In this briefing:
- The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
- Are Risky Assets Overvalued?
- Taking Off: Vietnamese Exports Are Rocking and Rolling
- Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
- Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend
1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
This past week’s offering of Insights across [email protected] 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 pieces. Please find a brief summary below, with a fuller write up in the detailed section.
In Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession), CrossASEAN Economist Prasenjit K. Basu revisits the Singapore economic outlook in light of recent indicative numbers that suggest that the economy has stalled.
In Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked, CrossASEAN Indght Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.
In Taking Off: Vietnamese Exports Are Rocking and Rolling,Dr. Jim Walker zeros in on the picture for Asia Exports as the US-China Trade War continues to simmer.
Equity Bottom-Up Insights
In Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s leading smartphone retailer and finds plenty to cheer about after a conversation with management.
In EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?,Nicolas Van Broekhoven revisits Alliance Mineral Assets (AMS SP) after attending the company’s recent EGM.
In Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend, Consumer specialist Devi Subhakesan takes a close look at this leading Indonesian staples player.
In Health Management Int’l Privatisation – Easy Peasy,Travis Lundy zeros in on this potential privatisation event.
In IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm,Athaporn Arayasantiparb, CFA takes a close look at the upcoming IPO of Singha Group’s hotel arm.
In Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times, Banking Specialist looks at this impending merger of these two major financial institutions in Thailand.
In StubWorld: Just Rumours (For Now) As SIA Engineering Pops,David Blennerhassett examines the possibility of privatisation of Sia Engineering (SIE SP). Sia Engineering (SIE SP) is not aware of any information, however last week’s 15% gain in two days rekindles privatisation talks by Singapore Airlines (SIA SP).
In Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy,Travis Lundy looks at this proposed merger, which would create the largest hospitality trust in Asian Pac.
Sector and Thematic Insights
In Indonesian Telecoms: The Recovery Continued in 1Q and We Expect It to Last, our friends at New Street Research circle back to the Indonesian Telco sector post 1Q19 results and maintain an upbeat view on the prospects for an increasingly data-driven market.
US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.
In the credit space, corporate bonds are expensive, and leveraged loans unattractive.
As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.
Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.
The Energy Minister finally enforced Mining Law stipulations on a coal mine with an expiring contract (CCOW), the small Tanito Harum — but this sets a precedent that augurs the eventual breakup of concessions that account for the bulk of the coal sector. A presidential revision of the law next year seems likely, but mining investment will be subdued in the meantime. The release of the Canadian educator Neil Bantleman, in a miscarriage of justice regarding supposed child sex abuse, mitigates damage from the six-year old saga. Mitra Adiperkasa (MAPI IJ) owners Sjamsul and Itjih Nursalim may have won a reprieve when the KPK — for the first time in its 15 year history — lost a case in court related to their charges. Widodo’s rebuke of the ministers of energy and state enterprises signals potential changes in those sectors in an eventual reshuffle; but whether their replacements would improve matters is questionable.
Politics: President Joko Widodo issued clemency for Neil Bantleman, the Canadian educator convicted in a clear miscarriage of justice regarding supposed child‑sex abuse in 2016. He is now in Ontario, but the teacher Ferdi Tijon and several cleaning staff remain in prison (Page 2). Prabowo Subianto’s party tied ‘reconciliation’ – sought by aides to Widodo – to the return of Islamic Defenders Front (FPI) leader Habib Rizieq from Mecca. Presidential Chief of Staff Gen (ret) Moeldoko dismissed the possibility, noting that Rizieq’s exile is self‑imposed. Gerindra officials also want the release of several hundred rioters arrested in May. In effect, Gerindra is openly requesting legal‑system interference for political aims. This highlights the weak prospects for constructive opposition from Prabowo’s party. Widodo has shown no intention to help Rizieq, but risks exist that some sort of ‘reconciliation’ will involve impunity for the May rioting (p. 2). The president pointedly admonished Energy Minister Ignasius Jonan and State Minister for State Enterprises Rini Soemarno for having allowed oil imports to increase (which occurred in 2018). This may signal that the pair have lost favor and will exit the cabinet (p. 3). Police generals are objects of scrutiny in a 170‑page report, due out soon, on the 2017 attack on corruption investigator Novel Bawesdan (p. 6).
Justice: For the first time since its founding 15 years ago, the Anti-Corruption Commission (KPK) lost a case in court – against former Bank Restructuring Agency (Ibra) head Syafruddin Temenggung, in a trial with implications for major business and political interests. But KPK members have vowed to continue pursuing related suspects, the fugitive Gadjah Tunggal Group (GTG) owners Sjamsul and Itjih Nursalim (p. 8). After a high school teacher in Mataram recorded her boss harassing her sexually over the phone, the boss filed charges against her for having electronically distributed lewd material (his own). Supreme Court justices sentenced her to six months in prison (p. 9).
Produced since 2003, the Reformasi Weekly Review provides timely, relevant and independent analysis on Indonesian political and policy news. The writer is Kevin O’Rourke, author of the book Reformasi. For subscription info please contact: <[email protected]>.
Policy News: The Energy Ministry shut down a mid‑sized coal producer, Barki’s Tanito Harum, due to the expiry of its Coal Contract of Work (CCOW). Without a revision of the 2009 Mining Law, the same may happen to Bakrie’s giant Arutmin in November 2020. CCOWs expiring through 2025 account for two‑thirds of Indonesia’s coal production and the bulk of its fuel for power generation. Adaro, Indika, Sinar Mas and Bumi are among those in limbo (p. 11). A sorely needed Land Bill could potentially pass by September – but the Forestry Association (Aphi) is mounting stiff resistance (p. 13). Car producers are anticipating a regulation on electric vehicles (p. 14).
Indofood Cbp Sukses Makmur T (ICBP IJ) is the largest packaged food producer in Indonesia with a wide portfolio of brands across food categories. With a stable economic/political outlook coupled with favourable demographics, Indonesia could continue to be a destination for Emerging market investments. Indofood CBP offers exposure to the country’s attractive household consumption growth prospects, especially for branded foods. The company known primarily for its Indomie brand of instant noodles with more than 70% market share in that segment has also expanded into other food categories – dairy, snacks, beverages, additives and nutrition. We take a quick look at Indofood CBP’s operational and financial strengths/concerns to assess its growth prospects. We also look at (1) why Indonesia is a compelling consumption growth market (2) the ownership/holding-structure of Indofood CBP, a Salim group company, (2) ESG-related issues involving the parent group and (3) Key financials and Valuation comparison with peers. This insight is the first in our series profiling leading consumer stocks in emerging Asia.
Indonesia: Stable economy, Optimistic consumer outlook. Indonesia, with its favourable demographic metrics and relatively robust economic conditions, is expected to remain politically resilient even as global-trade/politics related uncertainty looms large on currency/commodity prices. In May 2019, S&P raised Indonesia’s sovereign credit rating to ‘BBB’ with a stable outlook following the re-election of President Joko Widodo stating that the ratings “..reflect Indonesia’s strong economic growth prospects and supportive policy dynamics, which we expect to remain..”. According to a consumer survey conducted by Bank Indonesia in May, consumer optimism in the country remained intact as indicated by a moderate increase in the Consumer Confidence Index.