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Indonesia

Brief Indonesia: The Guerrilla War Against The PBOC and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Guerrilla War Against The PBOC
  2. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  4. Market Monitor: A Corona Hangover
  5. Thinking About BBL’s Buy of Permata – Buy the Dips

1. The Guerrilla War Against The PBOC

In the wake of the news of the coronavirus infection, the Chinese leadership went into overdrive and made it a Draghi-like “whatever it takes” moment to prevent panic and stabilize markets. When the stock markets opened after the Lunar New Year break, the authorities prohibited short sales, directed large shareholders not to sell their holdings and the PBOC turned on their firehose of liquidity to support the stock market. Those steps largely succeeded. China’s stock markets stabilized and recovered, and so too did the markets of China’s Asian trading partners.

However, there were signs that the market is unimpressed by the steps taken by Beijing to control the outbreak and limit its economic impact. Market participants were conducting a guerrilla campaign against the PBOC.

While stock markets have been strong, commodity markets have been weak. Foreign exchange markets are also taking a definite risk-off tone, contrary to the PBOC’s efforts to support risk appetite. Even Chinese market internals are exhibiting skepticism, as financial stocks have lagged the market rally.

This argues for a contrarian position of long EM, commodities, and commodity producers and short U.S. equities. Aggressive traders could enter into a long and short pairs trade, while more risk-controlled accounts could just overweight and underweight.

If the bulls are right, and the coronavirus outbreak recedes and comes under control, U.S. equities should begin to underperform as the demand for safe havens, while cyclically sensitive EM and commodities would rally. On the other hand, if the outbreak were to spiral out of control and global growth collapses, U.S. equities would correct, but there is likely less downside risk in EM and commodity exposure because they have already fallen substantially.

2. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

3. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

4. Market Monitor: A Corona Hangover

Bmmfebex4

The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.

COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.

We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).

We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.

Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.

5. Thinking About BBL’s Buy of Permata – Buy the Dips

Screenshot%202020 02 13%20at%203.35.00%20pm

On 12 February 2020, Bangkok Bank Public (BBL TB) (Bangkok Bank PCL (BBL/F TB)) put out a release on the Stock Exchange of Thailand website that they had set the date for the EGM for BBL shareholders to approve the purchase of Bank Permata (BNLI IJ) to be 5 March. All of the relevant information is linked here (https://www.bangkokbank.com/en/Investor-Relations/Shareholder-Information). 

Bangkok Bank also released the The Opinion of an Independent Financial Advisor with regard to the Permata Transaction. It’s a long read so the TLDR is basically, “IFA is of the opinion that the Transaction is appropriate and will provide long-term benefits to BBL because of growth, business mix diversification, synergies, so entering into the Transaction is reasonable, and because the various ways to analyse the fair value by PBR, Precedent Transactions, and DDM approaches get to a transaction fair value of IDR 35.8-116.5trln, the Proposed Transaction of IDR 42trln is appropriate.”

The current price can be assumed to incorporate a group of inputs, including a “fair per annum return on an approved deal”, an FX transaction friction spread, a likelihood of passage at the BBL shareholder meeting, the probability of regulatory approval, some timing risk, and a gap risk (to what price does the stock fall if the whole thing falls apart).

Based on tweaking these parameters to see what the possibilities are, it’s still trading cheap, unless you have real fears of BBL shareholder approval. Much more below the fold…

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Brief Indonesia: Morning Views Asia: Lippo Karawaci and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Morning Views Asia: Lippo Karawaci
  2. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO
  3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  4. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. Morning Views Asia: Lippo Karawaci

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. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected]

Macro Insights

In Outlook Factors Turning Positive, Save Governance / UAE Fund Hyped / Step Towards Fuel Reform, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.

In Catalyst Calendar for Thai Equities 2020, our Thai Guru Athaporn Arayasantiparb, CFA lays out his thoughts on the potential catalysts for the Thai stock market in the coming 12 months.

In Thai Equities: Five Things That Changes in 2020,Athaporn Arayasantiparb, CFA highlights five different issues that will affect the Thai Equity market in 2020.

Equity Bottom-Up Insights

In Astra International (ASII IJ) – A Dawning Recovery Is Afoot, CrossASEAN Insight Provider Angus Mackintosh revisits the company following a conversation with management on the outlook for 2020. 

In Telkom Indonesia (TLKM IJ) – The Emperor of Data, CrossASEAN Insight Provider Angus Mackintosh zeros in on Indonesia’s leading telco after a meeting with management and returns with a positive view on the outlook.

In Blue Bird (BIRD IJ) And GoJek – An Alliance of Champions,Angus Mackintosh revisits Indonesia’s largest taxi operator in light of the decision to sell a stake to GoJek and find plenty to cheer about.

In Procurri (PROC SP): Failed Park Place Sale = Focus Back on How Undervalued Procurri Remains, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits the company following a failed asset sale. 

In Starhub (STH): Not as Bad as People Thought, CrossASEAN Insight Provider Henry Soediarko takes a close look at the company in the context of its earnings.

In Asia United Bank: Strong Fundamental Momentum, banking specialist Paul Hollingworth takes a look at this smaller cap Philippine bank.

In Central Retail Group IPO Is Set to Become the Biggest IPO in Thailand,Oshadhi Kumarasiri comments on this upcoming Thai retail IPO.

In Central Retail IPO and Potential Changes to the SET50 Index,Brian Freitas zeros in on this upcoming Thai Retail IPO and the consequences for the SET50. 

In Amverton: Game Over For Minorities,David Blennerhassett zeros in on this ill-fated property developer.

In TCB: Subpar Trends and Valuation Leave Us Unconvinced banking specialist Paul Hollingworth zeros in on one of Vietnam’s most popular banks amongst foreign investors but he remains underwhelmed.

Sector and Thematic Insights

In Aequitas 2020 Asia IPO Pipeline – Busy Year Ahead,Sumeet Singh summarises the most important up-and-coming IPOs this year, with a specific section on SE Asia. 

Credit Insights

In Barito Pacific – New Issue Assessment – Lucror Analytics,Trung Nguyen circles back to Indonesia’s biggest chemical and renewable energy player in light of the announcement of a new bond issue.

In Bayan Resources – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a close look at Bayan Resources (BYAN IJ) given an upcoming bond issue. 

in Buana Lintas Lautan – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a look at Buana Lintas Lautan (BULL IJ), an Indonesian shipping company that serves the domestic oil & gas sector, is conducting a roadshow with a view to issuing USD Notes with a tenor of 3-5 years.

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. Please feel free to show your appreciation for any of our insights you find useful using the like button. It makes a difference!

3. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

4. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

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.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World
  2. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  3. Market Monitor: A Corona Hangover
  4. Thinking About BBL’s Buy of Permata – Buy the Dips
  5. Nothing Spreads Like Fear – The Novel Coronavirus (2019-NCoV)

1. The Week That Was in [email protected] – The Omnibus Law, Bank Risk, and Mobile World

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected], this week including discussions on Ace Hardware Indonesia (ACES IJ),XL Axiata (EXCL IJ), and Indocement Tunggal Prakarsa (INTP IJ).

Macro

In Vast Omnibus Holds Promise but May Languish / Would Halve Severance / Health Minister Vs Harvard, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up

In Lippo Karawaci (LPKR IJ) – Green Shoots Ahead?, CrossASEAN Insight Provider Angus Mackintosh revisits Indonesia’s largest property company and sees the potential for better times ahead. 

In Mobile World Investment (MWG VN) – From Mobile Phones to Groceries, Cross ASEAN Insight Provider Angus Mackintosh finds value in one of Vietnam’s fastest-growing consumer companies. 

In BAT Malaysia: Trading Lower than 1997 Asian Financial Crisis, Cheapest in 27 Years, Div Yield at 11%, Nicolas Van Broekhoven revisits Malaysia’s leading tobacco player and finds deep value. 

In OCBC – Wing Hang Bank and Oil Price Risk, banking specialist Daniel Tabbush revisits Oversea Chinese Banking Corp. (OCBC SP) which has exposure in a number of areas which are likely to impact both growth and credit quality. 

In Thinking About BBL’s Buy of Permata – Buy the Dips, events specialist Travis Lundy circles back to this ongoing M&A situation. 

In Bangkok Bank: Deal or No Deal, Shares Are Too Depressed, Emerging Markets banks specialist Paul Hollingworth takes a closer look at Bangkok Bank Public (BBL TB) in light of the ongoing takeover of Bank Permata (BNLI IJ).

In Tesco to Offload Its Thai & Malaysia Business: Generous Valuation but Value Is in the UK BusinessOshadhi Kumarasiri takes a look at the potential sale of Tesco PLC (TSCO LN)’s Thai and Malaysian Assets. 

In Central Retail Listing and SET50/MSCI Index Inclusion,Brian Freitas looks at the implications from Central Retail (CRC TB) being included in key indices after listing. 

In ThaiBev Beer Brewery Pre-IPO/Spin-Off – Early Take – Aiming to Build an ASEAN Champion?,Zhen Zhou, Toh zeros in on the impending spin-off of Thai Beverage (THBEV SP)’s beer assets.

In a second insight ThaiBev Beer Brewery Pre-IPO/Spin-Off – Valuation Estimates and Implications,Zhen Zhou, Toh zeros in on the potential valuations for this impending spin-off.

In Noble Development Base Support with Volume Concerns, technical analysis specialist Thomas Schroeder looks at Thai property developer Noble Development (NOBLE TB) and works his magic.

In TASCO: Surfing the Spread Uptrend in 2020, our friends at Country Group initiate coverage of Tipco Asphalt (TASCO TB) with a BUY rating and a 2020E target price of Bt27, derived from 12.8xPE’20E, which is in line with valuations of the Asia-ex Japan materials sector. 

In BCPG: Upside from Second Hydro Power Plant Acquisition in Laos,Country Group comment on the recent hydro acquisition by Bcpg Pcl (BCPG TB) and increase their target price as a result. 

In PTTEP: Thai E&P Leader with Promising Growth Outlook, Country Group initiate coverage of PTTEP with a BUY rating, based on a 2020E target price of Bt142, derived from a discounted cash flow valuation (WACC of 10% and TG of 2%). Their valuation implies 11.3x PE’20, which is in line with the Thai Energy Sector.

Sector and Thematic

In Asian Banks – Material Event banking specialist Daniel Tabbush suggests that the impending results may include statements of impending risks related to the Corona Virus.

In Thai Media Spotlight: An Early Quarter of Blockbusters, our Thai guru Athaporn Arayasantiparb, CFA highlights four interesting trends/developments in the Thai media sector.

2. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

3. Market Monitor: A Corona Hangover

Bmmfebex4

The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.

COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.

We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).

We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.

Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.

4. Thinking About BBL’s Buy of Permata – Buy the Dips

Screenshot%202020 02 13%20at%203.35.00%20pm

On 12 February 2020, Bangkok Bank Public (BBL TB) (Bangkok Bank PCL (BBL/F TB)) put out a release on the Stock Exchange of Thailand website that they had set the date for the EGM for BBL shareholders to approve the purchase of Bank Permata (BNLI IJ) to be 5 March. All of the relevant information is linked here (https://www.bangkokbank.com/en/Investor-Relations/Shareholder-Information). 

Bangkok Bank also released the The Opinion of an Independent Financial Advisor with regard to the Permata Transaction. It’s a long read so the TLDR is basically, “IFA is of the opinion that the Transaction is appropriate and will provide long-term benefits to BBL because of growth, business mix diversification, synergies, so entering into the Transaction is reasonable, and because the various ways to analyse the fair value by PBR, Precedent Transactions, and DDM approaches get to a transaction fair value of IDR 35.8-116.5trln, the Proposed Transaction of IDR 42trln is appropriate.”

The current price can be assumed to incorporate a group of inputs, including a “fair per annum return on an approved deal”, an FX transaction friction spread, a likelihood of passage at the BBL shareholder meeting, the probability of regulatory approval, some timing risk, and a gap risk (to what price does the stock fall if the whole thing falls apart).

Based on tweaking these parameters to see what the possibilities are, it’s still trading cheap, unless you have real fears of BBL shareholder approval. Much more below the fold…

5. Nothing Spreads Like Fear – The Novel Coronavirus (2019-NCoV)

Img 6405

What is the Novel Coronavirus (2019-nCoV)
The novel coronavirus (2019-nCoV) emerged in a seafood and poultry market in the Chinese city of Wuhan and has already infected thousands of people. At the beginning, it was transmitted to humans from wild animals, but now, person-to-person spread is occurring, as of February 10, 2020, there have been  2,128 reported deaths, more than 42,000 people have been infected with the virus worldwide.

Confirmed Cases and Deaths by Country and Territory

Country,
Territory
Total Cases
Feb 10 Cases
Total Deaths
Feb 10 Deaths
Total Recovered
Total Critical
Region
China
42,299
2,128
1,011
103
4,050
6,484
Asia
Japan
161
65
4
Asia
Singapore
45
2
7
7
Asia
Hong Kong
42
6
1
Asia
Thailand
32
10
1
Asia
S. Korea
27
3
Asia
Taiwan
18
1
Asia
Malaysia
18
1
3
Asia
Australia
15
5
Oceania
Vietnam
14
3
Asia
Germany
14
Europe
USA
12
3
N.America
France
11
1
Europe
Macao
10
1
Asia
U.K.
8
4
Europe
U.A.E.
8
1
1
Asia
Canada
7
1
N.America
Philippines
3
1
2
Asia
India
3
Asia
Italy
3
2
Europe
Russia
2
Europe
Spain
2
Europe
Nepal
1
Asia
Sweden
1
Europe
Sri Lanka
1
1
Asia
Cambodia
1
1
Asia
Finland
1
1
Europe
Belgium
1
Europe

Source: WHO

A novel coronavirus (CoV) is a new strain of coronavirus. Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). They all from the same family of viruses. According to WHO, this novel coronavirus seems to have less severe implications than Severe Acute Respiratory Syndrome (SARS) or Middle East respiratory syndrome (MERS)

What can you do to protect yourself?

Wash your hands frequently, maintain social distancing, and practice respiratory hygiene

How about SARS
SARS was first reported in Southern China in 2002. In the first few months of the 2003 SARS outbreak, China kept the disease under wraps due to a lack of knowledge about what the virus was and a lack of preparedness among countries in the region in dealing with pandemics. Soon, the illness spread to more than two dozen countries in North America, South America, Europe, and Asia. The first case in Taiwan was identified on March 14 in a traveler from Guangdong Province in China. Since April 22, SARS cases in Taiwan had increased and had been associated primarily with health-care settings. On April 23, Taipei city government locked down Taipei Municipal Hospital Hoping branch, and all patients, visitors, and staff were quarantined within the building for 2 weeks. After June, WHO announced that the global SARS outbreak was contained.

SARS had very different effects on the domestic and international sectors of Taiwan’s economy. The largest impact was on domestic service industries, such as airlines, hotels, restaurants, and retail sales. People avoided groups and public places, cutting into the service industries that cater to the usually gregarious Taiwanese. 

Source: WHO

TAIEX dropped 4.16% due to Taipei Municipal Hospital Hoping branch lockdown

Source: Taiwan CDC

  • A research group in Hong Kong estimated that the outbreak would peak in late April to early May.
  • Though SARS was more deadly than the new coronavirus, the outbreak was far more limited. It first originated in southern China in November 2012. The World Health Organization issued a global alert in March 2013. After spreading globally, the outbreak was declared over four months later. No cases have emerged since 2004.
  • The outbreak of the coronavirus is rippling through the global manufacturing supply chains, affecting especially the car industry. For example, Volkswagen asked 3,500 of its employees in Beijing to work from home for two weeks. Car sales in China are expected to decline as consumers feel less confident.
  • Production disruptions would largely affect household goods, hi-tech goods and textile and apparel industries where China plays a core role in the global supply chain.
  • The travel industry has also been badly affected. Several countries issued travel warnings about China; some airlines even suspended flights to China.
  • Severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services, as well as heavy port congestion for vessels along the Yangtze River near Wuhan.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Indonesia: The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO
  2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

1. The Week That Was in [email protected] – Thai Strategy, Astra, Telkom, and Central Retail IPO

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 and credit insights. Please find a brief summary below, with a fuller write up in the detailed section. We also include in the detailed section the past week’s relevant Discussions in [email protected]

Macro Insights

In Outlook Factors Turning Positive, Save Governance / UAE Fund Hyped / Step Towards Fuel Reform, CrossASEAN Insight Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week.

In Catalyst Calendar for Thai Equities 2020, our Thai Guru Athaporn Arayasantiparb, CFA lays out his thoughts on the potential catalysts for the Thai stock market in the coming 12 months.

In Thai Equities: Five Things That Changes in 2020,Athaporn Arayasantiparb, CFA highlights five different issues that will affect the Thai Equity market in 2020.

Equity Bottom-Up Insights

In Astra International (ASII IJ) – A Dawning Recovery Is Afoot, CrossASEAN Insight Provider Angus Mackintosh revisits the company following a conversation with management on the outlook for 2020. 

In Telkom Indonesia (TLKM IJ) – The Emperor of Data, CrossASEAN Insight Provider Angus Mackintosh zeros in on Indonesia’s leading telco after a meeting with management and returns with a positive view on the outlook.

In Blue Bird (BIRD IJ) And GoJek – An Alliance of Champions,Angus Mackintosh revisits Indonesia’s largest taxi operator in light of the decision to sell a stake to GoJek and find plenty to cheer about.

In Procurri (PROC SP): Failed Park Place Sale = Focus Back on How Undervalued Procurri Remains, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits the company following a failed asset sale. 

In Starhub (STH): Not as Bad as People Thought, CrossASEAN Insight Provider Henry Soediarko takes a close look at the company in the context of its earnings.

In Asia United Bank: Strong Fundamental Momentum, banking specialist Paul Hollingworth takes a look at this smaller cap Philippine bank.

In Central Retail Group IPO Is Set to Become the Biggest IPO in Thailand,Oshadhi Kumarasiri comments on this upcoming Thai retail IPO.

In Central Retail IPO and Potential Changes to the SET50 Index,Brian Freitas zeros in on this upcoming Thai Retail IPO and the consequences for the SET50. 

In Amverton: Game Over For Minorities,David Blennerhassett zeros in on this ill-fated property developer.

In TCB: Subpar Trends and Valuation Leave Us Unconvinced banking specialist Paul Hollingworth zeros in on one of Vietnam’s most popular banks amongst foreign investors but he remains underwhelmed.

Sector and Thematic Insights

In Aequitas 2020 Asia IPO Pipeline – Busy Year Ahead,Sumeet Singh summarises the most important up-and-coming IPOs this year, with a specific section on SE Asia. 

Credit Insights

In Barito Pacific – New Issue Assessment – Lucror Analytics,Trung Nguyen circles back to Indonesia’s biggest chemical and renewable energy player in light of the announcement of a new bond issue.

In Bayan Resources – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a close look at Bayan Resources (BYAN IJ) given an upcoming bond issue. 

in Buana Lintas Lautan – New Issue Assessment – Lucror Analytics,Trung Nguyen takes a look at Buana Lintas Lautan (BULL IJ), an Indonesian shipping company that serves the domestic oil & gas sector, is conducting a roadshow with a view to issuing USD Notes with a tenor of 3-5 years.

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. Please feel free to show your appreciation for any of our insights you find useful using the like button. It makes a difference!

2. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

3. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

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.

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Brief Indonesia: EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions and more

By | Daily Briefs, Indonesia

In this briefing:

  1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green
  3. Astra International (ASII IJ) – A Dawning Recovery Is Afoot

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

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. Astra International (ASII IJ) – A Dawning Recovery Is Afoot

Screenshot%202020 01 17%20at%205.01.49%20pm

A conversation with Astra International (ASII IJ early this week was marked by a cautiously optimistic tone for its core auto-related businesses, including its finance business. 

Auto sales are expected to see 5% growth in the coming year, with new model launches ahead potentially providing a further tailwind. 

The company’s finance businesses should also perform well in the coming year, with credit issues now put to bed and growth being supplemented by more activity in the used car market and multi-finance.

Subsidiaries United Tractors (UNTR IJ) and Astra Agro Lestari (AALI IJ) have rallied recently on expectations of higher coal, CPO, and commodity prices in general. The question is whether this is sustainable.

It remains to be seen whether recent moves in commodity prices, especially coal, can be sustained but the outlook for palm looks to be well underpinned by supply issues and new B30 rules introduced in January. 

Astra International (ASII IJ) trades on a forward FY20E PER of 12.3x, which is at a slight discount to the overall market on 13x FY20E PER. If the company were to trade back to its 3-year average PER of 14x, this would imply +14% upside or a target price of IDR8,100 but its three-year peak forward PER is at 17x, leaving more significant potential upside. For those of a trading mindset, Jardine Cycle & Carriage (JCNC SP) is looking like a cheap way to gain exposure to Astra International (ASII IJ), trading at the highest levels in terms of NAV discount going back five years. 

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Brief Indonesia: EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions and more

By | Daily Briefs, Indonesia

In this briefing:

  1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions
  2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green
  3. Astra International (ASII IJ) – A Dawning Recovery Is Afoot
  4. The Race To The Top? Beijing Chases The Wall Street Bubble

1. EV Battery Monthly: No Further Cut in Subsidies for NEVs in China Suggests Better Market Conditions

Image 22892592331579491277918

The highlights for December are as follows:

  • Panasonic:
    • The labour shortage at the Nevada plant is said to be under control. Thus, delays in supply do not seem to be a concern.
    • A partnership with Tropos should strengthen the software side of Panasonic’s business. Motors. Panasonic’s software platform, OneConnect, to be used in Tropos manufactured EVs designed for use in last-mile applications and emergency.
    • Efforts by the company to improve its battery business and adopt CASE related technologies (as highlighted in our previous monthlies) are likely to bring in growth only over the medium term. For the upcoming quarter, consensus and our estimates are for a decline in revenue and OP given the unfavourable market conditions and struggle in battery business through last year.
  • There will be no further cut in subsidy in China for NEVs. With the subsidy staying intact, demand for NEVs is likely to improve (or at least not decline further) suggesting better market conditions for battery players globally (who invested in China despite the country’s slowdown last year).
  • CATL was quiet last month, although there was news about the company being a possible buyer of the US luxury car brand-Aston Martin. This seems more likely to be merely a rumour and we feel that CATL does not seem to have strong synergies to do so.
  • South Korean players had no major battery highlights last month.
  • CATL’s share price continued to rise last month, followed by Panasonic, both outperforming the market. The Korean players and BYD continued to see relatively weak performance during the month.

Source: CapIQ

2. Morning Views Asia: Alam Sutera Realty, Bright Scholar Education, Panda Green

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. Astra International (ASII IJ) – A Dawning Recovery Is Afoot

Screenshot%202020 01 17%20at%205.01.49%20pm

A conversation with Astra International (ASII IJ early this week was marked by a cautiously optimistic tone for its core auto-related businesses, including its finance business. 

Auto sales are expected to see 5% growth in the coming year, with new model launches ahead potentially providing a further tailwind. 

The company’s finance businesses should also perform well in the coming year, with credit issues now put to bed and growth being supplemented by more activity in the used car market and multi-finance.

Subsidiaries United Tractors (UNTR IJ) and Astra Agro Lestari (AALI IJ) have rallied recently on expectations of higher coal, CPO, and commodity prices in general. The question is whether this is sustainable.

It remains to be seen whether recent moves in commodity prices, especially coal, can be sustained but the outlook for palm looks to be well underpinned by supply issues and new B30 rules introduced in January. 

Astra International (ASII IJ) trades on a forward FY20E PER of 12.3x, which is at a slight discount to the overall market on 13x FY20E PER. If the company were to trade back to its 3-year average PER of 14x, this would imply +14% upside or a target price of IDR8,100 but its three-year peak forward PER is at 17x, leaving more significant potential upside. For those of a trading mindset, Jardine Cycle & Carriage (JCNC SP) is looking like a cheap way to gain exposure to Astra International (ASII IJ), trading at the highest levels in terms of NAV discount going back five years. 

4. The Race To The Top? Beijing Chases The Wall Street Bubble

Image 12467037221579281300716

  • Central Banks continue to fuel markets
  • China’s PBoC starting to add liquidity
  • Is this a Shanghai Accord 2 matching previous monetary deals like 1985 Plaza Accord?
  • Emerging Markets potentially key beneficiaries in 2020

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Brief Indonesia: Telkom Indonesia (TLKM IJ) – The Emperor of Data and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Telkom Indonesia (TLKM IJ) – The Emperor of Data

1. Telkom Indonesia (TLKM IJ) – The Emperor of Data

Screenshot%202020 01 14%20at%203.38.27%20pm

A meeting with the management team of Telekomunikasi Indonesia (TLKM IJ) in Jakarta last week provided a high degree of comfort on the quality and momentum behind the company’s future growth strategy, mainly driven by data and digital services.

The pricing environment remains relatively benign save ongoing aggressive pricing of data at the lower end of the market. Indosat Tbk PT (ISAT IJ) has become less aggressive in its pricing and XL Axiata (EXCL IJ) looks set to pursue more aggressive monetisation on data in the coming year. 

Telkomsel’s coverage and the quality of its network continue to improve and it still has low-hanging fruit in the conversion of 3G to 4G subscribers. XL Axiata (EXCL IJ) continues to expand aggressively outside Java but Telkomsel is well-equipped to deal with this. 

Telkomsel is the only operator in Indonesia with a digital platform, which continues to develop with increasingly diverse content.

Telekomunikasi Indonesia (TLKM IJ)’s fixed-line business accounts of around 40% of revenues, with growth being mainly driven by its broadband and pay-TV Business under Indihome, which continues to show spectacular growth with a total of 7m customers at the end of 2019.

The main risk for the company comes from a resumption of aggressive price compettion, especially at the lower end of the market.

The company is forecast to grow EPS by +15.6% for FY19E, +13.2% in FY20E, and +9.1% for FY21E and trades on an FY20E PER of 16.9x, which is below its 3-year average PER of 17.5x. Any further weakness triggered by concerns over growth prospects should be seen as a buying opportunity.

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Brief Indonesia: Telkom Indonesia (TLKM IJ) – The Emperor of Data and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Telkom Indonesia (TLKM IJ) – The Emperor of Data
  2. Buana Lintas Lautan – New Issue Assessment – Lucror Analytics

1. Telkom Indonesia (TLKM IJ) – The Emperor of Data

Screenshot%202020 01 14%20at%203.38.27%20pm

A meeting with the management team of Telekomunikasi Indonesia (TLKM IJ) in Jakarta last week provided a high degree of comfort on the quality and momentum behind the company’s future growth strategy, mainly driven by data and digital services.

The pricing environment remains relatively benign save ongoing aggressive pricing of data at the lower end of the market. Indosat Tbk PT (ISAT IJ) has become less aggressive in its pricing and XL Axiata (EXCL IJ) looks set to pursue more aggressive monetisation on data in the coming year. 

Telkomsel’s coverage and the quality of its network continue to improve and it still has low-hanging fruit in the conversion of 3G to 4G subscribers. XL Axiata (EXCL IJ) continues to expand aggressively outside Java but Telkomsel is well-equipped to deal with this. 

Telkomsel is the only operator in Indonesia with a digital platform, which continues to develop with increasingly diverse content.

Telekomunikasi Indonesia (TLKM IJ)’s fixed-line business accounts of around 40% of revenues, with growth being mainly driven by its broadband and pay-TV Business under Indihome, which continues to show spectacular growth with a total of 7m customers at the end of 2019.

The main risk for the company comes from a resumption of aggressive price compettion, especially at the lower end of the market.

The company is forecast to grow EPS by +15.6% for FY19E, +13.2% in FY20E, and +9.1% for FY21E and trades on an FY20E PER of 16.9x, which is below its 3-year average PER of 17.5x. Any further weakness triggered by concerns over growth prospects should be seen as a buying opportunity.

2. Buana Lintas Lautan – New Issue Assessment – Lucror Analytics

PT Buana Lintas Lautan Tbk (BULL), an Indonesian shipping company that serves the domestic oil & gas sector, is conducting a roadshow with a view to issuing USD Notes with a tenor of 3-5 years. The indicative issue size is USD 200 mn, and the proceeds will be used to refinance all existing debt facilities and for general corporate purposes (including vessel acquisitions). 

We view BULL as “High Risk” on the LARA scale. Our view takes into account the company’s: [1] customer concentration risk, being that it depends on Pertamina for the majority of revenues; [2] blacklisting by Pertamina in 2018, which could happen again; [3] aggressive expansion plan over the next three years; and [4] moderate financial profile.

Positively, the domestic shipping industry is protected by favourable regulations that prevent foreign competition. Most shipping contracts are based on long-term time charters of over four years, which provides some stability and visibility on cash flow.

Our fundamental Credit Bias on BULL is “Negative”. Following the Notes issuance, the company’s Gross Debt/EBITDA will increase to c. 4x. Thereafter, we see significant execution risks involved in the expansion plan, which could delay deleveraging.

We view BULL’s corporate governance as “Inadequate” on the LAGA scale, mainly on account of the default history of its predecessor’s parent, PT Berlian Laju Tanker (BLT). In addition, two of BULL’s current directors were senior executives at BLT when it defaulted on its bond obligations in 2012. BULL is 62% controlled by Halim Jusuf and his family, with the stake loosely held via multiple entities. Mr Jusuf has substantial outside business interests in a wide range of industries. We also note BULL’s blacklisting by Pertamina in 2018, which suggests internal control issues.

We do not recommend the proposed Notes, in view of the company’s small operating scale and aggressive growth ambitions, as well as the parent company’s history of default.

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Brief Indonesia: Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat
  2. Market Monitor: A Corona Hangover
  3. Thinking About BBL’s Buy of Permata – Buy the Dips
  4. Nothing Spreads Like Fear – The Novel Coronavirus (2019-NCoV)
  5. Asian Banks – Material Event

1. Semiconductor WFE Strong 2019 Finish And Double Digit 2020 Outlook, Albeit With A Coronavirus Caveat

Image 86386088521581645599692

On the back of robust billings in the fourth quarter, the semiconductor Wafer Fab Equipment (WFE) segment closed out 2019 on a  comparatively high note with annual billings for the North American players down 12% YoY, far less than had been originally anticipated. Now, with  Applied Materials bringing to a close the latest reporting season earlier this week, the consensus is for strong double digit growth in 2020.  However, that growth number comes with health warning as AMAT lowers its first quarter guidance by $300 million, some 7% of revenues, as a result of the disruption to their business in China caused by the spread of the so-called Novel Coronavirus in Hubei province. 

2. Market Monitor: A Corona Hangover

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The year of rats brought us the elephant in the room, a new strain of Coronavirus (COVID-19) which is an ironic germ cousin of the black death (from rats in the 14th century). The virus has already infected and killed more people than SARS in 2003. All the leading indicators that we track (EXHIBIT 4) pointed to a decline in global trade activities. We expect Asian central banks to cut rates and offer fiscal stimulus (i.e. tax cuts and cash giveaways) to boost the economy.

COVID-19 has somehow made the main news as the Middle East tension between the US and Iran, BREXIT, and the US President impeachment disappear into the background. On the flip side, we still believe this Corona phobia will turn into a buying opportunity in the end.

We are no medical experts, but we believe the economic impact will first be deeply-felt in countries/territories which have more infections relative to its population such as China, Macau, Singapore, and Hong Kong. The negative impact will be on countries with more trade and tourist links to China such as Thailand, South Korea, Taiwan, Australia, and Japan. We identify India and Indonesia as two Asian economics with less correlation to China’s economic slowdown (of which we lowered our GDP forecast to 5.0% from 5.8% in 2020).

We continue to favor EM equities and bonds (rated from “BB-“ to “BBB-”). As we believe bond valuations remain stretched, securities selection is key, and a buying opportunity on the sell-off event, especially stemming from the event risk (i.e. COVID-19), will reward value investors.

Our preference toward EM equites and bonds reflects improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). In a year of rising geopolitical risk, we still favour defensive industries such as healthcare, infrastructure, utilities, and other non-cyclical businesses over hospitality, real estate, transport, retails, mining, oil & gas, and discretionary consumer goods industries.

3. Thinking About BBL’s Buy of Permata – Buy the Dips

Screenshot%202020 02 13%20at%203.35.00%20pm

On 12 February 2020, Bangkok Bank Public (BBL TB) (Bangkok Bank PCL (BBL/F TB)) put out a release on the Stock Exchange of Thailand website that they had set the date for the EGM for BBL shareholders to approve the purchase of Bank Permata (BNLI IJ) to be 5 March. All of the relevant information is linked here (https://www.bangkokbank.com/en/Investor-Relations/Shareholder-Information). 

Bangkok Bank also released the The Opinion of an Independent Financial Advisor with regard to the Permata Transaction. It’s a long read so the TLDR is basically, “IFA is of the opinion that the Transaction is appropriate and will provide long-term benefits to BBL because of growth, business mix diversification, synergies, so entering into the Transaction is reasonable, and because the various ways to analyse the fair value by PBR, Precedent Transactions, and DDM approaches get to a transaction fair value of IDR 35.8-116.5trln, the Proposed Transaction of IDR 42trln is appropriate.”

The current price can be assumed to incorporate a group of inputs, including a “fair per annum return on an approved deal”, an FX transaction friction spread, a likelihood of passage at the BBL shareholder meeting, the probability of regulatory approval, some timing risk, and a gap risk (to what price does the stock fall if the whole thing falls apart).

Based on tweaking these parameters to see what the possibilities are, it’s still trading cheap, unless you have real fears of BBL shareholder approval. Much more below the fold…

4. Nothing Spreads Like Fear – The Novel Coronavirus (2019-NCoV)

Img 6405

What is the Novel Coronavirus (2019-nCoV)
The novel coronavirus (2019-nCoV) emerged in a seafood and poultry market in the Chinese city of Wuhan and has already infected thousands of people. At the beginning, it was transmitted to humans from wild animals, but now, person-to-person spread is occurring, as of February 10, 2020, there have been  2,128 reported deaths, more than 42,000 people have been infected with the virus worldwide.

Confirmed Cases and Deaths by Country and Territory

Country,
Territory
Total Cases
Feb 10 Cases
Total Deaths
Feb 10 Deaths
Total Recovered
Total Critical
Region
China
42,299
2,128
1,011
103
4,050
6,484
Asia
Japan
161
65
4
Asia
Singapore
45
2
7
7
Asia
Hong Kong
42
6
1
Asia
Thailand
32
10
1
Asia
S. Korea
27
3
Asia
Taiwan
18
1
Asia
Malaysia
18
1
3
Asia
Australia
15
5
Oceania
Vietnam
14
3
Asia
Germany
14
Europe
USA
12
3
N.America
France
11
1
Europe
Macao
10
1
Asia
U.K.
8
4
Europe
U.A.E.
8
1
1
Asia
Canada
7
1
N.America
Philippines
3
1
2
Asia
India
3
Asia
Italy
3
2
Europe
Russia
2
Europe
Spain
2
Europe
Nepal
1
Asia
Sweden
1
Europe
Sri Lanka
1
1
Asia
Cambodia
1
1
Asia
Finland
1
1
Europe
Belgium
1
Europe

Source: WHO

A novel coronavirus (CoV) is a new strain of coronavirus. Coronaviruses (CoV) are a large family of viruses that cause illness ranging from the common cold to more severe diseases such as Middle East Respiratory Syndrome (MERS) and Severe Acute Respiratory Syndrome (SARS). They all from the same family of viruses. According to WHO, this novel coronavirus seems to have less severe implications than Severe Acute Respiratory Syndrome (SARS) or Middle East respiratory syndrome (MERS)

What can you do to protect yourself?

Wash your hands frequently, maintain social distancing, and practice respiratory hygiene

How about SARS
SARS was first reported in Southern China in 2002. In the first few months of the 2003 SARS outbreak, China kept the disease under wraps due to a lack of knowledge about what the virus was and a lack of preparedness among countries in the region in dealing with pandemics. Soon, the illness spread to more than two dozen countries in North America, South America, Europe, and Asia. The first case in Taiwan was identified on March 14 in a traveler from Guangdong Province in China. Since April 22, SARS cases in Taiwan had increased and had been associated primarily with health-care settings. On April 23, Taipei city government locked down Taipei Municipal Hospital Hoping branch, and all patients, visitors, and staff were quarantined within the building for 2 weeks. After June, WHO announced that the global SARS outbreak was contained.

SARS had very different effects on the domestic and international sectors of Taiwan’s economy. The largest impact was on domestic service industries, such as airlines, hotels, restaurants, and retail sales. People avoided groups and public places, cutting into the service industries that cater to the usually gregarious Taiwanese. 

Source: WHO

TAIEX dropped 4.16% due to Taipei Municipal Hospital Hoping branch lockdown

Source: Taiwan CDC

  • A research group in Hong Kong estimated that the outbreak would peak in late April to early May.
  • Though SARS was more deadly than the new coronavirus, the outbreak was far more limited. It first originated in southern China in November 2012. The World Health Organization issued a global alert in March 2013. After spreading globally, the outbreak was declared over four months later. No cases have emerged since 2004.
  • The outbreak of the coronavirus is rippling through the global manufacturing supply chains, affecting especially the car industry. For example, Volkswagen asked 3,500 of its employees in Beijing to work from home for two weeks. Car sales in China are expected to decline as consumers feel less confident.
  • Production disruptions would largely affect household goods, hi-tech goods and textile and apparel industries where China plays a core role in the global supply chain.
  • The travel industry has also been badly affected. Several countries issued travel warnings about China; some airlines even suspended flights to China.
  • Severe disruptions to inbound and outbound air cargo shipments, trucking and rail cargo services, as well as heavy port congestion for vessels along the Yangtze River near Wuhan.

5. Asian Banks – Material Event

Image 76830020921581471461913

After the closing of books for end of calendar year 2019, there is a material event: coronavirus. Most of Asia’s banks have not yet reported results for the period, including any in China, Hong Kong and Singapore. We would expect that auditors or banks themselves, force commentary and disclosure on pending risks. This should show up in loan loss reserve build, e.g. higher credit costs. It is possible to show up in higher loss given default (LGD) or probability of default (PD) for some loan buckets. It would be wrong to assume that the quarter that recently ended will be robust, as it does not include January and February. Besides, conditions were far from strong in the first place: HK protests is just one reason.

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Brief Indonesia: Buana Lintas Lautan – New Issue Assessment – Lucror Analytics and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Buana Lintas Lautan – New Issue Assessment – Lucror Analytics
  2. Barito Pacific – New Issue Assessment – Lucror Analytics
  3. Thinking About Bangkok Bank’s Buy of Permata

1. Buana Lintas Lautan – New Issue Assessment – Lucror Analytics

PT Buana Lintas Lautan Tbk (BULL), an Indonesian shipping company that serves the domestic oil & gas sector, is conducting a roadshow with a view to issuing USD Notes with a tenor of 3-5 years. The indicative issue size is USD 200 mn, and the proceeds will be used to refinance all existing debt facilities and for general corporate purposes (including vessel acquisitions). 

We view BULL as “High Risk” on the LARA scale. Our view takes into account the company’s: [1] customer concentration risk, being that it depends on Pertamina for the majority of revenues; [2] blacklisting by Pertamina in 2018, which could happen again; [3] aggressive expansion plan over the next three years; and [4] moderate financial profile.

Positively, the domestic shipping industry is protected by favourable regulations that prevent foreign competition. Most shipping contracts are based on long-term time charters of over four years, which provides some stability and visibility on cash flow.

Our fundamental Credit Bias on BULL is “Negative”. Following the Notes issuance, the company’s Gross Debt/EBITDA will increase to c. 4x. Thereafter, we see significant execution risks involved in the expansion plan, which could delay deleveraging.

We view BULL’s corporate governance as “Inadequate” on the LAGA scale, mainly on account of the default history of its predecessor’s parent, PT Berlian Laju Tanker (BLT). In addition, two of BULL’s current directors were senior executives at BLT when it defaulted on its bond obligations in 2012. BULL is 62% controlled by Halim Jusuf and his family, with the stake loosely held via multiple entities. Mr Jusuf has substantial outside business interests in a wide range of industries. We also note BULL’s blacklisting by Pertamina in 2018, which suggests internal control issues.

We do not recommend the proposed Notes, in view of the company’s small operating scale and aggressive growth ambitions, as well as the parent company’s history of default.

2. Barito Pacific – New Issue Assessment – Lucror Analytics

Barito Pacific is marketing a USD benchmark issuance with a tenor of 5-7 years. The proceeds will be used to repay a USD 200 mn term loan, for investments and for general working capital purposes.

We view Barito as “High Risk” on the LARA scale, as the structural subordination and the lack of control on cash flows offset its relatively robust business profile. Barito is almost wholly dependent on dividends (i.e. highly discretional and subordinated cash flows) from Chandra Asri Petrochemical (CAP) to service its debt. To compound the issue, the latter is in a highly cyclical business that could be in a down cycle.

We like Barito’s robust business profile, with CAP being Indonesia’s largest petrochemicals producer in a fast-growing market, and Star Energy a geothermal power producer on take-or-pay contracts that result in visible and contractual cash flows. CAP’s business is volatile and dependent on the spreads between naphtha and its products, but boasts a strategic location and good customer relationships, which allow it to command a slight premium over the regional benchmark. The large capex programme to increase capacity and downstream expansion is conservatively funded by both debt and equity.

Our fundamental Credit Bias on Barito is “Negative”, owing to: [1] the expected deterioration in the financial risk profile as the petrochemical market turns more challenging; and [2] the potential need for additional resources to fund the greenfield 2×1,000 MW power plant project. 

We view Barito’s corporate governance as “Weak” on the LAGA scale.

Considering the structural issues, the peer comps and the decent security, we believe the proposed Notes will price around 8.0%.

3. Thinking About Bangkok Bank’s Buy of Permata

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In early-mid December 2019, we finally got an announcement of the disposition of the sale process for Bank Permata (BNLI IJ) by sellers Standard Chartered (STAN LN) and Astra International (ASII IJ) who own 89.12% of Permata in equal stakes. The bank had been for sale or on the block for a long time. The buyer was announced as Bangkok Bank Public (BBL TB)

Some BBL investors were upset that Bangkok Bank was gallivanting off into foreign lands to expand. Others looked at the all cash deal as a way to increase returns and diversify into an underbanked country with growth ahead. Daniel Tabbush covered the situation in BBL – Permata Purchase Positive

This insight looks at the process and timing of the transaction and how it will play out for minority shareholders and results in a trading framework.

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