Category

Indonesia

Brief Indonesia: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Daily Briefs, Indonesia

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Governments and Policies Adapting to Critical Known Unknown
  3. Costs of and Response to COVID-19
  4. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality
  5. Fault Lines and Positive Surprises: Buy Car Makers

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Buffett 2

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

3. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

4. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality

Screenshot%202020 03 26%20at%204.19.37%20pm

Semen Indonesia Persero Tbk (SMGR IJ) released a decent set of number for 2019, with a strong finish to the year. It also realised significant synergies from the acquistion of PT Solusi Bangun Indonesia Tbk (SMCB IJ) (Holcim Indonesia), which were reflected in the numbers, although higher finance costs related to the acquisition hit the bottom line for the year.

Apart from the obvious concerns over COVID-19, the company had a tough start to the year, with heavy rainfall and flooding impacting volume for January and February, which saw a decline of -4% for 2M20.

Next few months will be impacted by a COVID-19 induced slowdown, which will hit both retail (bagged) demand as bulk, as demand from larger projects declines due to delays to the start of new infrastructure projects, as well as existing ones. 

The key message from the company’s call was one of maintaining a fortress balance sheet and attempting to maintain margins and cashflows. It has already restructured all its bridging loans related to its PT Solusi Bangun Indonesia Tbk (SMCB IJ) acquistion, which will mean significantly lower interest costs in 2020.

With the true impact and longevity of COVID-19 unknown, it is difficult to make sensible forecasts on the potential impact on the Indonesian economy and hence cement volumes for this year but safe to say volumes are likely to be lower than 2019.

Semen Indonesia Persero Tbk (SMGR IJ)’s share price is reflecting a doomsday scenario with the stock trading at close to book value and looks like an attractive entry point for long-term investors, who can stand the inevitable short-term volatility.

5. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Matahari Department Store (LPPF IJ) – About Turn and Back to the Core and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Matahari Department Store (LPPF IJ) – About Turn and Back to the Core
  2. AKR Corporindo (AKRA IJ) – Time to Fill-Up the Tank?
  3. Morning Views Asia: Gajah Tunggal, Logan Property Holdings
  4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

1. Matahari Department Store (LPPF IJ) – About Turn and Back to the Core

Screenshot%202020 02 28%20at%208.16.03%20am

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. 

2. AKR Corporindo (AKRA IJ) – Time to Fill-Up the Tank?

Screenshot%202020 02 27%20at%203.13.50%20pm

A meeting with AKR Corporindo (AKRA IJ) management in Jakarta last week, confirmed that despite last year’s issues over subsidised fuel pricing, the company is set up for strong growth going forward driven by a number of factors. These include strong growth in non-subsidized fuel distribution, and a marked pick-up in land sales at its JIIPE Surabaya Industrial estate, as well as longer-term a number of JV projects with BP PLC (BP/ LN) including retail petroleum distribution and aviation fuel distribution to begin with, and it is exploring the possibility of LNG storage and distribution. AKR Corporindo (AKRA IJ) should be a defensive stock in this environment and the recent correction is a buying opportunity.

The company ceased to distribute subsidized diesel in May 2019 due to a change in the pricing formula which made it uneconomic to do so. The change in pricing was to be applied retrospectively, which the company is challenging. The company is making a provision for the charge for this in 2019, on the advice of its auditors. AKR Corporindo (AKRA IJ) will resume subsidized fuel distribution this year as the new Minister reversed the pricing change, making it more economical to cover costs and assure a decent margin. 

AKR Corporindo (AKRA IJ) has been growing sales of non-subsidized fuel, which generates twice the margin as that of subsidized fuel, which is going some way to offset the decline in Subsidized fuel. Despite the potential charge, management has confirmed that FY19 Net profit will not be lower than the recurrent profit in 2018 of IDR712bn, which should be taken positively.

The company is moving forward with Freeport Mcmoran (FCX US) ‘s new smelter at the company’s JIIPE industrial estate (100 ha plot), which will bring with it leasing revenues, revenues from utilities, and demand for land plots from supporting industries. AKR Corporindo (AKRA IJ) secured a deal with the local government to supply power directly to its customers on its estate and will build a 515MW power plant there. The pipeline in demand at JIIPE could see a further boost with a Taiwanese steelmaker conducting a feasibility study for a 200 ha plot in 2020. 

AKR Corporindo (AKRA IJ) is trading at close to a 3-year low and its valuations are also approaching very attractive levels, with the stock trading on 11.5x FY20E PER plus it pays a good dividend, with an FY20E yield of 3.5%. 

3. Morning Views Asia: Gajah Tunggal, Logan Property Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

4. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Governments and Policies Adapting to Critical Known Unknown and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. Tracking the Daily COVID-19 Cases for 10 Major Countries

1. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality

Screenshot%202020 03 26%20at%203.47.45%20pm

Semen Indonesia Persero Tbk (SMGR IJ) released a decent set of number for 2019, with a strong finish to the year. It also realised significant synergies from the acquistion of PT Solusi Bangun Indonesia Tbk (SMCB IJ) (Holcim Indonesia), which were reflected in the numbers, although higher finance costs related to the acquisition hit the bottom line for the year.

Apart from the obvious concerns over COVID-19, the company had a tough start to the year, with heavy rainfall and flooding impacting volume for January and February, which saw a decline of -4% for 2M20.

Next few months will be impacted by a COVID-19 induced slowdown, which will hit both retail (bagged) demand as bulk, as demand from larger projects declines due to delays to the start of new infrastructure projects, as well as existing ones. 

The key message from the company’s call was one of maintaining a fortress balance sheet and attempting to maintain margins and cashflows. It has already restructured all its bridging loans related to its PT Solusi Bangun Indonesia Tbk (SMCB IJ) acquistion, which will mean significantly lower interest costs in 2020.

With the true impact and longevity of COVID-19 unknown, it is difficult to make sensible forecasts on the potential impact on the Indonesian economy and hence cement volumes for this year but safe to say volumes are likely to be lower than 2019.

Semen Indonesia Persero Tbk (SMGR IJ)’s share price is reflecting a doomsday scenario with the stock trading at close to book value and looks like an attractive entry point for long-term investors, who can stand the inevitable short-term volatility.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: AKR Corporindo (AKRA IJ) – Time to Fill-Up the Tank? and more

By | Daily Briefs, Indonesia

In this briefing:

  1. AKR Corporindo (AKRA IJ) – Time to Fill-Up the Tank?
  2. Morning Views Asia: Gajah Tunggal, Logan Property Holdings
  3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  4. Mitra Adiperkasa (MAPI IJ) – Oversold Indonesian King of Retail – On the Ground in J-Town

1. AKR Corporindo (AKRA IJ) – Time to Fill-Up the Tank?

Screenshot%202020 02 27%20at%203.13.50%20pm

A meeting with AKR Corporindo (AKRA IJ) management in Jakarta last week, confirmed that despite last year’s issues over subsidised fuel pricing, the company is set up for strong growth going forward driven by a number of factors. These include strong growth in non-subsidized fuel distribution, and a marked pick-up in land sales at its JIIPE Surabaya Industrial estate, as well as longer-term a number of JV projects with BP PLC (BP/ LN) including retail petroleum distribution and aviation fuel distribution to begin with, and it is exploring the possibility of LNG storage and distribution. AKR Corporindo (AKRA IJ) should be a defensive stock in this environment and the recent correction is a buying opportunity.

The company ceased to distribute subsidized diesel in May 2019 due to a change in the pricing formula which made it uneconomic to do so. The change in pricing was to be applied retrospectively, which the company is challenging. The company is making a provision for the charge for this in 2019, on the advice of its auditors. AKR Corporindo (AKRA IJ) will resume subsidized fuel distribution this year as the new Minister reversed the pricing change, making it more economical to cover costs and assure a decent margin. 

AKR Corporindo (AKRA IJ) has been growing sales of non-subsidized fuel, which generates twice the margin as that of subsidized fuel, which is going some way to offset the decline in Subsidized fuel. Despite the potential charge, management has confirmed that FY19 Net profit will not be lower than the recurrent profit in 2018 of IDR712bn, which should be taken positively.

The company is moving forward with Freeport Mcmoran (FCX US) ‘s new smelter at the company’s JIIPE industrial estate (100 ha plot), which will bring with it leasing revenues, revenues from utilities, and demand for land plots from supporting industries. AKR Corporindo (AKRA IJ) secured a deal with the local government to supply power directly to its customers on its estate and will build a 515MW power plant there. The pipeline in demand at JIIPE could see a further boost with a Taiwanese steelmaker conducting a feasibility study for a 200 ha plot in 2020. 

AKR Corporindo (AKRA IJ) is trading at close to a 3-year low and its valuations are also approaching very attractive levels, with the stock trading on 11.5x FY20E PER plus it pays a good dividend, with an FY20E yield of 3.5%. 

2. Morning Views Asia: Gajah Tunggal, Logan Property Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

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

Screenshot%202020 02 26%20at%2010.17.54%20am

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& leisure and Starbucks. It will also add selective new brands such as Boots Health & 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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Costs of and Response to COVID-19 and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Costs of and Response to COVID-19
  2. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. Tracking the Daily COVID-19 Cases for 10 Major Countries
  5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

1. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality

Screenshot%202020 03 26%20at%203.47.45%20pm

Semen Indonesia Persero Tbk (SMGR IJ) released a decent set of number for 2019, with a strong finish to the year. It also realised significant synergies from the acquistion of PT Solusi Bangun Indonesia Tbk (SMCB IJ) (Holcim Indonesia), which were reflected in the numbers, although higher finance costs related to the acquisition hit the bottom line for the year.

Apart from the obvious concerns over COVID-19, the company had a tough start to the year, with heavy rainfall and flooding impacting volume for January and February, which saw a decline of -4% for 2M20.

Next few months will be impacted by a COVID-19 induced slowdown, which will hit both retail (bagged) demand as bulk, as demand from larger projects declines due to delays to the start of new infrastructure projects, as well as existing ones. 

The key message from the company’s call was one of maintaining a fortress balance sheet and attempting to maintain margins and cashflows. It has already restructured all its bridging loans related to its PT Solusi Bangun Indonesia Tbk (SMCB IJ) acquistion, which will mean significantly lower interest costs in 2020.

With the true impact and longevity of COVID-19 unknown, it is difficult to make sensible forecasts on the potential impact on the Indonesian economy and hence cement volumes for this year but safe to say volumes are likely to be lower than 2019.

Semen Indonesia Persero Tbk (SMGR IJ)’s share price is reflecting a doomsday scenario with the stock trading at close to book value and looks like an attractive entry point for long-term investors, who can stand the inevitable short-term volatility.

3. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Morning Views Asia: Gajah Tunggal, Logan Property Holdings and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Morning Views Asia: Gajah Tunggal, Logan Property Holdings
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  3. Mitra Adiperkasa (MAPI IJ) – Oversold Indonesian King of Retail – On the Ground in J-Town

1. Morning Views Asia: Gajah Tunggal, Logan Property Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

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

Screenshot%202020 02 26%20at%2010.17.54%20am

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& leisure and Starbucks. It will also add selective new brands such as Boots Health & 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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality
  2. Fault Lines and Positive Surprises: Buy Car Makers
  3. Tracking the Daily COVID-19 Cases for 10 Major Countries
  4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

1. Semen Indonesia Persero Tbk (SMGR IJ) – Fortress Mentality

Screenshot%202020 03 26%20at%203.42.08%20pm

Semen Indonesia Persero Tbk (SMGR IJ) released a decent set of number for 2019, with a strong finish to the year. It also realised significant synergies from the acquistion of PT Solusi Bangun Indonesia Tbk (SMCB IJ) (Holcim Indonesia), which were reflected in the numbers, although higher finance costs related to the acquisition hit the bottom line for the year.

Apart from the obvious concerns over COVID-19, the company had a tough start to the year, with heavy rainfall and flooding impacting volume for January and February, which saw a decline of -4% for 2M20.

Next few months will be impacted by a COVID-19 induced slowdown, which will hit both retail (bagged) demand as bulk, as demand from larger projects declines due to delays to the start of new infrastructure projects, as well as existing ones. 

The key message from the company’s call was one of maintaining a fortress balance sheet and attempting to maintain margins and cashflows. It has already restructured all its bridging loans related to its PT Solusi Bangun Indonesia Tbk (SMCB IJ) acquistion, which will mean significantly lower interest costs in 2020.

With the true impact and longevity of COVID-19 unknown, it is difficult to make sensible forecasts on the potential impact on the Indonesian economy and hence cement volumes for this year but safe to say volumes are likely to be lower than 2019.

Semen Indonesia Persero Tbk (SMGR IJ)’s share price is reflecting a doomsday scenario with the stock trading at close to book value and looks like an attractive entry point for long-term investors, who can stand the inevitable short-term volatility.

2. Fault Lines and Positive Surprises: Buy Car Makers

Image 16957330731585274683132

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

3. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19c

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

4. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

5. Active Vs. Passive Investing Post COVID-19 Coronavirus World

Funds c

  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Morning Views Asia: Gajah Tunggal, Logan Property Holdings and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Morning Views Asia: Gajah Tunggal, Logan Property Holdings
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  3. Mitra Adiperkasa (MAPI IJ) – Oversold Indonesian King of Retail – On the Ground in J-Town
  4. Bank M&A in Asia – a Decade in Review

1. Morning Views Asia: Gajah Tunggal, Logan Property Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

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

Screenshot%202020 02 26%20at%2010.17.54%20am

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& leisure and Starbucks. It will also add selective new brands such as Boots Health & 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.

4. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Mitra Adiperkasa (MAPI IJ) – Oversold Indonesian King of Retail – On the Ground in J-Town and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Mitra Adiperkasa (MAPI IJ) – Oversold Indonesian King of Retail – On the Ground in J-Town
  2. Bank M&A in Asia – a Decade in Review

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

Screenshot%202020 02 26%20at%2010.17.54%20am

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& leisure and Starbucks. It will also add selective new brands such as Boots Health & 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.

2. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: Tracking the Daily COVID-19 Cases for 10 Major Countries and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Tracking the Daily COVID-19 Cases for 10 Major Countries
  2. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)
  3. Active Vs. Passive Investing Post COVID-19 Coronavirus World
  4. Morning Views Asia: Alam Sutera Realty, China Aoyuan Property, Medco Energi, Ronshine China Holdings
  5. Gojek Gets Additional Funding-Indonesia Food Authority Disapproves of Rumoured Merger Deal with Grab

1. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19c

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

2. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

3. Active Vs. Passive Investing Post COVID-19 Coronavirus World

Funds c

  • The world was never the same after 9-11 and it will never be the same after the COVID-19 coronavirus. 
  • In this insight, we discuss what impact COVID-19 will have on the active versus passive/index/ETF funds, especially as it relates to the Korean markets.
  • One could make an argument that one of the outcomes of the COVID-19 coronavirus is an environment that could have a GREATER MARKET VOLATILITY and potentially higher inflation/interest rates (but we do not presume to know the exact timing or extent). In such an environment, it is possible that there could a renewed prominence of ACTIVE INVESTING.
  • Passive/index/ETF investing will continue to represent a major portion of the total global investment world. Nonetheless, if investors’ perception of the “normal global volatility” changes materially post COVID-19, then one could make a renewed call on greater capital allocation for hedge funds and mutual funds that ACTIVELY pick stocks. 

4. Morning Views Asia: Alam Sutera Realty, China Aoyuan Property, Medco Energi, Ronshine China Holdings

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

5. Gojek Gets Additional Funding-Indonesia Food Authority Disapproves of Rumoured Merger Deal with Grab

There have been rumours about a Gojek-Grab merger since February this year. Gojek denied the news and Grab declined to comment. In this insight, we take a look at the possible effect on (the ride-hailing and online food delivery) market shares in Singapore, Indonesia, and ASEAN if the merger proceeds and whether this could lead to anti-trust issues as expected (although it’s quite evident that the answer is, ‘yes’).

Our key points are:

  • Grab, with its acquisition of Uber (UBER US), is in a stronger position and seems to be more inclined towards a merger than Gojek (1379371D IJ)
  • However, Gojek raised $1.2bn in funding last week amidst the ongoing pandemic, signalling the level of investor confidence in the company and its growth prospects.
  • The recent round of funding gives the company some strength to negotiate on the merger deal with Grab. However, we feel that Gojek might not be very interested in merging, given that it does not want its operations to be absorbed by Grab and has already denied the news.
  • That said, the merger would enable both companies to maintain their growth rates in the market and outshine any new and emerging players. Moreover, the combined company (post-merger) has a better chance of a successful IPO (as opposed to Uber and Lyft).
  • However, the negative aspects of the merger seem significant, primarily due to the loss of competition. 
    • Grab (0967655D SP) dominates the ride-hailing market in Singapore and Indonesia while Gojek dominates the online food delivery market in Indonesia.
    • Post-merger, the combined company could hold more than 80% of the ride-hailing market in Singapore, Indonesia and ASEAN. Thus, the merger could eventually create a monopoly in ASEAN’s ride-hailing market driving out any emerging players.
    • The same is true for Indonesia’s online food delivery market. This explains why the Indonesian food authority noted its disapproval regarding the rumoured deal last week. 
    • The online food delivery market in Singapore is however dominated by local player-Deliveroo. Thus, this merger is unlikely to result in a monopolistic landscape for the food delivery market in Singapore.
  • It is quite evident that the deal is unlikely to go through. Even if Gojek agrees to the deal, governments are likely to impose restrictions in order to uphold healthy competition.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.