In this briefing:
- Aussie Reporting Season Update: February 2019
- Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
- Smart or Not Smart?
- The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers
- China Housing In The Guangdong – Hong Kong – Macau Greater Bay Area (GBA)
1. Aussie Reporting Season Update: February 2019
- The Banks remain under earnings pressure from several fronts, with weak credit growth, falling net interest margins and rising compliance costs following the Banking Royal Commission. The CBA and BEN results highlighted these headwinds and how borrowers are migrating from high margin interest-only loans to lower margin principal and interest loans. Away from Banks, the insurance sector has navigated its way through several weather events relatively successfully, with IAG and SUN delivering in this space.
- Fears that declining house prices would rattle the consumer have generally been misplaced, at least thus far. The JBH and SUL results showed how well-managed businesses have been able to shift the product mix to maintain margins. Similarly, the DHG result showed that even with declining listings it’s possible to lift earnings in the face of these headwinds. However, the BAP result was clearly impacted by the weak consumer.
- In the infrastructure capex space, CIM produced a solid result, but DOW failed to meet analysts’ expectations even if the work pipeline is still growing. Higher integration and stamp duty costs took the gloss off the TCL result even though the longer-term growth opportunities look solid.
- Growth stocks trading on high PE multiples such as CSL and TWE delivered strong earnings growth, but this wasn’t enough to satisfy investors. These stocks sold- off after delivering solid half-year results. RMD was a clear miss on revenue, with the market questioning management’s decision to investment away from its core business.
- Cost pressures felt in the US operations of AMC and BXB appear to be easing. BXB is investing to defend earnings, while AMC is seeing new opportunities in its Bemis acquisition and coffee pod manufacturing. TLS continues to face pressure from the NBN and competition in mobile. The new 5G network is expected to deliver some relief on margins.
2. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).
3. Smart or Not Smart?
LG’s smart washers synch with Amazon Dash. Canada Goose leverages its cult-like following as DTC sales rise 78%. Payless to close 2,100 U.S. stores.
- Apparel, Accessories & Luxury Goods: Canada Goose is leveraging its cult-like following to originate and capture value, as evidenced by the 78% increase in its high-margin DTC sales to $235M in Q3, accounting for 59% of its total sales.
- Retail REITs: Payless just announced the largest-ever liquidation in terms of number of stores with its plan to close all 2,100 U.S. locations as it prepares to file for bankruptcy for a second time.
- Household Appliances: LG is leveraging AI to better originate and capture value with the upgrade of its smart washers, dryers and dishwashers to not only work with Alexa, but also to synch with Amazon Dash to automatically re-order detergent or dryer sheets.
- A wristband that not just opens the door to our hotel room but links to our credit card to make it easier for us to spend money – SMART.
- Adding a massive digital screen to the stage set to enhance the nightly entertainment shows for guests – SMART.
- Replacing the paper version of the daily activities schedule with an app so we need to carry our expensive smartphones all around the resort – NOT SMART.
As I experienced during my recent family holiday at Club Med Ixtapa, and explore in next week’s in-depth research report, there is an exciting opportunity for companies to leverage the digital and AI layers to better originate and capture value and enhance the customer experience. For example, LG wants to make sure you never run out of detergent again — its new line of smart washers, dryers and dishwashers not only works with Alexa, but also synchs with Amazon Dash. To help you sleep better, Eight Sleep has launched a new smart mattress that will automatically adjust the temperature on your side of the bed. MSC Cruises is debuting the first virtual cruise assistant to answer passengers’ questions and help them book services. But just like they should fire the genius at Club Med who did away with the paper daily activities schedule, sometimes companies should leave well enough alone. And one of these is Lego, who is sadly trying to kill the magic of kids’ imagination by bringing augmented reality to its new line of Lego sets.
4. The Week that Was in ASEAN@Smartkarma -Indonesia’s Potential, Pure Gold, and Vietnam’s Consumers
This week’s offering of Insights across ASEAN@Smartkarma 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 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.
5. China Housing In The Guangdong – Hong Kong – Macau Greater Bay Area (GBA)
The long-awaited outline of the development plans for the Guangdong – Hong Kong – Macau Greater Bay Area (GBA) was announced Monday evening local time. In this note, we look at the China housing market dynamics in the key 8-9 cities on the mainland and the land acquisition activity by the major developers.
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