Brief Indonesia: Morning Views Asia: Future Retail, Lippo Karawaci and more

In this briefing:

  1. Morning Views Asia: Future Retail, Lippo Karawaci
  2. 2020 Strategy: Less Than 20/20
  3. Semiconductor Surge:  GEM Managers Hit Max Exposure
  4. Morning Views Asia: Medco Energi, Seazen (Formerly Future Land), Tata Motors Ltd
  5. Blue Bird (BIRD IJ) And GoJek – An Alliance of Champions

1. Morning Views Asia: Future Retail, Lippo Karawaci

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

2. 2020 Strategy: Less Than 20/20

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We see 2020 as full of surprises, marked by rising geopolitical risk. Major headlines this year will include the US election in November, BREXIT, the greater China situation (which includes a cross-strait tension between China and Taiwan and the on-going protest in Hong Kong), the US-China trade war, a lack of progress in the Nuclear talk with North Korea, and, last but not least, the middle east tension which has already escalated to the next level. The attack that killed Iran’s top general on 2-Jan started the year on the right track for gold and oil prices as well as those relying on prices of these two commodities, such as the Mideastern countries and Russia.

In the year ahead, we favor equities over bonds in general.  As we believe valuations are stretched, securities selection is key and a buying opportunity on the sell-off event, especially stemming from the geopolitical risk, will reward value investors. We prefer emerging markets (EM) equities and bonds as we expect more upside potentials in light of improving credit fundamentals and a continued fund flow into an EM world for diversification away from developed markets (DM). At the end of the day, unpredictable policy shifts in the US and in Europe do not help. We also do not expect China’s trade war with the US and debt debacle to go away anytime soon.

In a year of rising geopolitical risk, we expect infrastructure, utilities, and other non-cyclical businesses to do better. However, rising oil prices and continued recovery (albeit at a slow pace) should help the oil and gas sector.

This year should be another record year for green financing, spurred by more awareness that our planet is changing for the worst (i.e. the bushfire in Australia). Green financing (including green bonds) has a more committed group of investors which means less volatile spread movement in general.

In 2020, we will add additional angles to our fixed income research to include equity and F/X strategies as well as green bond research. Capital markets continue to evolve and, even at a slower pace than expected, we believe local currency EM bonds and tokenized securities (i.e. security tokens) are two topics we will follow closely. Stay tuned!

3. Semiconductor Surge:  GEM Managers Hit Max Exposure

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4. Morning Views Asia: Medco Energi, Seazen (Formerly Future Land), Tata Motors Ltd

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

5. Blue Bird (BIRD IJ) And GoJek – An Alliance of Champions

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In December Indonesian App-based transport Unicorn Gojek signed a share purchase agreement with the country’s largest taxi operator Blue Bird (BIRD IJ) to acquire a 5% stake in the company.  A meeting with management in Jakarta shed some further light on the reasoning behind the transaction, which will further bind the two companies together. 

Gojek will purchase old shares from the family-owned holding company at a slated price of IDR3,360 per share, with a commercial agreement to be signed and the official price set before the end of January.

This transaction is seen to be part of the second phase of collaboration which binds the two company’s future strategies together. 

The agreement will also include greater integration of GoJeks payments system, GoPay, as well as an integration of the two company’s booking and dispatching systems. 

Blue Bird (BIRD IJ) continues to see positive improvements in its core taxi business, with a recent tariff increase having no impact on ridership, average revenue per taxi improving, and signs of a less aggressive approach by Grab in cities outside Jakarta. 

Bali is performing well and now stands as the number three market after Jakarta and Surabaya, with Lombok also showing strong growth in number four position. 

The company trades on an FY20E PER of 16.5x and FY21E PER of 15.4x. with forecast EPS growth of +25.4% and +7.1% for FY20E and FY21E respectively. This looks quite reasonable for a leading well-managed consumer story, with a strong brand name. 

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