Indonesia

In this briefing:

1. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR
2. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
4. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

1. Golden Agri: El Nino Back on the Front Burner; Bullish Catalyst for GAR

INVESTMENT VIEW:
The Australian Bureau of Meteorology raised its ENSO Outlook back to El Nino ALERT from WATCH, which is linked to regional droughts, lower yields and higher prices for agriculture across South East Asia.  As such, we believe the recent correction in Crude Palm Oil (CPO) prices is over and recommend buying back into shares of key producers with leverage to higher CPO prices, like Golden Agri Resources (GGR SP) (GAR). 

2. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town

A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.

4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.

Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously. 

The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL. 

4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18. 

The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.

The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.  

After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates. 

3. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

4. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

5. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

In this briefing:

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

Xl Axiata’s  (EXCL IJ) 4Q18 results triggered a very strong rally last week that continues this week. The market has been very concerned about competitive pressures in Indonesia and extremely low data prices. We believe that Indonesia is now past the worst and there is evidence that data pricing is starting to rise modestly. That is delivering a powerful tail wind for Indonesian telcos in 2019, with XL Axiata likely to report several very strong quarters.

XL Axiata now reporting strong sequential revenue growth (% QoQ)

In this briefing:

1. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town
2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
3. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

1. XL Axiata (EXCL IJ) – The Crown Prince of Data – On the Ground in J-Town

A conversation with the management of Xl Axiata (EXCL IJ) following news that the company has started putting up prices in earnest for its existing customers revealed a more positive outlook for ARPUs and margins in 2019. 2018 was a difficult year with the impact of compulsory SIM registration in the first half plus a more intense competitive environment at the same time.

4Q18 results already reflected a better picture with QoQ growth for the quarter in service revenue, data revenue, and EBITDA confirming a positive trend established in the previous quarter.

Competition from other major players such a Telekomunikasi Indonesia (TLKM IJ), Indosat Tbk PT (ISAT IJ) and Hutchison has become more rational with the latter two operators raising prices in 2019 paving the way for Xl Axiata (EXCL IJ)‘s recent increases in renewal packages versus acquisition products previously. 

The availability of cheap but highly functional locally Chinese smartphones and XL’s own Xtream 4G handsets continues to drive data growth which now makes up 82% of services revenues for XL. 

4G subscribers, which now make up more than 55% of XL’s subs, also consume far more data than those using 3G. XL has been successfully monetising its more data-centric subscriber base in 2H18, reflected in its higher ARPU’s, which increased from IDR32,000 in 3Q18 to IDR33,000 in 4Q18. 

The increasing push by content players such as iFlix, Vidio.com, and other OTT players and digital advertisers into the mobile space will only increase the appetite for data in the mobile space.

The wild card on the competition front is Smartfren Telecom (FREN IJ) owner by Sinar Mas Group, which continues to push out aggressive data packages, although this had been tempered this year after it was hauled up by the regulator for breaking the pre-paid SIM rules.  

After a tough start to 2018, Xl Axiata (EXCL IJ) began to more effectively monetise its data and more importantly its 4G advantage in 2H18 and more holistically in 1Q19. If this momentum continues this year, it looks set to move back to headline profitability. Valuations look attractive, with the company trading on an EV/EBITDA of 4.2x FY19E, according to Capital IQ consensus estimates. After moving into profitability in 2019, it is forecast to see EPS growth of +63% and +68% for FY20E and FY21E respectively, implying an FY21E PER of 14.8x. Given the improvement in data pricing and strong growth in data, especially from 4G subscribers, consensus estimates appear conservative with room for upgrades to earnings estimates. 

2. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

3. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

4. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

5. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

In this briefing:

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia
2. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

1. XL Axiata Results Show a Strong Turnaround Underway in Indonesia

Xl Axiata’s  (EXCL IJ) 4Q18 results triggered a very strong rally last week that continues this week. The market has been very concerned about competitive pressures in Indonesia and extremely low data prices. We believe that Indonesia is now past the worst and there is evidence that data pricing is starting to rise modestly. That is delivering a powerful tail wind for Indonesian telcos in 2019, with XL Axiata likely to report several very strong quarters.

XL Axiata now reporting strong sequential revenue growth (% QoQ)

2. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers

Macro Insights

In Indonesia: Waiting To Unleash The Potential, our friends at River Valley Asset Management cast their learned eye over the prospects for the Indonesian Stock market. 

In Widodo Sets GIAA Fare / Ahok In PDI-P / Prabowo Still Misfiring / Oz Cepa / KPK on Beneficial Owners, Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

Equity Bottom-Up Insights

In Valuetronics (VALUE SP): Trade War Uncertainty Continues, Downside Supported by Large Cash Position, CrossASEAN Insight Provider Nicolas Van Broekhoven circles back to this consumer electronics player and highlights the risks from the US-China Trace War. 

In Puregold Price Club: Steady Grower with Provincial Expansion Story, Johannes Salim, CFA comments on this leading Philippines consumer play. 

in Silverlake Axis (SILV SP): 2Q19 Results Again Confirm New 3-Year Growth Cycle; HNA Overhang Removed, Nicolas Van Broekhoven revisits Silverlake Axis (SILV SP) and sees blue skies ahead post its recent results. 

In Delta’s Less-Than-Straightforward Tender Offer, events specialist David Blennerhassett comments on Delta Electronics Thai (DELTA TB) following a tender offer for the company. 

In Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies, Anish Kapadia examines the recent sale of a stake in Mako gas field in Indonesia and its implication for other SE Asian energy plays such as Medco Energi Internasional T (MEDC IJ). 

In Catch-Up Session with Intuch Group, Thai guru Athaporn Arayasantiparb, CFA revisits Intouch Holdings (INTUCH TB) following a meeting with management. 

In GPSC To Proceed With Glow Takeover, But At What Price?, events specialist David Blennerhassett looks at the ongoing takeover of Glow Energy Pcl (GLOW TB) by Global Power Synergy Company Ltd (GPSC TB). 

In UG Healthcare: Weak 2Q19 Driven by One-Off Issue, If 10% NPM Achieved in FY20 Trades at 4x FY20 P/E, CrossASEAN Insight Provider Nicolas Van Broekhoven revisits UG Healthcare (UGHC SP) after some weak results but remains positive on the long term story.  

In M1 Ltd (M1 SP): Axiata Throws in the Towel, Delisting Looms, Arun George circles back to the acquisition of M1 Ltd (M1 SP) by Keppel Corp Ltd (KEP SP) and Singapore Press Holdings (SPH SP) after Axiata Group (AXIATA MK) decided to accept the offer. 

In OUE C-REIT – Beware of the CPPU Timebomb, Royston Foo revisits this REIT and highlights some potential DPU dilution ahead for minorities.  

in MINT Placement – Well Flagged Placement but Only Marginally Accretive, Past Deals Have Done Well, Sumeet Singh zeros in on a recent placement by Mapletree Industrial Trust (MINT SP).  

Sector and Thematic Insights

In Top Consumer Themes in Vietnam, Dylan Waller looks at this high growth sector and highlights his top picks.

In Singapore Property – January Developers’ Sales Data Continues to Point Towards a Bleak Outlook, Royston Foo revisits the sector after January’s sales data. 

In Singapore Real Deals (Issue 3): Integrated Mixed-Use Development in Pasir Ris, Anni Kum looks at a recent white site launch in Pasir Ris.

In this briefing:

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.
2. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
4. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
5. Moore’s Law May Not Be Dead, After All

1. Starboard Value. The Game Changing Activist Investor That Doesn’t Take No For An Answer.

New York based activist investor firm Starboard Value has been intricately involved in shaping the  fortunes and futures of two high profile technology companies in recent years, Marvell and Mellanox. The firm first to prominence some five years ago when they were the first among their peers to accomplish the extraordinary feat of replacing the CEO and entire board of Fortune 500 restaurant group Darden, while holding less than 10% of the company’s shares.

In the wake of their Darden coup, the firm has gone from strength to strength. To date the firm has taken positions in a total of 105 publicly listed companies, replacing or adding some 211 directors on over 60 corporate boards.

On March 7’th 2019, Starboard Value announced the acquisition of a 4% stake in US comms infrastructure firm Zayo. In the intervening period, Zayo’s share price has risen by 14% as canny investors scramble to partake in the goodness that will surely be extracted by the activist firm that simply doesn’t take no for an answer. 

2. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

3. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

4. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

5. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

In this briefing:

1. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest
2. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
3. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
4. Moore’s Law May Not Be Dead, After All
5. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

1. Widodo Lead Intact / VP Debate Lacks Impact / Trade Slows / Permitting Impediment / PPP Chair Arrest

A new poll from Alvara concurs with last week’s LSI data and shows Widodo’s lead intact.  A TV debate between the VP nominees was largely perfunctory, and Prabowo’s running mate Sandiaga Uno failed to use the opportunity to make up ground in the presidential race.  The KPK arrested Romahurmuziy, an arder Widodo supporter and chair of the Islamic United Development Party (PPP); this reflects poorly on the president at an awkward time, but is unlikely to cause significant damage.  Both exports and imports slowed precipitously in the Jan-Feb period, although capital-goods imports held up. 

Politics: The 17 March vice-presidential debate featured few stellar moments, but President Joko Widodo’s running mate Ma’ruf Amin generally outperformed expectations.  He commanded detail without perpetrating major gaffes.  Although Prabowo Subianto’s running mate Sandiaga Uno performed with eloquence, he lacked resonance and failed to make the compelling breakthroughs that his ticket needs (Page 2).  Officials in Prabowo’s campaign reiterated suspicions about inaccuracies in the voter list.  To be sure, maladministration has been chronically problematic, producing inaccuracies in the list – but alleging conspiratorial intent would be far-fetched (p. 3).  Widodo urged supporters to encourage voter turnout, counter hoaxes and avoid complacency (p. 4). 

Surveys: The Alvara Research Institute measured Widodo’s lead over Prabowo at 19 percentage points in a poll conducted in late February and early March.  This generally corroborates recent findings from the Survey Network (LSI) (p. 5).

Disasters: In Sentani, outside the provincial capital of Jayapura in Papua Province, flash flooding and mudslides killed at least 73, with 60 others still missing (p. 6).

Justice: United Development Party (PPP) Chair Romahurmuziy entered custody as a suspect on charges of graft.  Investigators from the Anti-Corruption Commission (KPK) believe he took bribes in exchange for arranging senior appointments in the Religion Ministry, which PPP’s Lukman Saefuddin heads.  If so, the case would mark the latest in a long line of Religion Ministry corruption scandals, and the second to embroil a PPP chair.  The affair is an embarrassment at a crucial time for Widodo, but the details do not implicate the president and the KPK has refrained from pursuing Saefuddin, for now.  Romahurmuziy has enthusiastically supported Widodo and he championed the VP candidacy of Amin; nonetheless, the PPP figure still lacks national prominence and his disgrace seems unlikely to materially affect the election (p. 7).  Testimony from a Bekasi official sheds more light on Lippo Group practices in the Meikarta bribery case (p. 8).

Policy News: The coordinating economics minister suggested penalizing district‑level governments that lack detailed spatial plans, which are crucial for a planned online investment permitting system (p. 9).

Economics: The finance minister registered caution about the trade surplus recorded during February, as exports underperformed while imports fell even further.  But capital goods imports have held up (p. 10).

2. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

3. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

4. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

5. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

In this briefing:

1. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans
2. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
3. Moore’s Law May Not Be Dead, After All
4. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
5. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

1. The Week that Was in ASEAN@Smartkarma – Doubledragon, Indonesian Property, and UOB’s Bad Loans

Macro Insights

In his economic Insight, When Job ‘Quality’ Prevailed over ‘Headcount’, Philippines Economist Jun Trinidad examines the recent encouraging employment numbers in the Philippines.  

Equity Bottom-Up Insights

In UOB – Driving Bad Loans, Daniel Tabbush zeros in on this leading Singapore bank’s loan quality and finds all may not be well despite headlines showing improvement. 

in Krung Thai Bank: Not as Cheap as It Looks, Paul Hollingworth revisits Krung Thai Bank Pub (KTB TB) and despite originally finding the bank attractive on a number of valuation measures, now finds less to cheer about.

In GLOW’s Done Deal As SPA (Almost) Completes events specialist David Blennerhassett circles back to this ongoing takeover situation.  

In Company Visits: Berli Jucker, M Visions, our Thai Guru Athaporn Arayasantiparb, CFA reports back following visits to the two aforementioned companies.

In his insight, Geo Energy (GERL SP): Recovery in Coal Price from 4Q18 Bottom; Continue to Wait for M&A Action, Nicolas Van Broekhoven circles back to this Geo Energy Resources (GERL SP) which reported weak 4Q18 results late last month. 

in Keppel Infrastructure Trust Placement – Scaled Down but Large Deal; Very Well Flagged Deal, Sumeet Singh reports back on this recent placement. 

In Lippo Malls REIT – Acquisition of Lippo Mall Puri Announced. Dilutive Rights Issue ComingRoyston Foo reports back on this Singapore listed Indonesia focused REIT following the announcement of a rights issue. 

Sector and Thematic Insights

in Snippets #20: Dark Clouds in Thai Equities, Athaporn Arayasantiparb, CFA highlights interesting trends/events/developments he heard this month, and highlights five which could impact Thai equities in the near term.

In Singapore Property – February Sales Data Support Investment Thesis on Sing Holdings, Royston Foo examines the most recent property sales figure coming out of Singapore. 

2. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

3. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

4. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

5. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road. 

Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story. 

Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township.  This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.

The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.

It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term. 

Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.

Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali. 

The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.

One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022. 

From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties. 

In this briefing:

1. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress
2. Moore’s Law May Not Be Dead, After All
3. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
4. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)
5. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

1. LNG: What Matters This Week? Prices Fall Further in Asia but New Projects Continue to Progress

LNG prices have dropped to a seasonal low, as we flagged in our outlook piece for this year (2019 Energy Market Themes & Stocks with Exposure: Focus on Oil, Refining, LNG, M&A & Renewables) but this hasn’t dampened enthusiasm to push new projects forward (see A Huge Wave of New LNG Projects Coming in the Next 18 Months: Positive for The E&C Companies). We continue to see this as positive for the LNG contractors and negative for the LNG developers. We discuss recent LNG prices, European LNG demand and the FID outlook including project updates from Venture Global, Alaska and Cyprus. 

2. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

3. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

4. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road. 

Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story. 

Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township.  This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.

The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.

It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term. 

Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.

Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali. 

The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.

One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022. 

From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties. 

5. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016

In this briefing:

1. Moore’s Law May Not Be Dead, After All
2. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
3. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)
4. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
5. Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ)

1. Moore’s Law May Not Be Dead, After All

For years semiconductor makers and investors have worried that Moore’s Law will end.  Although it is not difficult to find proponents of this argument today, this Insight provides evidence that the venerable phenomenon not only is still moving forward, but that it has, in some cases, been moving faster than it has in the past.

2. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

3. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road. 

Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story. 

Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township.  This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.

The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.

It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term. 

Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.

Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali. 

The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.

One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022. 

From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties. 

4. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016

5. Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The third company that we explore is Pakuwon Jati (PWON IJ), the biggest retail mall operator, and mixed-use high rise and township developer since 1986. PWON has five major projects in the two biggest cities: Jakarta and Surabaya. 

Its recurring income base is the highest in the Indonesian property universe, playing a big role in the company’s solid earnings performance in the past few years of property downturn. However, currency depreciation, stricter mortgage regulations, and falling rental yields curb investors’ appetite for property investments, leading to weak presales in the past three years. Property development revenues are expected to be trending down going forward on lower presales in 2016-2018. Contrary to peers, cashflow generation remains very strong, led by the large recurring income base and thick margin. There is however no plan to increase dividends, but rather reserving the excess cash for future landbank acquisition.  

The weaker presales in 1H19 is widely anticipated, but we fear that there may be some selling pressure on each weak presales announcements, given PWON’s premium valuations and stock outperformance YTD. Nonetheless, potential portfolio inflow to high beta stocks and rising risk appetite for smaller-capped stocks should be beneficial for PWON. Our blended target price of IDR773 per share offers 21% upside.

Summary of this insight:

• PWON currently operates 7 retail malls, 4 office towers for lease, 4 hotels, and 1 serviced apartment as its recurring income base, representing 52% of revenues. Retail mall division is PWON’s single biggest revenue contributor, growing at 16% Cagr over the past 5 years, making up 40% of total revenues and 77% of total recurring incomes. 
• The company sells landed housings, condominiums, and offices in five project locations as its “non-recurring” property development revenues, which account for the remaining 48% of revenues. Condominiums and offices are PWON’s second biggest revenue generator, comprising about 30-40% of sales. PWON has been pushing more landed residential projects to mitigate the impact from slower condominiums and offices market.
• Accessibility is a key factor to land appreciation and hence, company’s total NAV. With the traffic worsening around the Greater Jakarta area, time to commute is an increasingly important factor in determining where to stay and access to public transportation such as MRT and LRT will be a powerful driver going forward. PWON’s landbanks are located in strategic locations, essential to the success of its past projects in Jakarta and Surabaya.
• Presales are more sensitive to investment appetite and rental yield rather than BI rates. Cash and cash installments typically make up 65-85% of total payments, while mortgages comprise a minority 15-35%.

• Slower take up rate on high-rise projects leads to larger funding requirement. Condominiums can take up to four years to complete if it is part of a superblock project, and a big portion of the raw materials for construction has to be secured and paid upfront to lock in prices and ensure availability.  Meanwhile, the presales mortgage disbursement regulation issued in 2014 diminishes cash inflow from mortgage-paying customers. We constructed a cashflow simulation model for a typical condominium tower launch to analyze the monthly cashflow impact from slower take up rate and mortgage regulation changes.
• Pros: The operating cashflow remains positive and strong over the past five years of property downturn, the best among the property developers that we visited. The seven retail malls generate over IDR1tn cash per year in the past three years, enough to sustain company’s working capital and capex requirements. Free cashflow (FCF) is mostly positive with the exception of 2014 and 2015 when PWON had two big acquisitions. Net gearing peaked in 2015 and had slowly decreased over the years.

• Cons: For the first time since 2010, PWON’s advances-to-inventory ratio, which is an indicative figure for the property developers’ working capital, fell below 100%. We are expecting a slow recovery for PWON as its inventory account should continue to grow higher in the short term as the company plans to launch few new condominium towers in Surabaya and a new superblock in Bekasi.

• Cons: Election year to election year, we may see some similarity between the 2014 and 2019’s quarterly presales split. 1Q14 and 2Q14 contributed 36% to total FY14 presales, while 4Q14 contributed a chunky 36%. If we assume the same quarterly split for 2019 presales target, we may potentially see 4-32% YoY declines in the next three quarters of presales reporting. Note however that the BI issued its first round of tightening regulations at the end of 2013 and this may have an impact to the 1H14 presales. Also there is a difference in the election schedules as the 2014 election was dragged on until late August, while the 2019 contest will be done by end of April.
• Recommendation: PWON share price is performing relatively in line with the JCI over the past year, outperforming its property peers. Its solid earnings and cashflow are rewarded with premium valuations against peers. The discount to net asset value (NAV) and price-to-earnings (PE) ratio are close to +1 standard deviation above the 5-yr historical mean. After a solid 45% bounce off recent lows, the stock is no longer cheap. However, with better interest rate environment and positive regulatory tailwinds, we may see improving activities after the election. Furthermore, potential portfolio inflow to high beta stocks and better sentiment towards the property sector should also benefit PWON. We derive an IDR773 target price per share for PWON, assuming discount to NAV, PB, and PE valuation re-rating to +1 standard deviation above mean.

In this briefing:

1. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise
2. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)
3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019
4. Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ)
5. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

1. RRG Weekly – Is Modi Government Cooking the Books? Brexit Risks Rise. South Africa Could Surprise

• Russia: Recent study estimates that unreported activity accounts for about 20% of GDP. Moscow could use this lost tax revenue.
• Singapore: MAS qtrly survey of professional forecasters estimates 2019 GDP growth at 2.5% for this year, down from median estimate of 2.7% in the September survey.
• South Africa: Morgan Stanley is calling for outperformance by South African economy and stocks in the coming months.  Focus on Healthcare and Retail Names)
• India: Modi’s government is accused of politicizing economic data government in a growing debate over the credibility of India’s official growth estimates.

2. Indonesia Property – In Search of the End of the Rainbow – Part 4 – Alam Sutera Realty (ASRI IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The fourth company that we explore is township developer Alam Sutera Realty (ASRI IJ), which provides an interesting exposure to a mix of landed housing, high-rise and low-rise condominiums through its Alam Sutera Township near Serpong and its Pasir Kemis township 15 km further out on the toll road. 

Given the diminishing area of high-value land bank in Alam Sutera, the company has shifted emphasis towards selling low-rise condominiums and commercial lots for shop houses, which has been a success story. 

Alam Sutera Realty (ASRI IJ) also has a contract with a Chinese developer, China Fortune Land Development (CFLD), to develop a total of 500 ha over a five year period in its Pasir Kamis Township.  This has provided a fillip for the company during a quiet period of marketing sales and will continue to underpin earnings for the next 2 years.

The company stands to benefit from the completion of two new toll-roads, one soon to be completed to the south connecting directly to BSD City and longer term a new toll to Soekarno Hatta Airport to the north.

It will start to utilise new land bank in North Serpong in 2021, which will extend the development potential in the area significantly longer-term. 

Management is optimistic about marketing sales for 2019 and expects growth of +16% versus last year’s number, which already exceeded expectations.

Alam Sutera Realty (ASRI IJ) has less recurrent income than peers at around 10% of total revenue but has the potential to see better contributions from the Garuda Wisnu Kencana Cultural Centre (GWK) in Bali. 

The new regulations on the booking of sales financed by mortgages introduced in August 2018 will benefit Alam Sutera Realty (ASRI IJ) from a cash flow perspective. Given that the company is consistently producing free cash flow, this is also a strong deleveraging story.

One of the biggest risks for the company is its US$ debt, which totals US$480m and is made up of two bonds expiring in 2020 and 2022. 

From a valuation perspective, Alam Sutera Realty (ASRI IJ) looks very interesting, trading on 4.9x FY19E PER, at 0.67x PBV, and at a 71% discount to NAV. On all three measures, at 1 STD below its historical mean. Our target price of IDR600 takes a blended approach, based on the company trading at historical mean on all three measures implies upside of 91% from current levels. Catalysts include better marketing sales from its low-rise developments at its Alam Sutera township and further cluster sales there, a pick-up in sales and pricing at its Pasir Kemis township, a sale of its office inventory at The Tower, a pick up in recurrent income driven by improving tenant mix at GWK. Given that the company has high levels of US$ debt, a stable currency will also benefit the company. A more dovish outlook on interest rates will also be a positive, given a large and rising portion of buyers use a mortgage to buy its properties. 

3. Upstream Oil & Gas M&A Review: Surge of Takeovers and Mergers in 2018 – What to Expect in 2019

The last three years have been characterized by significant M&A activity in the upstream oil and gas industry. As the oil cycle recovered from the price bottom in January 2016, lower asset prices and corporate valuations created opportunities for the companies with a stronger balance sheet to grow inorganically while their weaker competitors were forced to downsize their portfolios. 2018, in particular, has seen a surge of corporate M&A which has been driving consolidation in the industry. This insight examines the trends that have shaped the M&A markets since 2016 with a closer view of 2018 and the outlook for 2019.

Exhibit 1: M&A volume compared to the E&P index and the oil price since 2016

4. Indonesia Property – In Search of the End of the Rainbow – Part 3 – Pakuwon Jati (PWON IJ)

In this series under Smartkarma Originals, CrossASEAN insight providers AngusMackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks. 

The third company that we explore is Pakuwon Jati (PWON IJ), the biggest retail mall operator, and mixed-use high rise and township developer since 1986. PWON has five major projects in the two biggest cities: Jakarta and Surabaya. 

Its recurring income base is the highest in the Indonesian property universe, playing a big role in the company’s solid earnings performance in the past few years of property downturn. However, currency depreciation, stricter mortgage regulations, and falling rental yields curb investors’ appetite for property investments, leading to weak presales in the past three years. Property development revenues are expected to be trending down going forward on lower presales in 2016-2018. Contrary to peers, cashflow generation remains very strong, led by the large recurring income base and thick margin. There is however no plan to increase dividends, but rather reserving the excess cash for future landbank acquisition.  

The weaker presales in 1H19 is widely anticipated, but we fear that there may be some selling pressure on each weak presales announcements, given PWON’s premium valuations and stock outperformance YTD. Nonetheless, potential portfolio inflow to high beta stocks and rising risk appetite for smaller-capped stocks should be beneficial for PWON. Our blended target price of IDR773 per share offers 21% upside.

Summary of this insight:

• PWON currently operates 7 retail malls, 4 office towers for lease, 4 hotels, and 1 serviced apartment as its recurring income base, representing 52% of revenues. Retail mall division is PWON’s single biggest revenue contributor, growing at 16% Cagr over the past 5 years, making up 40% of total revenues and 77% of total recurring incomes. 
• The company sells landed housings, condominiums, and offices in five project locations as its “non-recurring” property development revenues, which account for the remaining 48% of revenues. Condominiums and offices are PWON’s second biggest revenue generator, comprising about 30-40% of sales. PWON has been pushing more landed residential projects to mitigate the impact from slower condominiums and offices market.
• Accessibility is a key factor to land appreciation and hence, company’s total NAV. With the traffic worsening around the Greater Jakarta area, time to commute is an increasingly important factor in determining where to stay and access to public transportation such as MRT and LRT will be a powerful driver going forward. PWON’s landbanks are located in strategic locations, essential to the success of its past projects in Jakarta and Surabaya.
• Presales are more sensitive to investment appetite and rental yield rather than BI rates. Cash and cash installments typically make up 65-85% of total payments, while mortgages comprise a minority 15-35%.

• Slower take up rate on high-rise projects leads to larger funding requirement. Condominiums can take up to four years to complete if it is part of a superblock project, and a big portion of the raw materials for construction has to be secured and paid upfront to lock in prices and ensure availability.  Meanwhile, the presales mortgage disbursement regulation issued in 2014 diminishes cash inflow from mortgage-paying customers. We constructed a cashflow simulation model for a typical condominium tower launch to analyze the monthly cashflow impact from slower take up rate and mortgage regulation changes.
• Pros: The operating cashflow remains positive and strong over the past five years of property downturn, the best among the property developers that we visited. The seven retail malls generate over IDR1tn cash per year in the past three years, enough to sustain company’s working capital and capex requirements. Free cashflow (FCF) is mostly positive with the exception of 2014 and 2015 when PWON had two big acquisitions. Net gearing peaked in 2015 and had slowly decreased over the years.

• Cons: For the first time since 2010, PWON’s advances-to-inventory ratio, which is an indicative figure for the property developers’ working capital, fell below 100%. We are expecting a slow recovery for PWON as its inventory account should continue to grow higher in the short term as the company plans to launch few new condominium towers in Surabaya and a new superblock in Bekasi.

• Cons: Election year to election year, we may see some similarity between the 2014 and 2019’s quarterly presales split. 1Q14 and 2Q14 contributed 36% to total FY14 presales, while 4Q14 contributed a chunky 36%. If we assume the same quarterly split for 2019 presales target, we may potentially see 4-32% YoY declines in the next three quarters of presales reporting. Note however that the BI issued its first round of tightening regulations at the end of 2013 and this may have an impact to the 1H14 presales. Also there is a difference in the election schedules as the 2014 election was dragged on until late August, while the 2019 contest will be done by end of April.
• Recommendation: PWON share price is performing relatively in line with the JCI over the past year, outperforming its property peers. Its solid earnings and cashflow are rewarded with premium valuations against peers. The discount to net asset value (NAV) and price-to-earnings (PE) ratio are close to +1 standard deviation above the 5-yr historical mean. After a solid 45% bounce off recent lows, the stock is no longer cheap. However, with better interest rate environment and positive regulatory tailwinds, we may see improving activities after the election. Furthermore, potential portfolio inflow to high beta stocks and better sentiment towards the property sector should also benefit PWON. We derive an IDR773 target price per share for PWON, assuming discount to NAV, PB, and PE valuation re-rating to +1 standard deviation above mean.

5. The Week that Was in ASEAN@Smartkarma – Widodo Leads, a Retail Conundrum, and Indonesian E-Commerce

Macro Insights

In Politics, Uncertainty and Bad Policy: The Third Wheels of Profits and the Investment Cycle, Dr. Jim Walker discusses the outlook for Asian Markets in light of a rising profit upcycle. 

In Widodo Leads 59-31 / IA-Cepa Holds Promise / Online Permitting Progresses / Rights Activist Arrested, CrossASEAN Insight Provider Kevin O’Rourke analyses the most important political and economic developments over the past week. 

In Philippines: February Inflation Eases Back to BSP’s Inflation Target Range, Jun Trinidad comments on the latest inflation numbers out of the Philippines. 

Equity Bottom-Up Insights

In Matahari Department Store (LPPF IJ) – A Retail Conundrum,  CrossASEAN Insight provider Angus Mackintosh circles back to this beaten up retailer post FY18 results, which represents a retail conundrum. 

In PT Bank Rakyat Indonesia (Persero): Rather Rich for a Bargain Hunter, Paul Hollingworth takes a close look at Indonesia’sbiggest micro-lender. Bank Rakyat Indonesia Perser (BBRI IJ) seems to be doing a great deal right to perhaps satisfy a punchy valuation. 

In OCBC – Difficult to Square, Daniel Tabbush zooms in on this Singapore lender and finds it less than attractive with some conflicting numbers. 

In MINT’s First Post-Acquisition Update, our Thai Guru Athaporn Arayasantiparb, CFA circles back to leading Thai hotel operator Minor International (MINT TB) plus updates on Bangkok Dec Con (BKD TB). 

In Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer, Arun George revisits Delta Electronics (2308 TT) and its ongoing takeover situation. 

In Sea Ltd Placement – Capitalizing on Momentum, Zhen Zhou, Toh looks at this internet retailer following the announcement of a placement, which is larger than its IPO. 

In Sea Ltd: Follow-On Public Offering an Opportunistic Fundraising?, Johannes Salim, CFA circles back to Sea Ltd (SE US) following up on his recent Insight on the company. 

In Sea Ltd (SE US): Placement a Good Opportunity to Enter an Attractive Story, Arun George comments on the recent placement by the company. 

In Sea Ltd (SE US): Placing Price Leaves Money on the Table, Arun George revisits the company following confirmation of the price and size of its placement. 

In Sea Ltd (SE US): The Bear Case – A One-Hit Wonder?, Rickin Thakrar takes a more negative stance referring to earlier insights from Arun George. 

In RHB Bank Placement – A Little Less Surprising but Little Bit Bigger Deal, Sumeet Singh zeros in on the latest placement in RHB Bank Bhd (RHBBANK MK).  

In M: Trimmed 2019-20E Earnings Forecast by 12% and 19%, our friends at Country Group revisit Mk Restaurants Group (M TB) post the company’s results. 

In Accordia Golf Trust (AGT): Buy but Please Consider This…, Henry Soediarko zeros in on this golf play. 

Sector and Thematic Insights

In Thai Telcos Struggle as All Three Seek to Gain Share While Spectrum Risk Looms Again in 2019., our friend at New Street Research revisit the Thai Telecom sector following recent results. 

In Vietnam Market Update: Deep Value Found in Salient Themes, Frontiersman Dylan Waller seeks out attractive investment themes in Vietnam.