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

Cross Asset Strategy

<div class="content-highlight">
The week that was in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a> 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 and credit insights over the past week.
We add below a NEW section, which includes emerging themes in ASEAN and selects important news flow or developments for commentary, which may impact SE Asian companies and markets.  
</div><h3>Macro Insights</h3>In <a href="https://www.smartkarma.com/insights/agong-asserts-himself-preventing-change-of-pm-but-disallowing-emergency-rule" target="_blank" data-smartkarma-citation="insights:44572" rel="noopener">Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule,</a> CrossASEAN Chief Economist <a href="https://www.smartkarma.com/profiles/prasenjit-k-basu" target="_blank" data-smartkarma-citation="accounts:612" rel="noopener">Prasenjit K. Basu</a> comments on the ongoing political upheaval in Malaysia. In <a href="https://www.smartkarma.com/insights/trouble-down-south-it-s-not-just-the-virus" target="_blank" data-smartkarma-citation="insights:44698" rel="noopener">Trouble Down South: It's Not Just the Virus,</a><a href="https://www.smartkarma.com/profiles/dr-jim-walker" target="_blank" data-smartkarma-citation="accounts:1628" rel="noopener">Dr. Jim Walker</a> gives his prescriptions on why South East Asia has been such a poor performer this year. In <a href="https://www.smartkarma.com/insights/thai-strategy-2021-part-1-key-themes" target="_blank" data-smartkarma-citation="insights:40842" rel="noopener">Thai Strategy 2021 (Part 1): Key Themes,</a> out Thai guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> lays out his thoughts for the outlook for the Thai market next year. <h3>Equity Bottom-Up Insights</h3>In his Indonesian Insight, <a href="https://www.smartkarma.com/insights/matahari-department-store-lppf-ij-too-early-to-be-early" target="_blank" data-smartkarma-citation="insights:44460" rel="noopener">Matahari Department Store (LPPF IJ) - Too Early to Be Early,</a> Cross ASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" data-smartkarma-citation="accounts:937" rel="noopener">Angus Mackintosh</a> circles back to the country's largest department store operator post its recent results. In <a href="https://www.smartkarma.com/insights/akr-corporindo-akra-ij-great-omnibus-expectations" target="_blank" data-smartkarma-citation="insights:44611" rel="noopener">AKR Corporindo (AKRA IJ) - Great Omnibus Expectations,</a> CrossASEAN insight provider <a href="https://www.smartkarma.com/profiles/angus-mackintosh" target="_blank" rel="noopener">Angus Mackintosh</a> revisits <a href="https://www.smartkarma.com/entities/akr-corporindo-tbk-pt" target="_blank" rel="noopener">AKR Corporindo (AKRA IJ)</a> after its recent 3Q2020 results that continued to demonstrate its resilience, with an across the board improvement in margins, despite a decline in sales.In a Malaysian Insight, <a href="https://www.smartkarma.com/insights/ql-resources-ql-take-profit" target="_blank" data-smartkarma-citation="insights:44598" rel="noopener">QL Resources (QL): Take Profit?,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/henry-soediarko" target="_blank" data-smartkarma-citation="accounts:1006" rel="noopener">Henry Soediarko</a> revisits this commodity turned retail play, through its Family Mart business. In <a href="https://www.smartkarma.com/insights/far-east-hospitality-trust-feht-beneficiary-of-opening-up" target="_blank" data-smartkarma-citation="insights:44649" rel="noopener">Far East Hospitality Trust (FEHT): Beneficiary of Opening Up,</a> CrossASEAN Insight Provider<a href="https://www.smartkarma.com/profiles/henry-soediarko" target="_blank" rel="noopener"> Henry Soediarko</a> takes an initial look at<a href="https://www.smartkarma.com/entities/far-east-hospitality-trust" target="_blank" rel="noopener"> Far East Hospitality Trust (FEHT SP),</a> the only hospitality REIT in Singapore with a 100% domestic hospitality exposure and a higher fixed rental component, offering a defensive exposure during this difficult market environment. In <a href="https://www.smartkarma.com/insights/bca-profit-returns" target="_blank" data-smartkarma-citation="insights:44605" rel="noopener">BCA – Profit Returns,</a> banking specialist <a href="https://www.smartkarma.com/profiles/daniel-tabbush" target="_blank" data-smartkarma-citation="accounts:12" rel="noopener">Daniel Tabbush</a> revisits <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> and finds the bank clawing back some of the ROA it lost during 2Q2020 in the most recent quarter. In <a href="https://www.smartkarma.com/insights/bts-potential-positive-catalysts-ahead" target="_blank" data-smartkarma-citation="insights:44691" rel="noopener">BTS: Potential Positive Catalysts Ahead,</a><a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> revisit this Thai transportation play with a more positive slant.In <a href="https://www.smartkarma.com/insights/pttep-4q20-earnings-to-soften-from-lower-asp-and-volume-sales" target="_blank" data-smartkarma-citation="insights:44740" rel="noopener">PTTEP: 4Q20 Earnings to Soften from Lower ASP and Volume Sales,</a> our friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> assess the prospects for <a href="https://www.smartkarma.com/entities/ptt-exploration-and-production-public-company-limited" target="_blank" data-smartkarma-citation="entities:261:1" rel="noopener">PTT E&amp;P (PTTEP TB)</a> going into the end of the year.<h3>Credit Insights</h3>In this Insight, <a href="https://www.smartkarma.com/insights/japfa-comfeed-earnings-flash-9m-fy-2020-results-lucror-analytics" target="_blank" data-smartkarma-citation="insights:44743" rel="noopener">Japfa Comfeed - Earnings Flash - 9M FY 2020 Results,</a> Senior Credit Analyst<a href="https://www.smartkarma.com/profiles/trung-nguyen" target="_blank" rel="noopener"> Trung Nguyen</a> discusses <a href="https://www.smartkarma.com/entities/japfa-comfeed-indonesia-tbk-pt" target="_blank" data-smartkarma-citation="entities:8258:1" rel="noopener">Japfa Comfeed Indonesia (JPFA IJ)'</a>s 9M2020 results, which came in worse than expected (following a dismal Q22020), as the impact of COVID-19 reduced consumers' purchasing power and hit demand. In <a href="https://www.smartkarma.com/insights/pan-brothers-earnings-flash-9m-fy-2020-results-lucror-analytics" target="_blank" data-smartkarma-citation="insights:44708" rel="noopener">Pan Brothers - Earnings Flash - 9M FY 2020 Results,</a><a href="https://www.smartkarma.com/companies/lucror-analytics" target="_blank" rel="noopener">Lucror Analytics</a> zeros in on the Pan Brothers’ Q3 and 9M2020 earnings. Pan Brothers’ cash flow generation remained poor, and it continued to report large working capital weakness. It appears unlikely that Pan Brothers will be able to increase the size of its syndication facility, given the low commitment from banks at the moment.


The week that was in 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 and credit insights over the past week.
We add below a NEW section, which includes emerging themes in ASEAN and selects important news flow or developments for commentary, which may impact SE Asian companies and markets.  
Macro InsightsIn Agong Asserts Himself, Preventing Change of PM but Disallowing Emergency Rule, CrossASEAN Chief Economist Prasenjit K. Basu comments on the ongoing political upheaval in Malaysia. In Trouble Down South: It's Not Just the Virus,Dr. Jim Walker gives his prescriptions on why South East Asia has been such a poor performer this year. In Thai Strategy 2021 (Part 1): Key Themes, out Thai guru Athaporn Arayasantiparb, CFA lays out his thoughts for the outlook for the Thai market next year. Equity Bottom-Up InsightsIn his Indonesian Insight, Matahari Department Store (LPPF IJ) - Too Early to Be Early, Cross ASEAN Insight Provider Angus Mackintosh circles back to the country's largest department store operator post its recent results. In AKR Corporindo (AKRA IJ) - Great Omnibus Expectations, CrossASEAN insight provider Angus Mackintosh revisits AKR Corporindo (AKRA IJ) after its recent 3Q2020 results that continued to demonstrate its resilience, with an across the board improvement in margins, despite a decline in sales.In a Malaysian Insight, QL Resources (QL): Take Profit?, CrossASEAN Insight Provider Henry Soediarko revisits this commodity turned retail play, through its Family Mart business. In Far East Hospitality Trust (FEHT): Beneficiary of Opening Up, CrossASEAN Insight Provider Henry Soediarko takes an initial look at Far East Hospitality Trust (FEHT SP), the only hospitality REIT in Singapore with a 100% domestic hospitality exposure and a higher fixed rental component, offering a defensive exposure during this difficult market environment. In BCA – Profit Returns, banking specialist Daniel Tabbush revisits Bank Central Asia (BBCA IJ) and finds the bank clawing back some of the ROA it lost during 2Q2020 in the most recent quarter. In BTS: Potential Positive Catalysts Ahead,Country Group revisit this Thai transportation play with a more positive slant.In PTTEP: 4Q20 Earnings to Soften from Lower ASP and Volume Sales, our friends at Country Group assess the prospects for PTT E&amp;P (PTTEP TB) going into the end of the year.Credit InsightsIn this Insight, Japfa Comfeed - Earnings Flash - 9M FY 2020 Results, Senior Credit Analyst Trung Nguyen discusses Japfa Comfeed Indonesia (JPFA IJ)'s 9M2020 results, which came in worse than expected (following a dismal Q22020), as the impact of COVID-19 reduced consumers' purchasing power and hit demand. In Pan Brothers - Earnings Flash - 9M FY 2020 Results,Lucror Analytics zeros in on the Pan Brothers’ Q3 and 9M2020 earnings. Pan Brothers’ cash flow generation remained poor, and it continued to report large working capital weakness. It appears unlikely that Pan Brothers will be able to increase the size of its syndication facility, given the low commitment from banks at the moment. 

The Week that Was in ASEAN@Smartkarma - South East Asia Lags, the Bank's Return, and Nimble Staples

Alpha-Centric ESG Research

Kyle Rudden

ESG ratings providers take a long time to rate issuers of initial public offerings. If you go through a list of recent large IPOs (e.g., Alibaba, Chewy, Peloton, Pinterest, Saudi Aramco, Uber), you will be hard-pressed to find broad ESG coverage. There's a good explanation for that lag in ESG ratings.ESG ratings are heavily reliant on a history of public filings, and for ESG data that plugs neatly into universal ESG assessment models. IPOs offer neither history nor harmony. It's very difficult to do a thorough ESG assessment of an IPO issuer, especially when beholden to established systems.But I am not beholden to anything, something is surely better than nothing, and nothing describes the availability ESG research on <a href="https://www.smartkarma.com/entities/central-retail-corp-ltd" target="_blank" data-smartkarma-citation="entities:28240:1" rel="noopener">Central Retail (CRC TB)</a>. It's unfortunate, since CRC performs well, and the Thai bourse and cornerstone investors are among the most ESG-minded of their kind.So here's my contribution of something to offset that nothing; a first ESG view of CRC.This is a substantive ESG analysis of CRC, but it isn't exhaustive. IPOs are a unique situation. ESG metrics and their materiality evolve as IPO issuers mature. "Exhaustive" is a moving target. What matters immediately before and after an IPO isn't what matters long-term, and vice versa.My goal for this Insight is to present an initial assessment of CRC's ESG performance, profile, and material near-term risks. More comprehensive analyses will follow as additional ESG information becomes available. For now, my interest was in answer two very simple questions:<ol>
<li>
Is CRC ready for all this ESG stuff? Generally speaking, is CRC prepared for, and committed to, ESG performance and disclosure of the kind and quality expected of a public company?</li>
<li>
What should keep me up at night? Does the Board and management understand and manage CRC's primary ESG risks? Which near-term ESG risks are most probable, and most material?</li>
</ol>CRC's ESG profile is among the best I have seen for an IPO issuer; better, in fact, than many well-established listed companies. My bullish imperative is based on CRC's excellent ESG performance, and the fact that near-term ESG-related investment risks are very minimal.

ESG ratings providers take a long time to rate issuers of initial public offerings. If you go through a list of recent large IPOs (e.g., Alibaba, Chewy, Peloton, Pinterest, Saudi Aramco, Uber), you will be hard-pressed to find broad ESG coverage. There's a good explanation for that lag in ESG ratings.ESG ratings are heavily reliant on a history of public filings, and for ESG data that plugs neatly into universal ESG assessment models. IPOs offer neither history nor harmony. It's very difficult to do a thorough ESG assessment of an IPO issuer, especially when beholden to established systems.But I am not beholden to anything, something is surely better than nothing, and nothing describes the availability ESG research on Central Retail (CRC TB). It's unfortunate, since CRC performs well, and the Thai bourse and cornerstone investors are among the most ESG-minded of their kind.So here's my contribution of something to offset that nothing; a first ESG view of CRC.This is a substantive ESG analysis of CRC, but it isn't exhaustive. IPOs are a unique situation. ESG metrics and their materiality evolve as IPO issuers mature. "Exhaustive" is a moving target. What matters immediately before and after an IPO isn't what matters long-term, and vice versa.My goal for this Insight is to present an initial assessment of CRC's ESG performance, profile, and material near-term risks. More comprehensive analyses will follow as additional ESG information becomes available. For now, my interest was in answer two very simple questions:

Is CRC ready for all this ESG stuff? Generally speaking, is CRC prepared for, and committed to, ESG performance and disclosure of the kind and quality expected of a public company?

What should keep me up at night? Does the Board and management understand and manage CRC's primary ESG risks? Which near-term ESG risks are most probable, and most material?
CRC's ESG profile is among the best I have seen for an IPO issuer; better, in fact, than many well-established listed companies. My bullish imperative is based on CRC's excellent ESG performance, and the fact that near-term ESG-related investment risks are very minimal.

Central Retail: Initial ESG Assessment Is Impressive

<div class="content-highlight">This past 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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. Don't miss out on the discussions in <a href="mailto:ASEAN@Smartkarma" target="_blank" rel="noopener">ASEAN@Smartkarma</a> in the detailed section below the fold.</div><h2>Macro Insights</h2>In <a href="https://www.smartkarma.com/insights/political-pit-stop-2020-power-concentrates-for-the-thai-government" target="_blank" data-smartkarma-citation="insights:35305" rel="noopener">Political Pit Stop 2020: Power Concentrates For the Thai Government,</a> our Thai Guru <a href="https://www.smartkarma.com/profiles/athaporn-arayasantiparb-cfa" target="_blank" data-smartkarma-citation="accounts:766" rel="noopener">Athaporn Arayasantiparb, CFA</a> zeros in on five important recent political developments in Thailand. On balance, it leads to a stronger government and weaker opposition, but considering the weak state of the Thai economy, this may not necessarily be a positive thing for the equities markets here. <h2>Equity Bottom-Up Insights</h2><div class="content-highlight">In a Smartkarma Originals Insight, <a href="https://www.smartkarma.com/insights/minimarkets-mini-is-the-new-big" target="_blank" data-smartkarma-citation="insights:35205" rel="noopener">Minimarkets: Mini Is the New Big,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/jessica-irene" target="_blank" data-smartkarma-citation="accounts:3145" rel="noopener">Jessica Irene</a> explores the minimarket space in Indonesia. The Indonesian grocery retail industry is changing over the past decade. Traditional retail share, which is dominated by over 5mn Warung (traditional mom-and-pop shop), is declining from a dominant 90% to 80% (including cigarettes). FMCG companies that we speak to gave us a rough range of 20-30% of sales derived from modern retail outlets. This change is driven by the rapid growth in the minimarkets, a duopoly that are expanding 3,000-4,000 outlets per year at its peak.</div>In <a href="https://www.smartkarma.com/insights/overview-of-my-winners-and-losers-in-2019-and-5-high-conviction-ideas-going-into-2020" target="_blank" data-smartkarma-citation="insights:35000" rel="noopener">Overview of My Winners and Losers in 2019... And 5 High Conviction Ideas Going into 2020,</a> CrossASEAN Insight Provider <a href="https://www.smartkarma.com/profiles/nicolas-van-broekhoven-24a66c2d-bca4-4f5b-adda-c4e2bcc509f4" target="_blank" data-smartkarma-citation="accounts:1208" rel="noopener">Nicolas Van Broekhoven</a> looks at the performance of his recommendations over 2019 and lays out his thoughts for the coming year. In <a href="https://www.smartkarma.com/insights/kbank-lower-nvdr-cap-will-lead-to-passive-outflows" target="_blank" data-smartkarma-citation="insights:35370" rel="noopener">KBANK - Lower NVDR Cap Will Lead to Passive Outflows,</a><a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> looks at recent moves by the Bank of Thailand to adjust NVDR limits on <a href="https://www.smartkarma.com/entities/kasikornbank-pcl" target="_blank" data-smartkarma-citation="entities:293:1" rel="noopener">Kasikornbank PCL (KBANK TB)</a> and <a href="https://www.smartkarma.com/entities/bangkok-bank-public-co-ltd" target="_blank" data-smartkarma-citation="entities:213:1" rel="noopener">Bangkok Bank Public (BBL TB).</a>In <a href="https://www.smartkarma.com/insights/blue-bird-bird-short-term-dislocation" target="_blank" data-smartkarma-citation="insights:32666" rel="noopener">Blue Bird (BIRD): Short Term Dislocation,</a> CrossASEAN insight Provider <a href="https://www.smartkarma.com/profiles/henry-soediarko" target="_blank" data-smartkarma-citation="accounts:1006" rel="noopener">Henry Soediarko</a> revisits <a href="https://www.smartkarma.com/entities/blue-bird-tbk-pt" target="_blank" data-smartkarma-citation="entities:19482:1" rel="noopener">Blue Bird (BIRD IJ)</a> following the news that Gojek will take a 5% stake in the company and contemplates whether it is a worthy short idea. In <a href="https://www.smartkarma.com/insights/spa-largest-spa-chain-in-thailand" target="_blank" data-smartkarma-citation="insights:35346" rel="noopener">SPA: Largest Spa Chain in Thailand</a>, our friends at <a href="https://www.smartkarma.com/companies/country-group" target="_blank" data-smartkarma-citation="companies:965" rel="noopener">Country Group</a> initiate coverage of <a href="https://www.smartkarma.com/entities/siam-wellness-group-pcl" target="_blank" data-smartkarma-citation="entities:3765:1" rel="noopener">Siam Wellness Group (SPA TB)</a> with a BUY rating and a 2020E target price of Bt19.1, derived from 37xPE’20E, implying 1.6x PEG’20E and equal to its one- year trading average. <h2>Sector and Thematic Insights</h2>In <a href="https://www.smartkarma.com/insights/set50-index-review-vgi-in-robins-out" target="_blank" data-smartkarma-citation="insights:35369" rel="noopener">SET50 Index Review - VGI In, ROBINS Out,</a><a href="https://www.smartkarma.com/profiles/brian-freitas" target="_blank" data-smartkarma-citation="accounts:4091" rel="noopener">Brian Freitas</a> explores the recent changes to Thailand's SET50 Index and looks at potential trades ahead of the change. In <a href="https://www.smartkarma.com/insights/singapore-real-deals-issue-13-improving-outlook" target="_blank" data-smartkarma-citation="insights:35328" rel="noopener">Singapore Real Deals (Issue 13): Improving Outlook,</a> property specialist <a href="https://www.smartkarma.com/profiles/anni-kum" target="_blank" data-smartkarma-citation="accounts:1786" rel="noopener">Anni Kum</a> comments on recent property sales numbers out of Singapore. <h2>Credit Insights</h2>In <a href="https://www.smartkarma.com/insights/morning-views-asia-alam-sutera-realty-guangzhou-r-f-properties" target="_blank" data-smartkarma-citation="insights:35408" rel="noopener">Morning Views Asia: Alam Sutera Realty, Guangzhou R&amp;F Properties,</a> credit specialist <a href="https://www.smartkarma.com/profiles/trung-nguyen" target="_blank" data-smartkarma-citation="accounts:7108" rel="noopener">Trung Nguyen</a> comments on the impact of <a href="https://www.smartkarma.com/entities/alam-sutera-realty-tbk-pt" target="_blank" data-smartkarma-citation="entities:2312:1" rel="noopener">Alam Sutera Realty (ASRI IJ)'</a>s recent announcement of more positive marketing sales from a credit perspective. <div class="content-highlight"><blockquote>At CrossASEAN Research we strive to produce unbiased and differentiated on the ground Insights on companies, economies and stock markets across South East Asia exclusive to Smartkarma. 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 offer bespoke work, company visits and tailor-made trips across South East Asia to our clients through Premium Services on Smartkarma.</blockquote></div>

This past 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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. Don't miss out on the discussions in ASEAN@Smartkarma in the detailed section below the fold.Macro InsightsIn Political Pit Stop 2020: Power Concentrates For the Thai Government, our Thai Guru Athaporn Arayasantiparb, CFA zeros in on five important recent political developments in Thailand. On balance, it leads to a stronger government and weaker opposition, but considering the weak state of the Thai economy, this may not necessarily be a positive thing for the equities markets here. Equity Bottom-Up InsightsIn a Smartkarma Originals Insight, Minimarkets: Mini Is the New Big, CrossASEAN Insight Provider Jessica Irene explores the minimarket space in Indonesia. The Indonesian grocery retail industry is changing over the past decade. Traditional retail share, which is dominated by over 5mn Warung (traditional mom-and-pop shop), is declining from a dominant 90% to 80% (including cigarettes). FMCG companies that we speak to gave us a rough range of 20-30% of sales derived from modern retail outlets. This change is driven by the rapid growth in the minimarkets, a duopoly that are expanding 3,000-4,000 outlets per year at its peak.In Overview of My Winners and Losers in 2019... And 5 High Conviction Ideas Going into 2020, CrossASEAN Insight Provider Nicolas Van Broekhoven looks at the performance of his recommendations over 2019 and lays out his thoughts for the coming year. In KBANK - Lower NVDR Cap Will Lead to Passive Outflows,Brian Freitas looks at recent moves by the Bank of Thailand to adjust NVDR limits on Kasikornbank PCL (KBANK TB) and Bangkok Bank Public (BBL TB).In Blue Bird (BIRD): Short Term Dislocation, CrossASEAN insight Provider Henry Soediarko revisits Blue Bird (BIRD IJ) following the news that Gojek will take a 5% stake in the company and contemplates whether it is a worthy short idea. In SPA: Largest Spa Chain in Thailand, our friends at Country Group initiate coverage of Siam Wellness Group (SPA TB) with a BUY rating and a 2020E target price of Bt19.1, derived from 37xPE’20E, implying 1.6x PEG’20E and equal to its one- year trading average. Sector and Thematic InsightsIn SET50 Index Review - VGI In, ROBINS Out,Brian Freitas explores the recent changes to Thailand's SET50 Index and looks at potential trades ahead of the change. In Singapore Real Deals (Issue 13): Improving Outlook, property specialist Anni Kum comments on recent property sales numbers out of Singapore. Credit InsightsIn Morning Views Asia: Alam Sutera Realty, Guangzhou R&amp;F Properties, credit specialist Trung Nguyen comments on the impact of Alam Sutera Realty (ASRI IJ)'s recent announcement of more positive marketing sales from a credit perspective. At CrossASEAN Research we strive to produce unbiased and differentiated on the ground Insights on companies, economies and stock markets across South East Asia exclusive to Smartkarma. 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 offer bespoke work, company visits and tailor-made trips across South East Asia to our clients through Premium Services on Smartkarma.

The Festive Week That Was in ASEAN@Smartkarma - Thai Politics, Indonesia's Minimarkets, and Property

Jessica Irene

Thematic (Sector/Industry)

In a Smartkarma Originals Series of Insights on ASEAN Retail, we seek to determine which retail formats are winning out in the battle for consumer attention. The Indonesian grocery retail industry is changing over the past decade. Traditional retail share, which is dominated by over 5mn Warung (traditional mom-and-pop shop), is declining from a dominant 90% to 80% (including cigarettes). FMCG companies that we speak to gave us a rough range of 20-30% of sales derived from modern retail outlets. This change is driven by the rapid growth in the minimarkets, a duopoly that are expanding 3,000-4,000 outlets per year at its peak.In this insight, we will discuss the reason to minimarket successes, the players in the industry, impact from e-commerce expansion, and the minimarket growth potential going forward. We also spent time speaking with Nielsen to understand the latest consumer behavior and made several visits to different minimarket, supermarkets, and hypermarkets, as well as Warungs to understand the dynamics offered by each format. The minimarket concept is grown locally and were first seeded by two of the most prominent FMCG players in the market <a href="https://www.smartkarma.com/entities/hm-sampoerna-tbk-pt" target="_blank" data-smartkarma-citation="entities:617:1" rel="noopener">Hm Sampoerna (HMSP IJ)</a> and <a href="https://www.smartkarma.com/entities/indofood-sukses-makmur-tbk-p" target="_blank" data-smartkarma-citation="entities:1053:1" rel="noopener">Indofood Sukses Makmur Tbk P (INDF IJ) </a>back in 1990s. Knowing the Indonesian shopping habits in the traditional mom and pop shop (Warung), the minimarket is created as an improved version of the local warung, focusing on daily necessities (egg, rice, oil) and the fastest moving goods (instant noodle, cigarette, bread).Our channel checks with the neighbors suggest that key reasons for them to go to minimarkets are: 1) convenience / location, 2) pricing / promotion, 3) queue time, and 4) less temptation. With a smaller more nimble format, minimarket can open literally anywhere in the neighborhood, close to the residential area. The duopoly structure between Alfamart and Indomaret give them a lot more bargaining power compared to the super/hyper. Minimarkets have been able to secure cheaper prices even compared to hypermarkets that often offer bulk discounts. The minimarket share is currently led by Indomaret (INDF affiliated company). As Alfamart started to streamline their expansion to lower down their debt level, Indomaret is currently leading with over 17k outlets nationwide. Alfamart is lagging behind at 15k outlets and has cut back expansion to below 1,000 stores since 2018. The biggest barriers to entry is location. With Alfamart and Indomaret seemingly present at every corner, it would be hard for any new brand to penetrate the market.With Indonesia entering the digital era, and online retailing is rapidly gaining share (between 4-6% of retail sales based on various sources), the minimarkets can both benefit and lose from the aggressive expansion of the e-commerce giants. The easiest benefit to tap from the e-commerce player is through cash payment handling. Top C2C e-commerce Tokopedia for example accepts all types of payments, including cash, from all major minimarket outlets. As the e-commerce players are looking for new source of growth, the third largest e-commerce Bukalapak.com is branching out to directly supply goods to over 5mn Warungs across the country. The initiatives are popularly known as the Mitra (partner) program. The Mitra program aims to cut the distributor and wholesaler role by providing an online ordering system through the Mitra program app. The Mitra program unfortunately can be a threat for minimarket growth going forward as it empowers the traditional Warung with better product selections and cheaper pricing. Other than the Mitra program, the e-commerce players also offer wider selection of FMCG products in their platform at very lucrative prices as traffic puller. In the past 12.12 National Online Sales (Harbolnas) day, we can see up to 80% discounts on some of the FMCG products.A bulk of the discussions below will be on <a href="https://www.smartkarma.com/entities/sumber-alfaria-trijaya-tbk-pt" target="_blank" data-smartkarma-citation="entities:15659:1" rel="noopener">Sumber Alfaria Trijaya Tbk Pt (AMRT IJ)</a> as we have very limited information from Indomaret's operation. <a href="https://www.smartkarma.com/entities/indoritel-makmur-internasional-tbk-pt" target="_blank" data-smartkarma-citation="entities:4139:1" rel="noopener">Indoritel Makmur Internasional (DNET IJ)</a> owns 40% of Indomaret and does not consolidate their books. DNET is a holding company owned by the Salim Group that has stakes in the KFC franchise <a href="https://www.smartkarma.com/entities/fastfood-indonesia-pt" target="_blank" data-smartkarma-citation="entities:988:1" rel="noopener">Fastfood Indonesia (FAST IJ)</a> and Sari Roti <a href="https://www.smartkarma.com/entities/nippon-indosari-corpindo-tbk-pt" target="_blank" data-smartkarma-citation="entities:1181:1" rel="noopener">Nippon Indosari Corpindo (ROTI IJ)</a>.AMRT is on track to achieve 8% SSG in FY19, a major recovery from the decade low 1.5% in FY17 and 5.5% in FY18. As AMRT streamlines their store expansion, cutting store openings to 400-600 stores per year over the next 3 years, we expect SSG to remain strong and hovers between 5-10% coupled with 2-3% spatial growth.AMRT’s EBIT margin has been slipping from 2.7% in 2014 to 1.8% in FY18 as opex growth exceeds SSG. To fully pass on fixed costs increases, we estimate that AMRT needs to book at least 7% SSG. FY19 is the first year since 2014 for the SSG to exceed the 7% mark, hence the year to expect EBIT margin to improve. Given the steep seasonality, 9M19 consolidated EBIT margin is recorded at below 1%. A big chunk of the supporting incomes from suppliers’ rebate will come in the fourth quarter of the year.AMRT’s fee-based income has been growing by more than 40% Cagr over the past 5 years, contributing to more than 30% of EBIT. As more services are added, and as consumers adopt digital transactions, AMRT’s fee-based income growth still has a long way to go. Negative FCF has been a problem in the past where net gearing reached 1.3x in FY17 and net interest expenses make up more than 60% of EBIT. As AMRT streamlines their store openings and close down non-performing stores, we saw a big jump in FCF in FY18 that allows AMRT to deleverage their balance sheet. AMRT paid almost IDR3tn worth of debt in FY18, reducing their net gearing ratio to 0.4x in FY18 and to 0.2x in FY19.We expect SSG to moderate to 6% level while store expansion is kept at 2% addition every year, resulting to a total of 8% revenue growth until 2022. This, coupled with 10bps expansion in GPM every year, and 8% opex growth is on track for 17-19% EBIT growth per year. We expect fee-based incomes to continue its high teens growth trajectory, lifting net profit growth to 21-25% over the next three years. Risk to our numbers is working capital and economic growth. A 1-day swing in the company's cash cycle affects its working capital by about IDR200bn. We have a buy recommendation with 19% upside to our blended target price.

In a Smartkarma Originals Series of Insights on ASEAN Retail, we seek to determine which retail formats are winning out in the battle for consumer attention. The Indonesian grocery retail industry is changing over the past decade. Traditional retail share, which is dominated by over 5mn Warung (traditional mom-and-pop shop), is declining from a dominant 90% to 80% (including cigarettes). FMCG companies that we speak to gave us a rough range of 20-30% of sales derived from modern retail outlets. This change is driven by the rapid growth in the minimarkets, a duopoly that are expanding 3,000-4,000 outlets per year at its peak.In this insight, we will discuss the reason to minimarket successes, the players in the industry, impact from e-commerce expansion, and the minimarket growth potential going forward. We also spent time speaking with Nielsen to understand the latest consumer behavior and made several visits to different minimarket, supermarkets, and hypermarkets, as well as Warungs to understand the dynamics offered by each format. The minimarket concept is grown locally and were first seeded by two of the most prominent FMCG players in the market Hm Sampoerna (HMSP IJ) and Indofood Sukses Makmur Tbk P (INDF IJ) back in 1990s. Knowing the Indonesian shopping habits in the traditional mom and pop shop (Warung), the minimarket is created as an improved version of the local warung, focusing on daily necessities (egg, rice, oil) and the fastest moving goods (instant noodle, cigarette, bread).Our channel checks with the neighbors suggest that key reasons for them to go to minimarkets are: 1) convenience / location, 2) pricing / promotion, 3) queue time, and 4) less temptation. With a smaller more nimble format, minimarket can open literally anywhere in the neighborhood, close to the residential area. The duopoly structure between Alfamart and Indomaret give them a lot more bargaining power compared to the super/hyper. Minimarkets have been able to secure cheaper prices even compared to hypermarkets that often offer bulk discounts. The minimarket share is currently led by Indomaret (INDF affiliated company). As Alfamart started to streamline their expansion to lower down their debt level, Indomaret is currently leading with over 17k outlets nationwide. Alfamart is lagging behind at 15k outlets and has cut back expansion to below 1,000 stores since 2018. The biggest barriers to entry is location. With Alfamart and Indomaret seemingly present at every corner, it would be hard for any new brand to penetrate the market.With Indonesia entering the digital era, and online retailing is rapidly gaining share (between 4-6% of retail sales based on various sources), the minimarkets can both benefit and lose from the aggressive expansion of the e-commerce giants. The easiest benefit to tap from the e-commerce player is through cash payment handling. Top C2C e-commerce Tokopedia for example accepts all types of payments, including cash, from all major minimarket outlets. As the e-commerce players are looking for new source of growth, the third largest e-commerce Bukalapak.com is branching out to directly supply goods to over 5mn Warungs across the country. The initiatives are popularly known as the Mitra (partner) program. The Mitra program aims to cut the distributor and wholesaler role by providing an online ordering system through the Mitra program app. The Mitra program unfortunately can be a threat for minimarket growth going forward as it empowers the traditional Warung with better product selections and cheaper pricing. Other than the Mitra program, the e-commerce players also offer wider selection of FMCG products in their platform at very lucrative prices as traffic puller. In the past 12.12 National Online Sales (Harbolnas) day, we can see up to 80% discounts on some of the FMCG products.A bulk of the discussions below will be on Sumber Alfaria Trijaya Tbk Pt (AMRT IJ) as we have very limited information from Indomaret's operation. Indoritel Makmur Internasional (DNET IJ) owns 40% of Indomaret and does not consolidate their books. DNET is a holding company owned by the Salim Group that has stakes in the KFC franchise Fastfood Indonesia (FAST IJ) and Sari Roti Nippon Indosari Corpindo (ROTI IJ).AMRT is on track to achieve 8% SSG in FY19, a major recovery from the decade low 1.5% in FY17 and 5.5% in FY18. As AMRT streamlines their store expansion, cutting store openings to 400-600 stores per year over the next 3 years, we expect SSG to remain strong and hovers between 5-10% coupled with 2-3% spatial growth.AMRT’s EBIT margin has been slipping from 2.7% in 2014 to 1.8% in FY18 as opex growth exceeds SSG. To fully pass on fixed costs increases, we estimate that AMRT needs to book at least 7% SSG. FY19 is the first year since 2014 for the SSG to exceed the 7% mark, hence the year to expect EBIT margin to improve. Given the steep seasonality, 9M19 consolidated EBIT margin is recorded at below 1%. A big chunk of the supporting incomes from suppliers’ rebate will come in the fourth quarter of the year.AMRT’s fee-based income has been growing by more than 40% Cagr over the past 5 years, contributing to more than 30% of EBIT. As more services are added, and as consumers adopt digital transactions, AMRT’s fee-based income growth still has a long way to go. Negative FCF has been a problem in the past where net gearing reached 1.3x in FY17 and net interest expenses make up more than 60% of EBIT. As AMRT streamlines their store openings and close down non-performing stores, we saw a big jump in FCF in FY18 that allows AMRT to deleverage their balance sheet. AMRT paid almost IDR3tn worth of debt in FY18, reducing their net gearing ratio to 0.4x in FY18 and to 0.2x in FY19.We expect SSG to moderate to 6% level while store expansion is kept at 2% addition every year, resulting to a total of 8% revenue growth until 2022. This, coupled with 10bps expansion in GPM every year, and 8% opex growth is on track for 17-19% EBIT growth per year. We expect fee-based incomes to continue its high teens growth trajectory, lifting net profit growth to 21-25% over the next three years. Risk to our numbers is working capital and economic growth. A 1-day swing in the company's cash cycle affects its working capital by about IDR200bn. We have a buy recommendation with 19% upside to our blended target price.

In Nielsen's latest consumer survey, we find few data points and interesting consumer behaviors that we would like to share in this insight.As we may recall, 2019 is a political year with the general election being held in April. As the attention on political stability subsided, Nielsen's survey show that the top ongoing concern is on economic growth. With the GDP growth barely hanging above the 5% mark, the country needs a catalyst to move forward.President Jokowi is in his second term and is determined to turn Indonesia into a manufacturing hub. Labor law reform and tax cuts are among the top tasks to clear in order to attract foreign investments into the country. With the healthcare premium doubled next year, and the suggested cigarette retail prices up by more than 50%, FMCG growth rates are likely to remain muted. The latest Nielsen data continue to show a flattish volume growth rate for the top 58 FMCG categories. In terms of total value, the FMCG segment is shown to grow at 2-3% rate since 2017, about half of the national GDP growth rate. Worst performer is the coffee FMCG segment, down 6.5% YoY. Nielsen suspects that this is due to the competition from the exploding demand for quick serve iced coffee, as we have mentioned in our previous note <a href="https://www.smartkarma.com/insights/map-boga-adiperkasa-mapb-ij-the-es-kopi-wave" target="_blank" data-smartkarma-citation="insights:30774" rel="noopener">MAP Boga Adiperkasa (MAPB IJ): The Es Kopi Wave.</a>Among the modern retail format, the minimarkets continue to expand their market share. Nielsen recorded a 5.6% sales decline from the hypermarket and supermarket YTD July '19 while also noted an impressive 14.3% growth from the minimarkets. In conclusion, Nielsen saw a shift in consumer behavior as people adapt to the food online delivery system, which also indicatively affected certain categories in the FMCG. Given that inflation continue to remain soft, the staples growth rates will also likely continue to be muted. Shoppers are bargain hunting, citing that promotion and proximity are the two key reasons for shopping at a certain store and online.

In Nielsen's latest consumer survey, we find few data points and interesting consumer behaviors that we would like to share in this insight.As we may recall, 2019 is a political year with the general election being held in April. As the attention on political stability subsided, Nielsen's survey show that the top ongoing concern is on economic growth. With the GDP growth barely hanging above the 5% mark, the country needs a catalyst to move forward.President Jokowi is in his second term and is determined to turn Indonesia into a manufacturing hub. Labor law reform and tax cuts are among the top tasks to clear in order to attract foreign investments into the country. With the healthcare premium doubled next year, and the suggested cigarette retail prices up by more than 50%, FMCG growth rates are likely to remain muted. The latest Nielsen data continue to show a flattish volume growth rate for the top 58 FMCG categories. In terms of total value, the FMCG segment is shown to grow at 2-3% rate since 2017, about half of the national GDP growth rate. Worst performer is the coffee FMCG segment, down 6.5% YoY. Nielsen suspects that this is due to the competition from the exploding demand for quick serve iced coffee, as we have mentioned in our previous note MAP Boga Adiperkasa (MAPB IJ): The Es Kopi Wave.Among the modern retail format, the minimarkets continue to expand their market share. Nielsen recorded a 5.6% sales decline from the hypermarket and supermarket YTD July '19 while also noted an impressive 14.3% growth from the minimarkets. In conclusion, Nielsen saw a shift in consumer behavior as people adapt to the food online delivery system, which also indicatively affected certain categories in the FMCG. Given that inflation continue to remain soft, the staples growth rates will also likely continue to be muted. Shoppers are bargain hunting, citing that promotion and proximity are the two key reasons for shopping at a certain store and online.

Indonesia

PT Sumber Alfaria Trijaya Tbk is an Indonesian retail company engaged in the distribution of consumer products, operating minimarket networks and franchise services primarily under the Alfamart brand. It offers a wide range of food and non-food products, cosmetics, and provides digital services such as bill payments and e-vouchers. The company was founded in 1989 and is headquartered in Tangerang, Indonesia.

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Sumber Alfaria Trijaya (AMRT IJ)

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