ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

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

Equity Bottom-Up

Matahari Department Store / Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> hosted a business initiatives update for analysts last week, which provided some interesting updates on performance and fresh strategies, as we approach the end of the year. Apart from an update on sales, store closures and discontinued brands, the key initiatives discussed included the launch of a brand new Matahari.com and the collaboration with <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a> to provide branchless banking. 
There has been a choppy sales recovery since the end of 3Q2020 partly due to the fact that 42 out of 153 stores are still under transition from the last set of PSBB measures.
There has been a mixed performance across different departments with casual wear and children's wear performing well but formalwear, travel, and cosmetics underperforming. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> has discontinued seven direct-purchase (DP) brands and intends to write down the stock in these brands by the end of the year. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener"></a>The company intends to close a further six stores this year bringing the total number by the end of the year to 147 stores. There is a freeze on any new store openings next year with 23 stores under observation. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> only last week has launched its brand new Matahari.com, which is at its early stages and will be ramped up slowly as part of the company's omnichannel strategy.  
A key discussion point and the subject of a large portion of the questions in the recent analyst call was regarding the strategy behind the company's tie-up with <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a> to provide branchless banking services within Matahari stores. <a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> has taken a 16.41% direct stake in <a href="https://www.smartkarma.com/entities/bank-nationalnobu-tbk-pt" target="_blank" data-smartkarma-citation="entities:17016:1" rel="noopener">Bank Nationalnobu (NOBU IJ)</a>.
No doubt <a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> is cheap trading on 7.5x FY21E PER and 3.2x FY21E EV/EBITDA but there is still some uncertainty ahead, as it has a good number of underperforming stores still being monitored and its initiatives, appealing though they may be, will take time to gain traction.

Matahari Department Store (LPPF IJ) hosted a business initiatives update for analysts last week, which provided some interesting updates on performance and fresh strategies, as we approach the end of the year. Apart from an update on sales, store closures and discontinued brands, the key initiatives discussed included the launch of a brand new Matahari.com and the collaboration with Bank Nationalnobu (NOBU IJ) to provide branchless banking. 
There has been a choppy sales recovery since the end of 3Q2020 partly due to the fact that 42 out of 153 stores are still under transition from the last set of PSBB measures.
There has been a mixed performance across different departments with casual wear and children's wear performing well but formalwear, travel, and cosmetics underperforming. 
Matahari Department Store (LPPF IJ) has discontinued seven direct-purchase (DP) brands and intends to write down the stock in these brands by the end of the year. 
The company intends to close a further six stores this year bringing the total number by the end of the year to 147 stores. There is a freeze on any new store openings next year with 23 stores under observation. 
Matahari Department Store (LPPF IJ) only last week has launched its brand new Matahari.com, which is at its early stages and will be ramped up slowly as part of the company's omnichannel strategy.  
A key discussion point and the subject of a large portion of the questions in the recent analyst call was regarding the strategy behind the company's tie-up with Bank Nationalnobu (NOBU IJ) to provide branchless banking services within Matahari stores. Matahari Department Store (LPPF IJ) has taken a 16.41% direct stake in Bank Nationalnobu (NOBU IJ).
No doubt Matahari Department Store (LPPF IJ) is cheap trading on 7.5x FY21E PER and 3.2x FY21E EV/EBITDA but there is still some uncertainty ahead, as it has a good number of underperforming stores still being monitored and its initiatives, appealing though they may be, will take time to gain traction.

Matahari Department Store (LPPF IJ) - Slow Transition to Newness

The fact that <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> has managed to secure US$1.2bn in new funding over the past week in this apocalyptic environment says something about investors confidence in the long-term prospects for the company and for digital Indonesia specifically. We look at the digital initiatives of the Indonesian banks, which provide listed exposure to this space. 
This brings the total in <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)'</a>'s current Series F financing round to around US$3bn in total since the middle of last year, bringing its total funding to US$5.7bn over a total of 14 rounds. The company has recently been valued at US$10bn.
The new funds give the company more firepower to compete against its rival Grab. Rumoured participants in this latest round include <a href="https://www.smartkarma.com/entities/dbs-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:22:1" rel="noopener">DBS Group Holdings (DBS SP),</a> <a href="https://www.smartkarma.com/entities/siam-commercial-bank-pub-co" target="_blank" data-smartkarma-citation="entities:214:1" rel="noopener">Siam Commercial Bank Pub Co (SCB TB),</a> and Visa. 
Given that it is not possible for mere mortal equity investors to play Gojek directly, we would look to the Indonesian banks, which provide settlement services for and generate profits from <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> and Gopay, as well other e-commerce players in Indonesia.
The banks themselves are also focused on their own digital transformation programs, which are helping to improve internal processes, reduce costs, lower funding costs, and improve the consumer experience, as well as reducing the need for human interaction.
The banks we will look at include <a href="https://www.smartkarma.com/entities/bank-central-asia-tbk-pt" target="_blank" data-smartkarma-citation="entities:440:1" rel="noopener">Bank Central Asia (BBCA IJ),</a> now trading on 3.2x PBV, close to a 10-year low, and <a href="https://www.smartkarma.com/entities/bank-mandiri-persero-tbk-pt" target="_blank" data-smartkarma-citation="entities:441:1" rel="noopener">Bank Mandiri Persero (BMRI IJ)</a>, trading on 1.2x PBV, a 10-year low, <a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-perser" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Perser (BBRI IJ)</a> on 1.8x FY20E PBV, again a 10-year low, and <a href="https://www.smartkarma.com/entities/bank-negara-indonesia-persero" target="_blank" data-smartkarma-citation="entities:8285:1" rel="noopener">Bank Negara Indonesia Persero (BBNI IJ),</a> which trades on 0.6x FY20E PBV, another 10-year low. 
In this Insight, we look at the digital banking initiatives at each of those banks and the impact these strategies are having on growth and profitability.

The fact that Gojek (1379371D IJ) has managed to secure US$1.2bn in new funding over the past week in this apocalyptic environment says something about investors confidence in the long-term prospects for the company and for digital Indonesia specifically. We look at the digital initiatives of the Indonesian banks, which provide listed exposure to this space. 
This brings the total in Gojek (1379371D IJ)''s current Series F financing round to around US$3bn in total since the middle of last year, bringing its total funding to US$5.7bn over a total of 14 rounds. The company has recently been valued at US$10bn.
The new funds give the company more firepower to compete against its rival Grab. Rumoured participants in this latest round include DBS Group Holdings (DBS SP), Siam Commercial Bank Pub Co (SCB TB), and Visa. 
Given that it is not possible for mere mortal equity investors to play Gojek directly, we would look to the Indonesian banks, which provide settlement services for and generate profits from Gojek (1379371D IJ) and Gopay, as well other e-commerce players in Indonesia.
The banks themselves are also focused on their own digital transformation programs, which are helping to improve internal processes, reduce costs, lower funding costs, and improve the consumer experience, as well as reducing the need for human interaction.
The banks we will look at include Bank Central Asia (BBCA IJ), now trading on 3.2x PBV, close to a 10-year low, and Bank Mandiri Persero (BMRI IJ), trading on 1.2x PBV, a 10-year low, Bank Rakyat Indonesia Perser (BBRI IJ) on 1.8x FY20E PBV, again a 10-year low, and Bank Negara Indonesia Persero (BBNI IJ), which trades on 0.6x FY20E PBV, another 10-year low. 
In this Insight, we look at the digital banking initiatives at each of those banks and the impact these strategies are having on growth and profitability. 

CrossASEAN Strategy - Life After Gojek and the Land of Digital Banking

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<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a>'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The surprise did not come in the numbers but in his forthright and adamant statements that he was making big changes to the company's future strategy and addressing past missteps immediately. There is a full strategic review underway. Is this the catalyst investors have been waiting for to return to the stock? 
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Firstly, the company will continue to address the company's lingering inventory issues, which although improving will take another two quarters to put straight, as it streamlines its assortment and depth of products and flushes out products that should not be there.
Secondly, the company will abandon its speciality store strategy with no more speciality store openings. It will close its <a href="https://www.smartkarma.com/entities/361-degrees-international" target="_blank" data-smartkarma-citation="entities:20744:1" rel="noopener">361 Degrees International (1361 HK)</a> stores, whilst monitoring its OVS stores. He stressed that this was not the brands they were abandoning but the format, which was not working for those brands.
Thirdly, the company would reassess its omnichannel approach to online sales, which remain slow but this would not happen immediately with the immediate focus on getting the core department store business right. 
<a href="https://www.smartkarma.com/entities/pt-matahari-department-store" target="_blank" data-smartkarma-citation="entities:5230:1" rel="noopener">Matahari Department Store (LPPF IJ)</a> will continue to expand and will open 4-6 new large-format stores in 2020, all to be opened before Lebaran. It will also focus on improving existing store design. 
Corona Virus has started to impact sales but mainly in areas such as Batam and Bali, which are impacted by falling tourism. The supply chain may be impacted by "a single-digit percentage" if manufacturing gets delayed much longer. 
This is a company with no debt and a forecast ROE of 55% for FY20E, trading on a forward PER of 6.2x and with a forecast dividend yield of 8.7%. Now that we have a number of positive catalysts for change, investors should now revisit the company's fundamentals.


Matahari Department Store (LPPF IJ)'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The surprise did not come in the numbers but in his forthright and adamant statements that he was making big changes to the company's future strategy and addressing past missteps immediately. There is a full strategic review underway. Is this the catalyst investors have been waiting for to return to the stock? 

Firstly, the company will continue to address the company's lingering inventory issues, which although improving will take another two quarters to put straight, as it streamlines its assortment and depth of products and flushes out products that should not be there.
Secondly, the company will abandon its speciality store strategy with no more speciality store openings. It will close its 361 Degrees International (1361 HK) stores, whilst monitoring its OVS stores. He stressed that this was not the brands they were abandoning but the format, which was not working for those brands.
Thirdly, the company would reassess its omnichannel approach to online sales, which remain slow but this would not happen immediately with the immediate focus on getting the core department store business right. 
Matahari Department Store (LPPF IJ) will continue to expand and will open 4-6 new large-format stores in 2020, all to be opened before Lebaran. It will also focus on improving existing store design. 
Corona Virus has started to impact sales but mainly in areas such as Batam and Bali, which are impacted by falling tourism. The supply chain may be impacted by "a single-digit percentage" if manufacturing gets delayed much longer. 
This is a company with no debt and a forecast ROE of 55% for FY20E, trading on a forward PER of 6.2x and with a forecast dividend yield of 8.7%. Now that we have a number of positive catalysts for change, investors should now revisit the company's fundamentals. 

Matahari Department Store (LPPF IJ) - About Turn and Back to the Core

A meeting with <a href="https://www.smartkarma.com/entities/mitra-adiperkasa-tbk-pt" target="_blank" data-smartkarma-citation="entities:18684:1" rel="noopener">Mitra Adiperkasa (MAPI IJ)</a> management in Jakarta last week revealed a relatively upbeat outlook for this leading Indonesian retailer, despite the lingering Corona Virus fears. Implausible though it may seem, Indonesia has officially had no confirmed cases of the virus to date. 
Assuming that Indonesia remains virus-free, any potential impact from Corona would likely come from supply chain disruption in the company sports and leisure segment under <a href="https://www.smartkarma.com/entities/map-aktif-adiperkasa-pt" target="_blank" data-smartkarma-citation="entities:27291:1" rel="noopener">Map Aktif Adiperkasa PT (MAPA IJ),</a> given that 30%-40% of its sports shoes are manufactured in China but inventories should help cushion any impact. 
The company has less exposure in its fashion segment given that 60% comes from Inditex in Spain which has a highly diversified manufacturing capacity outside China in locations such as Morocco, Portugal, Turkey, and Bangladesh. 
The company expanded its store area quite aggressively in 2019 and will slow expansion in 2020, with a continuing focus on sports&amp; leisure and Starbucks. It will also add selective new brands such as Boots Health &amp; Pharmacy and a number of brands from <a href="https://www.smartkarma.com/entities/amorepacific-corp" target="_blank" data-smartkarma-citation="entities:20854:1" rel="noopener">Amorepacific Corp (090430 KS)</a> in 2020. 
<a href="https://www.smartkarma.com/entities/mitra-adiperkasa-tbk-pt" target="_blank" data-smartkarma-citation="entities:18684:1" rel="noopener">Mitra Adiperkasa (MAPI IJ)</a> continues to take an omnichannel approach, working with all the major e-tailers such as Tokopedia and Bukalapak but also through its own MapeMall and a number of its own mono-brand sites.
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The recent Corona Virus driven correction looks overdone, with valuations on a forward PER basis on a 3-year low, despite the fact that there has been minimal impact on the company to date. This presents an interesting buying opportunity in our view.
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A meeting with Mitra Adiperkasa (MAPI IJ) management in Jakarta last week revealed a relatively upbeat outlook for this leading Indonesian retailer, despite the lingering Corona Virus fears. Implausible though it may seem, Indonesia has officially had no confirmed cases of the virus to date. 
Assuming that Indonesia remains virus-free, any potential impact from Corona would likely come from supply chain disruption in the company sports and leisure segment under Map Aktif Adiperkasa PT (MAPA IJ), given that 30%-40% of its sports shoes are manufactured in China but inventories should help cushion any impact. 
The company has less exposure in its fashion segment given that 60% comes from Inditex in Spain which has a highly diversified manufacturing capacity outside China in locations such as Morocco, Portugal, Turkey, and Bangladesh. 
The company expanded its store area quite aggressively in 2019 and will slow expansion in 2020, with a continuing focus on sports&amp; leisure and Starbucks. It will also add selective new brands such as Boots Health &amp; Pharmacy and a number of brands from Amorepacific Corp (090430 KS) in 2020. 
Mitra Adiperkasa (MAPI IJ) continues to take an omnichannel approach, working with all the major e-tailers such as Tokopedia and Bukalapak but also through its own MapeMall and a number of its own mono-brand sites.

The recent Corona Virus driven correction looks overdone, with valuations on a forward PER basis on a 3-year low, despite the fact that there has been minimal impact on the company to date. This presents an interesting buying opportunity in our view.


Mitra Adiperkasa (MAPI IJ) - Oversold Indonesian King of Retail - On the Ground in J-Town

Cross Asset Strategy

Indonesia stands out in South East Asia as a country without any confirmed cases of Corona Virus or "Virus Korona" as it has been coined locally, implausible though this may seem. Despite this fact, there is no doubt there will be a knock-on effect on growth domestically, given the potential impact on export-related industries, with China making up 15% of Indonesia's exports. 
Slower demand for commodities such as coal, crude palm oil (CPO), and rubber from China is already putting pressure on the prices of those commodities, which will have a wider economic impact on Indonesia.
The CPO industry in Indonesia employs around 8.3m people, so lower prices tend to filter through to slower grassroots consumer demand, affecting demand for motorcycles, consumer staples and lower-end retailers. 
Manufactured exports to China are expanding but so are imports from China and delays in these imports may also impact growth, either due to disruptions to projects or to the supply chains of manufacturing companies.
Tourism, which now makes up around 5% of GDP, will also be impacted, especially given that around 25% of all tourists visiting Bali are from Mainland China. 
China is also Indonesia's third-largest foreign investor after Singapore and Japan so there may be some disruptions to ongoing projects or delays in the delivery of capital equipment. Chinese companies are likely to be far more focused on issues in their home market rather than overseas. 
This whole issue may have a positive longer-term impact as companies may look to diversify their manufacturing production away from China to other destinations such as Indonesia, spurring long-term investment.
2020 was set to be a marginally better year for growth in Indonesia, with the World Bank projecting +5.1% GDP growth and the Indonesian government estimates a more optimistic +5.3% growth. Even without any direct impact from the virus in Indonesia, there will be an impact on GDP growth, which is unlikely to surpass 5% growth for 2020. The government estimates a 0.1%-0.29% negative impact on GDP growth this year. Below the fold, we seek to explore further the impact on the economy and listed stocks, as well as identifying the stocks to hold in this environment.

Indonesia stands out in South East Asia as a country without any confirmed cases of Corona Virus or "Virus Korona" as it has been coined locally, implausible though this may seem. Despite this fact, there is no doubt there will be a knock-on effect on growth domestically, given the potential impact on export-related industries, with China making up 15% of Indonesia's exports. 
Slower demand for commodities such as coal, crude palm oil (CPO), and rubber from China is already putting pressure on the prices of those commodities, which will have a wider economic impact on Indonesia.
The CPO industry in Indonesia employs around 8.3m people, so lower prices tend to filter through to slower grassroots consumer demand, affecting demand for motorcycles, consumer staples and lower-end retailers. 
Manufactured exports to China are expanding but so are imports from China and delays in these imports may also impact growth, either due to disruptions to projects or to the supply chains of manufacturing companies.
Tourism, which now makes up around 5% of GDP, will also be impacted, especially given that around 25% of all tourists visiting Bali are from Mainland China. 
China is also Indonesia's third-largest foreign investor after Singapore and Japan so there may be some disruptions to ongoing projects or delays in the delivery of capital equipment. Chinese companies are likely to be far more focused on issues in their home market rather than overseas. 
This whole issue may have a positive longer-term impact as companies may look to diversify their manufacturing production away from China to other destinations such as Indonesia, spurring long-term investment.
2020 was set to be a marginally better year for growth in Indonesia, with the World Bank projecting +5.1% GDP growth and the Indonesian government estimates a more optimistic +5.3% growth. Even without any direct impact from the virus in Indonesia, there will be an impact on GDP growth, which is unlikely to surpass 5% growth for 2020. The government estimates a 0.1%-0.29% negative impact on GDP growth this year. Below the fold, we seek to explore further the impact on the economy and listed stocks, as well as identifying the stocks to hold in this environment.

CrossASEAN Strategy - The Impact Of "Virus Korona" On Indonesia

Indonesia

PT Ramayana Lestari Sentosa Tbk operates department stores in Indonesia which sell items such as clothes, accessories, bags, shoes, cosmetics, and daily needs. Its department stores are known as Ramayana, Robinson, and Cahaya.

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Ramayana Lestari Sentosa (RALS IJ)

Matahari Department Store (LPPF IJ) - Slow Transition to Newness

Matahari Department Store's latest strategies such as the relaunch of Matahari.com and its collaboration with Bank Nobu seem sensible but it may...

Angus Mackintosh

CrossASEAN Strategy - Life After Gojek and the Land of Digital Banking

The fact that Gojek (1379371D IJ) has managed to secure US$1.2bn in new funding over the past week in this apocalyptic environment says something...

Angus Mackintosh

Matahari Department Store (LPPF IJ) - About Turn and Back to the Core

Matahari Department Store (LPPF IJ)'s new CEO Terry O'Connor hosted a conference call for the company's FY19 results yesterday afternoon. The...

Angus Mackintosh

Mitra Adiperkasa (MAPI IJ) - Oversold Indonesian King of Retail - On the Ground in J-Town

A meeting with Mitra Adiperkasa (MAPI IJ) management in Jakarta last week revealed a relatively upbeat outlook for this leading Indonesian...

Angus Mackintosh

CrossASEAN Strategy - The Impact Of "Virus Korona" On Indonesia

Indonesia stands out in South East Asia as a country without any confirmed cases of Corona Virus or "Virus Korona" as it has been coined locally,...

Angus Mackintosh

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