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Indonesia

Brief Indonesia: The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
  2. Are Risky Assets Overvalued?
  3. Taking Off: Vietnamese Exports Are Rocking and Rolling
  4. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  5. 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.

Macro Insights

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. 

In Thai Macro Watch: Huawei, Trade Wars, and More, our Thai Guru Athaporn Arayasantiparb, CFA looks at five news on the global front that may impact Thai equities directly or indirectly.

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.

In Singapore REIT – Cautious Search for High Yield, property specialist Anni Kum revisits the REIT sector and identifies her top picks. 

In REIT Discover: Prime US REIT IPO Brief Review,Anni Kum takes a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP)

2. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

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.

3. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

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.  

4. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

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).

5. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend

Indofood%20rev%20segment%20profit

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. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: Are Risky Assets Overvalued? and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Are Risky Assets Overvalued?
  2. Taking Off: Vietnamese Exports Are Rocking and Rolling
  3. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  4. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend
  5. The Next Liquidity Crisis

1. Are Risky Assets Overvalued?

Fredgraph

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.

2. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

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.  

3. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

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).

4. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend

Indofood%20rev%20segment%20profit

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. 

5. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: China’s DRAM Ambitions. As A Convoluted & Tangled Web Unfolds, We Remain Resolutely Bearish. and more

By | Daily Briefs, Indonesia

In this briefing:

  1. China’s DRAM Ambitions. As A Convoluted & Tangled Web Unfolds, We Remain Resolutely Bearish.
  2. How US-China Trade War Impacts Monetary Policy in EM
  3. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. China’s DRAM Ambitions. As A Convoluted & Tangled Web Unfolds, We Remain Resolutely Bearish.

Screen%20shot%202019 06 19%20at%201.05.19%20pm

Tensions created by the stalled US-China trade talks along with the recent US embargo on selling to Huawei has shone a spotlight once again on China’s efforts to design and manufacture its own supplies of key electronic components, most notably DRAM and NAND. 

To that end, a recent report in the Nikkei Asian Review tells us that a Chinese company founded in 2016 is about to become the country’s first mass producer of locally designed memory chips, set to compete in DRAM with the likes of Samsung, SK Hynix and Micron. That company is Changxin Memory Technologies (CXMT), previously known by a plethora of other names including Innotron, Hefei Rui-Li and Hefei Chang Xin. 

The report quotes CXMT CEO Zhu Yiming as saying last month that CXMT’s DRAM design was recently modified and is now based on technology from Qimonda, a descendant of German chipmaker Infineon that filed bankruptcy in 2009. Apparently, this was in an effort to avoid the fate of another aspiring Chinese DRAM manufacturer, Fujian Jinhua, which was indicted by the US authorities on charges of IP theft back in November 2019. 

On the surface, this sounds plausible and quite sensible. However, the reality is China’s path to developing its own DRAM technology base is a tangled and convoluted web which does not bode well for its future success and leaves us resolutely bearish. Here’s why. 

2. How US-China Trade War Impacts Monetary Policy in EM

The breakdown in trade talks between the US and China has cast a pall over global markets and darkened the outlook for global growth. The markets are now expecting more rate cuts and other accommodative measures from some of the leading global central banks. Against this backdrop, EM regulators should be prepared to stimulate their economies with monetary easing. Moreover, with the renminbi FX rate creeping towards the psychological level of 7 vs. the USD, policymakers in other EM economies probably would not mind a bit of currency depreciation owing to lower interest rates. Or would they? We have looked at a number of recent monetary policy decisions in the EM space and have found diverging attitudes to policy easing.

3. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: How US-China Trade War Impacts Monetary Policy in EM and more

By | Daily Briefs, Indonesia

In this briefing:

  1. How US-China Trade War Impacts Monetary Policy in EM
  2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. How US-China Trade War Impacts Monetary Policy in EM

The breakdown in trade talks between the US and China has cast a pall over global markets and darkened the outlook for global growth. The markets are now expecting more rate cuts and other accommodative measures from some of the leading global central banks. Against this backdrop, EM regulators should be prepared to stimulate their economies with monetary easing. Moreover, with the renminbi FX rate creeping towards the psychological level of 7 vs. the USD, policymakers in other EM economies probably would not mind a bit of currency depreciation owing to lower interest rates. Or would they? We have looked at a number of recent monetary policy decisions in the EM space and have found diverging attitudes to policy easing.

2. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: Taking Off: Vietnamese Exports Are Rocking and Rolling and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Taking Off: Vietnamese Exports Are Rocking and Rolling
  2. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  3. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend
  4. The Next Liquidity Crisis
  5. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town

1. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

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.  

2. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

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).

3. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend

Indofood%20rev%20segment%20profit

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. 

4. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

5. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town

Screenshot%202019 07 09%20at%206.44.35%20pm

Erajaya Swasembada (ERAA IJ) has well and truly shaken off the poor performance in 2Q19, as investors have refocused attention on a number of potential upcoming catalysts and a refocusing on the company’s competitive advantages. A conversation with management revealed a more positive outlook. 

Firstly, 2Q19 should see better sales performance, drive to some extent by increased government scrutiny on the black market ahead of Lebaran but also by seasonally higher sales over the festive period. 2Q19 should also see reduced inventory levels and lower interest expenses. 

Secondly, the government announced that it intends to introduce compulsory IMEI number registration in Indonesia, which would hit black market operators very hard, given that unregistered handsets could not be sold.

Thirdly, Erajaya Swasembada (ERAA IJ) will soon announce an agreement as an exclusive distributorship for ” Juul” e-cigarettes, which potentially opens up another huge market for the company. 

Other than this, the company is renegotiating its terms with Xiaomei, which should lead to better control of inventories, as well as better cash flow management.

Erajaya Swasembada (ERAA IJ) remains the best proxy for the explosive growth in the sales of low-cost. locally manufactured  Chinese smartphones in Indonesia. Increased smartphone penetration is a huge factor in the continuing success online players such as Go-Jek Indonesia (1379371D IJ),Tokopedia PT (1087142D IJ), and Shopee. Telcos such as Xl Axiata (EXCL IJ), are also benefitting from big increases in demand for data, with higher levels of smartphone ownership. The clampdown on the black market through compulsory IMEI number registration should have a hugely positive impact in the medium to long term. The tie-up with Juul can only be a positive for the company though we await further details. According to Capital IQ Consensus, the company s trading on 9.7x FY20E PER and 8.5x FY21E PER, with earnings growth of +14.2% and +14.8% respectively. 

Get Straight to the Source on Smartkarma

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Brief Indonesia: The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  3. Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos

1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

3. Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos

19 06 14%20cpi

Judges sentenced former Pertamina head Karen Agustiawan to eight years on patently spurious charges — indicating that mafia interests continue to manipulate legal-system institutions for narrow ends.  Prabowo urged supporters to refrain from demonstrating outside the Constitutional Court and indeed none emerged.  Yudhoyono’s Partai Demokrat is making inroads with Widodo’s alliance; its addition would lift the president’s support in the next parliament from 61% to 70%.  Widodo called for allowing foreign airlines to operate domestically, but this seems unlikely to actually transpire.  The police chief is bungling the post-riot investigations, potentially handing a boon to Prabowo.

Politics: PDI‑Perjuangan abruptly moved its party congress date forward by eight months to August of this year.  Speculation will persist that Megawati may contemplate handing the reigns to her reclusive son, Prananda Prabowo (Page 2).  Gerindra Chair Prabowo Subianto asked supporters to desist from protesting as Constitutional Court justices commence hearings on his electoral appeal today.  Significant demonstrations are not occurring (p. 3).  Prabowo’s legal team claims that Mar’uf Amin lacked eligibility to run for vice president because he served on Syariah advisory councils for subsidiaries of state‑owned Bank Mandiri and Bank Negara (BNI).  General Election Commission (KPU) members defended their decision (p. 4).  Police disclosed evidence to Tempo that links organizers of the 21‑22 May rioting with Gerindra – but the figures involved deny the account (p. 5).  Security officials persist in focusing attention on an anemic assassination plot by Kivlan Zein, rather than accounting for nine riot deaths.  Police Chief Gen Tito Karnavian rejects an independent fact­‑finding team; this risks ceding a public‑relations advantage to Prabowo (p. 6).  Former First Lady Kristiani (‘Ani’) Herawaty Yudhoyono succumbed to leukemia (p. 9).  Prabowo irked Susilo Bambang Yudhoyono by telling reporters that the late first lady voted for him twice.  The gaffe underscores the longstanding awkwardness in their relations and reinforces prospects for Yudhoyono’s Partai Demokrat to join President Joko Widodo’s alliance (p. 9).  Moreover, Yudhoyono’s two sons made a prominent holiday visit with offspring of PDI‑P Chair Megawati (p. 9).

Justice: In a spurious case prosecuted by the Attorney General’s Office (AGO), judges sentenced former Pertamina head Karen Agustiawan to eight years in jail, blaming her for Pertamina’s loss of money in an overseas oil exploration project.  Agustiawan apparently made enemies who are obtaining retribution and thereby sending a signal to decision‑makers throughout the energy sector.  Persistent misuse of legal institutions for narrow ends marks a major deficiency of Widodo’s presidency (p. 10). 

Policy News: Press headlines said the finance minister will curb foreign work permits – but in fact she was merely restating existing policy, without signaling any change (p. 11).  The president called for foreign competition in domestic air routes, but actually bringing this about is far‑fetched (p. 12).  Pertamina’s Aramco JV is in jeopardy (p. 13). 

Economics: Inflation registered a strong increase during May, but a rate cut is nonetheless likely soon (p. 14).

Jakarta: Deaths in the annual holiday migration (mudik) fell by 74 percent (p. 15). 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World and more

By | Daily Briefs, Indonesia

In this briefing:

  1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  3. Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos
  4. Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers

1. The Week that Was in [email protected] – Indonesian Consumers, Cigarettes, and Mobile World

Screenshot%202019 06 17%20at%2012.46.47%20pm

This 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.

Highlights from the last week include macro commentary fromPrasenjit K. Basu post the re-appointment of Prayuth as Thai PM andKevin O’Rourke on corruption in Indonesia. Jessica Irene wrote on Hm Sampoerna (HMSP IJ) and the Indonesian cigarette market, whilst Dylan Waller zeros in on Vietnamese retailer Mobile World Investment (MWG VN). Angus Mackintosh also revisits the state of the Indonesian Consumer after a meeting with Nielsen Indonesia

I also include in the detailed section selected excerpts from discussion streams on Smartkarma over the past week on matters in ASEAN.

Macro Insights

In Prayuth Duly Retains the Prime Ministership; so There’ll Be Stable but Modest Growth, CrossASEAN Insight Provider Prasenjit K. Basu revisits Thailand following the confirmation that Prayuth will retain his position as Prime Minister. 

In Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos, CrossASEAN Insight Provider comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In HM Sampoerna (HMSP IJ): The King’s Struggle, CrossASEAN Insight Provider Jessica Irene revisits one of Indonesian’s largest cigarette manufacturers and asks whether it is time to revisit the company. 

In McJeans & GFPT: Can It Get Any Worse?, our Thai Guru Athaporn Arayasantiparb, CFA reports back following company visits to MC Group Pcl (MC TB) and Gfpt Public (GFPT TB), two very different small-cap companies. 

In Mobile World Investment Corporation: Discount to Other Consumer Stocks Is Asymmetric, Frontiersman Dylan Waller writes on Vietnamese retail player Mobile World Investment (MWG VN), which he sees as one of the most interesting consumer plays in the country.

In SYNEX: Concern over Huawei Dilemma Was Overreaction, our friends at Country Group revisit this Thai mobile phone play after a sharp correction driven by its connection to Chinese phone giant Huawei. 

Sector and Thematic Insights

In Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers, CrossASEAN Insight Provider Angus Mackintosh revisits the state of the consumer in Indonesia following a meeting with Nielsen Indonesia.

In Snippets #23: Italian-Thai’s Hotel Diversification, New Starbucks Honcho! , Athaporn Arayasantiparb, CFA highlights five pieces of recent news/developments over the past week, which could potentially impact listed Thai stocks. 

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

3. Pertamina Case Highlights Risk / Airline Dereg Unlikely / PD Leans Widodo / No Court Demos

19 06 14%20cpi

Judges sentenced former Pertamina head Karen Agustiawan to eight years on patently spurious charges — indicating that mafia interests continue to manipulate legal-system institutions for narrow ends.  Prabowo urged supporters to refrain from demonstrating outside the Constitutional Court and indeed none emerged.  Yudhoyono’s Partai Demokrat is making inroads with Widodo’s alliance; its addition would lift the president’s support in the next parliament from 61% to 70%.  Widodo called for allowing foreign airlines to operate domestically, but this seems unlikely to actually transpire.  The police chief is bungling the post-riot investigations, potentially handing a boon to Prabowo.

Politics: PDI‑Perjuangan abruptly moved its party congress date forward by eight months to August of this year.  Speculation will persist that Megawati may contemplate handing the reigns to her reclusive son, Prananda Prabowo (Page 2).  Gerindra Chair Prabowo Subianto asked supporters to desist from protesting as Constitutional Court justices commence hearings on his electoral appeal today.  Significant demonstrations are not occurring (p. 3).  Prabowo’s legal team claims that Mar’uf Amin lacked eligibility to run for vice president because he served on Syariah advisory councils for subsidiaries of state‑owned Bank Mandiri and Bank Negara (BNI).  General Election Commission (KPU) members defended their decision (p. 4).  Police disclosed evidence to Tempo that links organizers of the 21‑22 May rioting with Gerindra – but the figures involved deny the account (p. 5).  Security officials persist in focusing attention on an anemic assassination plot by Kivlan Zein, rather than accounting for nine riot deaths.  Police Chief Gen Tito Karnavian rejects an independent fact­‑finding team; this risks ceding a public‑relations advantage to Prabowo (p. 6).  Former First Lady Kristiani (‘Ani’) Herawaty Yudhoyono succumbed to leukemia (p. 9).  Prabowo irked Susilo Bambang Yudhoyono by telling reporters that the late first lady voted for him twice.  The gaffe underscores the longstanding awkwardness in their relations and reinforces prospects for Yudhoyono’s Partai Demokrat to join President Joko Widodo’s alliance (p. 9).  Moreover, Yudhoyono’s two sons made a prominent holiday visit with offspring of PDI‑P Chair Megawati (p. 9).

Justice: In a spurious case prosecuted by the Attorney General’s Office (AGO), judges sentenced former Pertamina head Karen Agustiawan to eight years in jail, blaming her for Pertamina’s loss of money in an overseas oil exploration project.  Agustiawan apparently made enemies who are obtaining retribution and thereby sending a signal to decision‑makers throughout the energy sector.  Persistent misuse of legal institutions for narrow ends marks a major deficiency of Widodo’s presidency (p. 10). 

Policy News: Press headlines said the finance minister will curb foreign work permits – but in fact she was merely restating existing policy, without signaling any change (p. 11).  The president called for foreign competition in domestic air routes, but actually bringing this about is far‑fetched (p. 12).  Pertamina’s Aramco JV is in jeopardy (p. 13). 

Economics: Inflation registered a strong increase during May, but a rate cut is nonetheless likely soon (p. 14).

Jakarta: Deaths in the annual holiday migration (mudik) fell by 74 percent (p. 15). 

4. Indonesian Consumers – Lifestyle, Leisure, and Smartphone Lovers

Screenshot%202019 06 12%20at%2011.09.18%20am

A conversation with Nielsen Indonesia provided some invaluable insight into current consumer sentiment and behaviour in Indonesia, as well as feel for which formats are succeeding whilst others flounder in the retail space. 

The general feeling on consumer sentiment is that overall it is improving but not across the board, as lifestyle, leisure, and new smartphones take the lead over essential items, which are seeing relatively stagnant growth.

Motorcycle sales spiked nearly 30% YoY in 1Q19 but car sales dipped slightly, signifying some nervousness around the purchase of big-ticket items in the run-up to the Presidential election. This may change since the “real” count (final election count) is over and recent demonstrations badly discredited the opposition. Astra International (ASII IJ) is well positioned to benefit from any upturn, given its gains in market share and the success of its SUV models.

Consumer confidence remained high in May ahead of the Idul Fitri holiday, and sales are estimated to have increased 20%-25% YoY, according to the Indonesian retailers association.

Electronics and apparel continue to dominate the online retail space, with electronics the largest category by value but apparel by volume. 

Mitra Adiperkasa (MAPI IJ) and Ace Hardware Indonesia (ACES IJ) continue to lead the pack in terms of sales growth with exposure to upper-middle-class consumers and lifestyle-related spending. Pt Matahari Department Store (LPPF IJ) seems to have lost its way, with challenges from above and below as well as from online. Its new strategy of pursuing a specialty store approach for certain brands also remains untested. 

The outlook for consumption, in general, is positive for this year, especially now that the election is out of the way, with expectations of a strong post-Lebaran pick-up, specifically for bigger-ticket items.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Indonesia: Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked
  2. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend
  3. The Next Liquidity Crisis
  4. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town
  5. Trade War Takes Its Toll

1. Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked

Trade%2019 07 12%20oil

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).

2. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend

Indofood%20cbp%20comps

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. 

3. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

4. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town

Screenshot%202019 07 09%20at%206.44.35%20pm

Erajaya Swasembada (ERAA IJ) has well and truly shaken off the poor performance in 2Q19, as investors have refocused attention on a number of potential upcoming catalysts and a refocusing on the company’s competitive advantages. A conversation with management revealed a more positive outlook. 

Firstly, 2Q19 should see better sales performance, drive to some extent by increased government scrutiny on the black market ahead of Lebaran but also by seasonally higher sales over the festive period. 2Q19 should also see reduced inventory levels and lower interest expenses. 

Secondly, the government announced that it intends to introduce compulsory IMEI number registration in Indonesia, which would hit black market operators very hard, given that unregistered handsets could not be sold.

Thirdly, Erajaya Swasembada (ERAA IJ) will soon announce an agreement as an exclusive distributorship for ” Juul” e-cigarettes, which potentially opens up another huge market for the company. 

Other than this, the company is renegotiating its terms with Xiaomei, which should lead to better control of inventories, as well as better cash flow management.

Erajaya Swasembada (ERAA IJ) remains the best proxy for the explosive growth in the sales of low-cost. locally manufactured  Chinese smartphones in Indonesia. Increased smartphone penetration is a huge factor in the continuing success online players such as Go-Jek Indonesia (1379371D IJ),Tokopedia PT (1087142D IJ), and Shopee. Telcos such as Xl Axiata (EXCL IJ), are also benefitting from big increases in demand for data, with higher levels of smartphone ownership. The clampdown on the black market through compulsory IMEI number registration should have a hugely positive impact in the medium to long term. The tie-up with Juul can only be a positive for the company though we await further details. According to Capital IQ Consensus, the company s trading on 9.7x FY20E PER and 8.5x FY21E PER, with earnings growth of +14.2% and +14.8% respectively. 

5. Trade War Takes Its Toll

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The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

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Brief Indonesia: Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend and more

By | Daily Briefs, Indonesia

In this briefing:

  1. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend
  2. The Next Liquidity Crisis
  3. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town
  4. Trade War Takes Its Toll
  5. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine

1. Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend

Asean%20eco%20dev%20chart

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. 

2. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

3. Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts – On the Ground In J-Town

Screenshot%202019 07 09%20at%206.44.35%20pm

Erajaya Swasembada (ERAA IJ) has well and truly shaken off the poor performance in 2Q19, as investors have refocused attention on a number of potential upcoming catalysts and a refocusing on the company’s competitive advantages. A conversation with management revealed a more positive outlook. 

Firstly, 2Q19 should see better sales performance, drive to some extent by increased government scrutiny on the black market ahead of Lebaran but also by seasonally higher sales over the festive period. 2Q19 should also see reduced inventory levels and lower interest expenses. 

Secondly, the government announced that it intends to introduce compulsory IMEI number registration in Indonesia, which would hit black market operators very hard, given that unregistered handsets could not be sold.

Thirdly, Erajaya Swasembada (ERAA IJ) will soon announce an agreement as an exclusive distributorship for ” Juul” e-cigarettes, which potentially opens up another huge market for the company. 

Other than this, the company is renegotiating its terms with Xiaomei, which should lead to better control of inventories, as well as better cash flow management.

Erajaya Swasembada (ERAA IJ) remains the best proxy for the explosive growth in the sales of low-cost. locally manufactured  Chinese smartphones in Indonesia. Increased smartphone penetration is a huge factor in the continuing success online players such as Go-Jek Indonesia (1379371D IJ),Tokopedia PT (1087142D IJ), and Shopee. Telcos such as Xl Axiata (EXCL IJ), are also benefitting from big increases in demand for data, with higher levels of smartphone ownership. The clampdown on the black market through compulsory IMEI number registration should have a hugely positive impact in the medium to long term. The tie-up with Juul can only be a positive for the company though we await further details. According to Capital IQ Consensus, the company s trading on 9.7x FY20E PER and 8.5x FY21E PER, with earnings growth of +14.2% and +14.8% respectively. 

4. Trade War Takes Its Toll

Capture%202

The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

5. Snap Parliamentary Election Could Pave Way for New IMF Programme for Ukraine

Ukraine8july19

Ukraine is gearing up for a snap parliamentary election scheduled for Sunday 21 July. Given the high approval rating of President Volodymyr Zelensky’s Servant of the People Party, it could win the election in a landslide. Otherwise, it should still be able to form a coalition representing more than half of the Rada MPs. Markets seem to have priced in a positive outcome of the election and would be disappointed if Servant of the People fails to quickly secure the parliamentary approval of the new PM and his cabinet.

The IMF has effectively frozen its assistance to Ukraine until the latter has formed a new government. The timing of the resumption of the negotiations with the IMF depends on the approval of the PM and his cabinet by the new Rada. We think that realistically, talks with the IMF could resume in September. As before, the issue of energy tariffs is likely to feature on the agenda.  Zelensky is busy meeting with international donors and Western leaders gathering support for a new privatisation programme and an infrastructure development plan. However, the latter is hardly feasible without a settlement of the Donbas conflict. So far, we have not seen any signs of convergence in Russia and Ukraine’s positions on the ways of resolving the conflict.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.