’s commitment to driving customer value and sustainable banking will stand out from the crowd.
Malaysian banks as a whole will be less affected than its regional peers from the COVID-19 fallout as long as we expect Malaysia’s unemployment rate to remains under control. We believe CIMB has the balance sheet and lending profile that can ride out this COVID-19 crisis better than its country peers can.
Fitch revised Malaysia’s sovereign rating outlook to negative from stable on April 9 while S&amp;P and Moody’s kept the stable outlook. Moody’s, however, revised the outlook of the Malaysian banking system to negative from stable on April 1. Both actions did not surprise us as we have been expecting a negative rating action across the sovereign space and see the actions as a precaution. Fitch downgraded Malayan Banking (MAY MK) Bhd (Maybank)’s senior debt rating to BBB+ from A- on 13-April. The outlook is stable. Since Moody’s and S&amp;P maintained a stable outlook on Malaysia, CIMB’s senior unsecured debt rating of A-/A3 (by S&amp;P and Moody’s) is not under an immediate downgrade threat, in our view. CIMB is not publicly-rated by Fitch. As we expect more negative rating pressure in the banking sector, we believe it is conservative to price CIMB as one notch below at “BBB+”.
CIMB’s CIMBMK complex appears fully-valued against its regional BBB+ bank peers. We like the direction the bank is heading and will see any further sell-off as a buying opportunity. As such, we initiate our coverage on the complex with a NEUTRAL recommendation.

Mark Artherton, CFA

Inteqres

Several countries are pushing for more M&amp;A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.Summary findingsWe find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

Several countries are pushing for more M&amp;A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.Summary findingsWe find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

Malaysia

Hong Leong Bank Berhad provides commercial banking and related financial services.  The Company's services include leasing and hire purchase, nominee, Islamic Banking, and unit trust management.  Through its subsidiaries, the Company also develops and invests in real estate.

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Hong Leong Bank (HLBK MK)

Malaysia: Stability Paves Way for Better Policy; UMNO-PAS Long-Term Challenge

MoU between PM and opposition PH (13 Sept) provides stability in exchange for political reform. But UMNO-PAS are using it to advance Malay...

Prasenjit K. Basu

Stronger FY21 Results

Buy Hong Leong Bank Berhad: Stronger FY21 Results. - By: TA Securities Holdings Bhd

TA Securities Holdings Bhd

Anwar Makes His Move at Last; Election in Sabah This Week Should Bolster Him Too

Anwar Ibrahim, who was Deputy Prime Minister (and Finance Minister) during and after the

Prasenjit K. Basu

CIMB Bank: Hanging Ten

We initiate our coverage of CIMB Bank Bhd (CIMB) and analyze the impact of COVID-19 on the bank’s credit fundamentals. As the 2nd-largest bank in...

Bondcritic

Bank M&A in Asia – a Decade in Review

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally...

Mark Artherton, CFA

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