Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

<p>Z Holdings has closed its long-awaited merger with LINE and will now step up to battle global Internet challengers. The new company will invest c. $5bn over five years to boost its AI heft to expand its market share in Japan as well as leverage LINE’s overseas footprint. Investors hoping for an upgrade to profitability targets may be disappointed as the FY23 operating income target is unchanged but the top-line targets are aggressive enough and an accelerated investment program is a compelling story.  That is good for Z Holdings and parent Softbank Corp but less so for its main domestic challenger Rakuten as the cost of business in Japan keeps going up.  </p>

Z Holdings has closed its long-awaited merger with LINE and will now step up to battle global Internet challengers. The new company will invest c. $5bn over five years to boost its AI heft to expand its market share in Japan as well as leverage LINE’s overseas footprint. Investors hoping for an upgrade to profitability targets may be disappointed as the FY23 operating income target is unchanged but the top-line targets are aggressive enough and an accelerated investment program is a compelling story.  That is good for Z Holdings and parent Softbank Corp but less so for its main domestic challenger Rakuten as the cost of business in Japan keeps going up.  

Z Holdings -  With Merger Close, Investment Will Accelerate

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

Private Capital Markets

GoTo Gojek Tokopedia Tbk PT / Private Capital Markets

<p><a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> just had a vote of confidence in its digital financial strategy, with GIC (Singapore's Sovereign Wealth Fund) revealing that it will invest in <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a>, where Gojek recently increased its own stake to 22.16%. </p>
<p>GIC will invest around US$225m to acquire circa 9% stake in <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a> through a rights issue to take place in March.</p>
<p>The Indonesian bank is already in the process of transforming itself into a digital bank but bringing in GIC as a shareholder will bring comfort in terms of governance of the bank, as well as obviously bringing new funds.</p>
<p><a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a> will secure IDR7tn or US$497.3m through the issuance of new shares, increasing its total capital to IDR8tn or US$564.4m.</p>
<p>The potential customer base for <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a> will be even larger assuming the Gojek-Tokopedia merger goes through, opening up Tokopedia's customers and sellers as potential customers. </p>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> is not standing still on digital finance in Indonesia and has recently acquired a local bank Bank BKE, which has been renamed SeaBank, which we also discuss below. <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> probably represents the most serious potential competitive threat for <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a>.</p>
<div class="content-highlight">
<p>Valuations for the merged <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a> and <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia PT (1087142D IJ)</a> have crept up to US$35bn-US$40bn and no doubt an early success with <a href="https://www.smartkarma.com/entities/bank-jago-tbk-pt" target="_blank" data-smartkarma-citation="entities:31094:1" rel="noopener">Bank Jago Tbk PT (ARTO IJ)</a> will help it command a higher multiple on the listing of the combined entity. </p>
</div>

Gojek (1379371D IJ) just had a vote of confidence in its digital financial strategy, with GIC (Singapore's Sovereign Wealth Fund) revealing that it will invest in Bank Jago Tbk PT (ARTO IJ), where Gojek recently increased its own stake to 22.16%. 
GIC will invest around US$225m to acquire circa 9% stake in Bank Jago Tbk PT (ARTO IJ) through a rights issue to take place in March.
The Indonesian bank is already in the process of transforming itself into a digital bank but bringing in GIC as a shareholder will bring comfort in terms of governance of the bank, as well as obviously bringing new funds.
Bank Jago Tbk PT (ARTO IJ) will secure IDR7tn or US$497.3m through the issuance of new shares, increasing its total capital to IDR8tn or US$564.4m.
The potential customer base for Bank Jago Tbk PT (ARTO IJ) will be even larger assuming the Gojek-Tokopedia merger goes through, opening up Tokopedia's customers and sellers as potential customers. 
Sea Ltd (SE US) is not standing still on digital finance in Indonesia and has recently acquired a local bank Bank BKE, which has been renamed SeaBank, which we also discuss below. Sea Ltd (SE US) probably represents the most serious potential competitive threat for Bank Jago Tbk PT (ARTO IJ).

Valuations for the merged Gojek (1379371D IJ) and Tokopedia PT (1087142D IJ) have crept up to US$35bn-US$40bn and no doubt an early success with Bank Jago Tbk PT (ARTO IJ) will help it command a higher multiple on the listing of the combined entity. 


Gojek (1379371D IJ) - A Leg Up for Digital Finance?

<p><a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> latest numbers were interesting in that there was evidence of declining provisions, which suggests improving credit quality ahead but what was also evident was the renewed momentum behind micro and ultra-micro loans, which now make up more than 40% of total loans but it aims for 45% by 2025.</p>
<p>Microlending and MSMEs are the bank's key differentiating factor and core competency versus its peers. It a skill-set that they have not been able to replicate, despite best efforts by some in recent years.  It is increasingly the champion of financial inclusion in Indonesia.</p>
<p><a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> has re-affirmed its focus on driving continued digitalization as a growth driver, which is enabling the bank to continue to expand with lower costs, even in rural areas. </p>
<p>The bank continues to increase its commitment to implement ESG practices with 63.9% of the total loan portfolio classified as financing for sustainable business activities in 2020. </p>
<p><a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> was also the first bank in Southeast Asia to issue sustainability bonds in 2019. The sustainability bond market has become more attractive and it's projected that the ESG financing instrument will reach USD11tn in 2025. </p>
<p><a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> is also building digital partnerships and collaborations with P2P players, e-commerce platforms, and ride-hailing firms. </p>
<div class="content-highlight">
<p><a href="https://www.smartkarma.com/entities/bank-rakyat-indonesia-persero" target="_blank" data-smartkarma-citation="entities:484:1" rel="noopener">Bank Rakyat Indonesia Persero (BBRI IJ)</a> remains one of our top picks amongst the Indonesian banks, with its renewed focus on its core competency in microlending, as well as its meaningful digitalization of existing banking business as well as increasingly using digital channels to expand its reach.</p>
</div>

Bank Rakyat Indonesia Persero (BBRI IJ) latest numbers were interesting in that there was evidence of declining provisions, which suggests improving credit quality ahead but what was also evident was the renewed momentum behind micro and ultra-micro loans, which now make up more than 40% of total loans but it aims for 45% by 2025.
Microlending and MSMEs are the bank's key differentiating factor and core competency versus its peers. It a skill-set that they have not been able to replicate, despite best efforts by some in recent years.  It is increasingly the champion of financial inclusion in Indonesia.
Bank Rakyat Indonesia Persero (BBRI IJ) has re-affirmed its focus on driving continued digitalization as a growth driver, which is enabling the bank to continue to expand with lower costs, even in rural areas. 
The bank continues to increase its commitment to implement ESG practices with 63.9% of the total loan portfolio classified as financing for sustainable business activities in 2020. 
Bank Rakyat Indonesia Persero (BBRI IJ) was also the first bank in Southeast Asia to issue sustainability bonds in 2019. The sustainability bond market has become more attractive and it's projected that the ESG financing instrument will reach USD11tn in 2025. 
Bank Rakyat Indonesia Persero (BBRI IJ) is also building digital partnerships and collaborations with P2P players, e-commerce platforms, and ride-hailing firms. 

Bank Rakyat Indonesia Persero (BBRI IJ) remains one of our top picks amongst the Indonesian banks, with its renewed focus on its core competency in microlending, as well as its meaningful digitalization of existing banking business as well as increasingly using digital channels to expand its reach.


Bank Rakyat Indonesia (BBRI IJ) - Both Micro and Digital

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> has launched the Shopee App for Mexico to offer online sales in what would be its second foray in the Americas after a pilot initiative in 2019 in Brazil, which has been scaling up operations.</p>
<p>The expansion to Mexico, Latin America's second-largest economy, could mark a major new growth opportunity in cross-border sales but it will also mean more cash burn and a longer runway to profitability.</p>
<div>
<div id="sda-INARTICLE">Shopee will offer free shipping throughout Mexico, offering items including electronics, clothes, toys, and home goods, which would suggest immediate cash burn. The features will be similar to its South East Asia Shopee App, which has been a huge success. </div>
<div></div>
</div>
<div>The company has already had huge success with its gaming business in Latin America through Garena but its e-commerce business has more moving parts and has yet to be tested in a big way in Latin America, which does introduce an element of uncertainty to this latest move. </div>
<div></div>
<div>
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> faces the challenge of facing off against <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a>, which is a formidable adversary that has seen off <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> on its doorstep already. </div>
<div></div>
<div>
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> does have a track record of winning share quickly seemingly "against all odds" in unseating <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia PT (1087142D IJ)</a> and <a href="https://www.smartkarma.com/entities/lazada-group" target="_blank" data-smartkarma-citation="entities:26148:1" rel="noopener">Lazada Group (LAZADA SP)</a> in Indonesia. </div>
<div></div>
<div>
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> trades on a lofty 15.5x FY21E EV/sales and 11.1x FY22E EV/Sales with forecast sales growth of +56% and +30.3% for FY21E and FY22E respectively but is not expected to breakeven until 2023 under current estimates. We continue to like <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> over the long-term for its leading position and rapid growth in gaming and e-commerce in South East Asia but this recent move may provide further leg to its long term growth. We would look to buy on any further weakness.</div>

Sea Ltd (SE US) has launched the Shopee App for Mexico to offer online sales in what would be its second foray in the Americas after a pilot initiative in 2019 in Brazil, which has been scaling up operations.
The expansion to Mexico, Latin America's second-largest economy, could mark a major new growth opportunity in cross-border sales but it will also mean more cash burn and a longer runway to profitability.

Shopee will offer free shipping throughout Mexico, offering items including electronics, clothes, toys, and home goods, which would suggest immediate cash burn. The features will be similar to its South East Asia Shopee App, which has been a huge success. 


The company has already had huge success with its gaming business in Latin America through Garena but its e-commerce business has more moving parts and has yet to be tested in a big way in Latin America, which does introduce an element of uncertainty to this latest move. 


Sea Ltd (SE US) faces the challenge of facing off against MercadoLibre Inc (MELI US), which is a formidable adversary that has seen off Amazon.com Inc (AMZN US) on its doorstep already. 


Sea Ltd (SE US) does have a track record of winning share quickly seemingly "against all odds" in unseating Tokopedia PT (1087142D IJ) and Lazada Group (LAZADA SP) in Indonesia. 


Sea Ltd (SE US) trades on a lofty 15.5x FY21E EV/sales and 11.1x FY22E EV/Sales with forecast sales growth of +56% and +30.3% for FY21E and FY22E respectively but is not expected to breakeven until 2023 under current estimates. We continue to like Sea Ltd (SE US) over the long-term for its leading position and rapid growth in gaming and e-commerce in South East Asia but this recent move may provide further leg to its long term growth. We would look to buy on any further weakness.

Sea Ltd (SE US) - Extending the Runway for a Bigger Plane?

XLSMART Telecom Sejahtera / Equity Bottom-Up

<p>Indonesian mobile operator company <a href="https://www.smartkarma.com/entities/xl-axiata-tbk-pt" target="_blank" data-smartkarma-citation="entities:15028:1" rel="noopener">XL Axiata (EXCL IJ)</a> released a respectable set of FY2020 results last week with a +6% YoY increase in service revenue, despite COVID-19.</p>
<p>The increase was driven by data revenue with a growth of +10% YoY to IDR21.39tn, making up 92% of service revenues, with 89% of its subscribers using smartphones, making it the purest play on data in the industry. </p>
<p><a href="https://www.smartkarma.com/entities/xl-axiata-tbk-pt" target="_blank" data-smartkarma-citation="entities:15028:1" rel="noopener">XL Axiata (EXCL IJ)</a> also posted a +31% YoY increase in EBITDA to IDR13.06tn but profit for the year fell -91.8% to IDR 371.6bn. It did however see a +76% increase in FCF on the back of increased EBITDA. </p>
<p>2020 data traffic grew by +47% YoY partly due to an increase in the number of subscribers from 56.88 Mn in the 3Q2020 to 57.89 Mn in the 4Q2020. There was also a YoY increase in average revenue per user (ARPU) to IDR 36,000 in 2020 versus IDR35,000 for FY2019.</p>
<p>The company continues to build out its 4G coverage and reposition its subscriber base and reallocate capacity towards 4G, with only 10% now left using the 3G service.</p>
<p>For 2021, <a href="https://www.smartkarma.com/entities/xl-axiata-tbk-pt" target="_blank" data-smartkarma-citation="entities:15028:1" rel="noopener">XL Axiata (EXCL IJ)</a> is allocating a capex of IDR 7tn focusing on developing the network infrastructure, IT development, and digitization. In addition, the company is also focusing on the fiberization process to prepare the network for the eventual launch of 5G.</p>
<p><a href="https://www.smartkarma.com/entities/xl-axiata-tbk-pt" target="_blank" data-smartkarma-citation="entities:15028:1" rel="noopener">XL Axiata (EXCL IJ)</a> remains the purest proxy for the continued growth in demand for data in Indonesia and should also be a beneficiary from the ongoing consolidation in the industry, with Hutchison's "3" slated to merge with <a href="https://www.smartkarma.com/entities/indosat-tbk-pt" target="_blank" data-smartkarma-citation="entities:5737:1" rel="noopener">Indosat Tbk PT (ISAT IJ)</a>. </p>
<p>This should help to alleviate competitive pressures on data pricing. <a href="https://www.smartkarma.com/entities/xl-axiata-tbk-pt" target="_blank" data-smartkarma-citation="entities:15028:1" rel="noopener">XL Axiata (EXCL IJ) </a>trades on 3.7x FY21E EV/EBIDTA and 3.2x FY22E EV/EBITDA versus its 3-year average forward EV/EBITDA of 4.8x, making it look attractive from a valuation standpoint.</p>

Indonesian mobile operator company XL Axiata (EXCL IJ) released a respectable set of FY2020 results last week with a +6% YoY increase in service revenue, despite COVID-19.
The increase was driven by data revenue with a growth of +10% YoY to IDR21.39tn, making up 92% of service revenues, with 89% of its subscribers using smartphones, making it the purest play on data in the industry. 
XL Axiata (EXCL IJ) also posted a +31% YoY increase in EBITDA to IDR13.06tn but profit for the year fell -91.8% to IDR 371.6bn. It did however see a +76% increase in FCF on the back of increased EBITDA. 
2020 data traffic grew by +47% YoY partly due to an increase in the number of subscribers from 56.88 Mn in the 3Q2020 to 57.89 Mn in the 4Q2020. There was also a YoY increase in average revenue per user (ARPU) to IDR 36,000 in 2020 versus IDR35,000 for FY2019.
The company continues to build out its 4G coverage and reposition its subscriber base and reallocate capacity towards 4G, with only 10% now left using the 3G service.
For 2021, XL Axiata (EXCL IJ) is allocating a capex of IDR 7tn focusing on developing the network infrastructure, IT development, and digitization. In addition, the company is also focusing on the fiberization process to prepare the network for the eventual launch of 5G.
XL Axiata (EXCL IJ) remains the purest proxy for the continued growth in demand for data in Indonesia and should also be a beneficiary from the ongoing consolidation in the industry, with Hutchison's "3" slated to merge with Indosat Tbk PT (ISAT IJ). 
This should help to alleviate competitive pressures on data pricing. XL Axiata (EXCL IJ) trades on 3.7x FY21E EV/EBIDTA and 3.2x FY22E EV/EBITDA versus its 3-year average forward EV/EBITDA of 4.8x, making it look attractive from a valuation standpoint.

XL Axiata (EXCL IJ) - High-Speed Digital Enabler

Indonesia

Tokopedia PT provides e-commerce services. The Company owns and operates an online e-commerce platform that allows individuals and small-to-mid-sized business owners to start their online stores.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Tokopedia PT (1087142D IJ)

Z Holdings - With Merger Close, Investment Will Accelerate

The biggest takeaway from the merger close is the ¥500bn investment program. If it fuels stronger revenue growth then profits should follow over...

Kirk Boodry

Gojek (1379371D IJ) - A Leg Up for Digital Finance?

The move by GIC to invest in Bank Jago represents a vote of confidence in Gojek's digital financial strategy and places it ahead of its competitors...

Angus Mackintosh

Bank Rakyat Indonesia (BBRI IJ) - Both Micro and Digital

Bank Rakyat Indonesia remains one of our top picks amongst the Indonesian banks, with its renewed focus on its core competency in microlending and...

Angus Mackintosh

Sea Ltd (SE US) - Extending the Runway for a Bigger Plane?

Sea Ltd (SE US) remains the listed key proxy for the explosive growth in e-commerce in South East Asia, fuelled by growing revenues from its gaming...

Angus Mackintosh

XL Axiata (EXCL IJ) - High-Speed Digital Enabler

XL Axiata (EXCL IJ) remains the purest proxy for the continued growth in demand for data in Indonesia and should also be a beneficiary from the...

Angus Mackintosh

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)