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||Asean Affairs 9 January 2013
ASEAN Equity Preview
It will be a bumpy day in ASEAN today as the US markets continued to face fiscal cliff pressure, my best buys today are Aboitiz Equity, Nobu Bank, Palm Oil, CapitaLand, Sansiri.
After a 4.3 percent jump in the two sessions around the close of the fiscal cliff negotiations, the S&P has fallen and investors have found few catalysts to extend the rally that took the benchmark to five-year highs.
Fourth quarter profits are expected to beat the previous quarter's lackluster results, but analyst estimates are down sharply from October. Quarterly earnings are expected to grow by 2.7 percent, according to Thomson Reuters data.
China's investment-led development model is facing increasingly serious constraints, a global ratings agency warned, although GDP growth is likely to reach 8 percent in 2013.
Rapidly expanding credit, especially debt-financing by local governments, is one of the prime reasons behind the warning, Fitch Ratings said.
The agency announced on Tuesday a currency sovereign rating of AA- for China, on a negative outlook, while it kept its stable outlook of A+ for the country's foreign debt holdings. Rapidly expanding credit may risk balance sheets, it said.
"China has been avoiding the so-called hard landing. However, rebalancing
will be a long-term challenge," Andrew Colquhoun, head of the agency's Asia-Pacific Sovereigns section, said.
"Rebalancing is imperative but not optional, because the debt issue is tightening constraints on the old investment-driven growth model," he said.
The total amount of credit in China's economy is currently about 190 percent of GDP, up from 124 percent at the end of 2008, Colquhoun said. "So the debt level is increasing substantially."
This debt could come from local government financial vehicles, guarantees, support from the banks or other routes, he said.
Colquhoun predicted that China's credit may expand at a pace of 15 percent year-on-year in 2013.
CapitaLand is reassessing its investments in India, Middle East and London.
The company may divest some of its investments in office, commercial and residential properties in these three locations.
CapitaLand says it now plans to focus on Singapore and China markets.
Making his first major move since taking over the helm at CapitaLand, new President and Group CEO Lim Ming Yan has realigned the corporate structure.
This, the company says, is to sharpen its focus on key markets.
The Group will be simplified into four main business units - CapitaLand Singapore, CapitaLand China, CapitaMalls Asia (CMA) and The Ascott.
The CapitaLand Singapore unit will be headed by Wen Khai Meng, currently chief executive of CapitaLand Financial, while CapitaLand China will continue to be helmed by Jason Leow, chief executive of CapitaLand China Holdings.
Lim Ming Yan, President and Group CEO of CapitaLand, said: "There will be some things we have to change as we move forward. I think this is more to position CapitaLand for the future, where China will play a very significant role in this part of the world and also Singapore increasingly becoming a hub for Asia."
Analysts say the move has made it easier for investors to understand the company better.
Eli Lee, Investment Analyst at OCBC Investment Research, said: "This is a great move they made. Over the years, CapitaLand has grown organically and one common feedback, while it has pursued many avenues of growth in different markets, it has became sort of unwieldy and difficult to understand."
As part of the move, non value-added investments will come under review.
This may include selling their properties in London, the Middle East and India.
The property company is also planning to conduct a strategic review of its 59 per cent stake in Australand.
But, projects in Malaysia will stay put and placed under the portfolio of CapitaLand Singapore.
Their serviced apartment operator Ascott and mall owner CapitaMalls Asia will also continue their presence in UK and India respectively.
Lim Ming Yan added: "Whatever we do in GCC (Gulf Cooperation Council) is not going to add a lot of value to Singapore and China, and also similarly we can't add a lot of our presence in GCC. So, having one office building in London is not going to add a lot of value of whatever we are doing here.
He said what is most important is to realise that investments are "put into something, somewhere that it can help us grow our business".
CapitaLand has two properties in the Gulf states and an office building in London which are all owned through joint ventures.
But its property in India is wholly-owned by the company.
The company has also appointed current chief investment officer Olivier Lim as group deputy CEO.
Sansiri will focus its business this year upcountry and introduce new products to cover all segments, with housing units ranging in price from Bt1.5 million to Bt20 million.
Revenue is targeted at Bt34 billion to Bt36 billion, the highest since the firm was established in 1984, and up by 15-20 per cent over last year. Sansiri recorded revenue of Bt16.03 billion and net profit of Bt1.19 billion in the first nine months of 2012, and transferred Bt13.75 billion worth of homes to its customers in the last quarter.
The company plans to launch 45 new residential projects worth Bt61 billion this year, 24 of which will be condominium projects worth Bt35.32 billion, 13 will be detached-house projects worth Bt22.5 billion, and eight will be townhouse projects worth Bt2.72 billion. It expects presales of Bt48 billion, up 14 per cent from Bt42 billion last year. Its construction budget is Bt20 billion.
Sansiri has set aside an investment budget of Bt4 billion to buy land for development of residential projects in 2014, president Srettha Thavisin told a news conference yesterday. Half of the investment budget will come from the company's cash flow, and the rest from bank loans and debentures.
The company's senior manager for business development and investment, Varangkana Artkarasatapon, added: "We will issue a debenture worth Bt3 billion this month that will offer interest of not more than 5 per cent."
This will maintain its debt-to-equity ratio at not more than 2.5:1. Currently, the ratio is only 1.5:1.
Plantations fell on Tuesday as sentiment turned cautious, tracking the decline in crude palm oil (CPO) prices on concerns over demand.
At the close, the FBM KLCI was down 5.25 points or 0.31% to 1,688.91. Turnover was 1.03bil shares valued at RM1.71bil. Losers beat gainers, 423 to 305 while 335 counters were unchanged.
Reuters reported European shares and the euro dipped on Tuesday after an unexpected slump in German exports set a negative tone ahead of other data that will fill out the picture of the region's economic health.
Among the key regional markets, Japan's Nikkei 225 fell 0.86% to 10,508.06; Hong Kong's Hang Seng Index dropped 0.94% to 23,111.19; Shanghai's Composite Index lost 0.41% to 2,276.07; Taiwan's Taiex fell 0.43% to 7,721.66 and South Korea's Kospi was down 0.66% to 1,997.94 while Singapore's Straits Times Index lost 0.4% to 3,205.52.
Crude palm oil for third-month futures fell RM24 to RM2,394, the lowest since Dec 21 ahead of key industry data later in the week.
Reuters reported traders would be looking to see if major palm oil buyers China and India increase purchases due to the lower export tax.
At Bursa Malaysia, IOI Corp fell the most in recent week, down 14 sen to RM5.05 and dragged the KLCI down 2.07 points. KL Kepong fell 32 sen to RM22.62, Genting Plantations 20 sen to RM8.89, PPB 14 sen to RM12.88 and NSOP 12 sen to RM5.68. Heavyweight Sime Darby was down four sen to RM9.61.
Consumer stocks also fell, with Dutch Lady down the most, falling 48 sen to RM46.12, while Amway fell 20 sen to RM11.38 but BAT added 36 sen to RM60.50.
Petronas Dagangan lost 18 sen to RM22.80 and Petronas Gas 12 sen to RM18.98.
HLFG rose 22 sen to RM14.46 and HL Bank 10 sen to RM14.96. MAHB also bucked the weaker market sentiment to climb 20 sen to RM5.74.
The ringgit was firmer against the US dollar at 3.0422 from the Monday close of 3.0427.
Nobu National Bank, a boutique lender owned by Lippo Group, plans to list on the Indonesia Stock Exchange after an initial public offering, the bourse announced on Monday.
Hoesen, the listing director at the exchange known as the IDX, told reporters on Monday that the lender planned to sell 40 percent of its shares and raise Rp 500 billion ($52 million) in capital.
Hoesen added that the lender planned to use its October 2012 financial report as the basis for the IPO, and planned to conduct the offering within six months of the report’s release.
Nobu Bank has assigned Ciptadana Capital as its underwriter and intends to use the capital raised from the IPO for its expansion plans, which includes adding more automatic tellers machines and improving lending capabilities.
“The capital will be used for expansion,” the IDX director said. “They are still small, the focus still in retail. Their capital is still less than Rp 1 trillion, so they want to adjust it in compliance with the new central bank minimum capital requirement.”
The central bank in November announced new regulations that divide lenders into four categories based on their tier-one capital. This category determines the number of licenses that a lender can acquire and activities that it can perform.
Based on the financial report, Nobu Bank has Rp 252 billion in tier-one capital, putting it in the first category, with core capital of between Rp 100 billion and Rp 1 trillion. Under the regulation, such lenders can only perform very basic activities, including accepting savings, lending funds and changing money between currencies.
Nobu Bank booked a net income of Rp 2.19 billion in the first nine months last year, an 11 percent increase from the same period in 2011.
Lippo Group, which publishes the Jakarta Globe, purchased a 60 percent stake in the lender for $60 million in 2010.
Another mid-sized lender, Bank Maspion , also plans to undertake an IPO this year. Some 23 new companies listed on the IDX last year, and the bourse has flagged a target for 30 listings in 2013.
Aboitiz Equity Ventures, Inc. (AEV) has positioned its banking portfolio for further growth with the sale transfer of its shares in City Savings Bank (CitySavings) to Union Bank of the Philippines (UnionBank).
The two banks are AEV subsidiaries, according to a press statement issued by AEV to media companies.
Together with its wholly owned subsidiary Pilmico Foods Corporation, AEV owns 99.54 percent of CitySavings. AEV is UnionBank’s largest shareholder, with a 45 percent ownership.
In a special meeting held on Tuesday, the AEV Board approved the proposed offer of UnionBank to purchase all of AEV’s shares in CitySavings.
The purchase of 194,371 combined shares of AEV and Pilmico, which will be paid in cash, will be computed at 2.5 times book value as of December 2012, subject to the results of a due diligence review. Total acquisition value is estimated at Php 5.7 billion.
The planned acquisition is also conditional upon UnionBank’s obtaining the necessary Monetary Board approval from Bangko Sentral ng Pilipinas.
AEV President & CEO Erramon Aboitiz said, “We believe very strongly that repositioning our financial services portfolio under UnionBank is the right strategic move to optimize value and growth opportunities. We envision UnionBank and CitySavings complementing each other’s management strengths, augmenting technological capabilities, and leveraging on each other’s financial capabilities.”
For his part, UnionBank Chairman & CEO Justo Ortiz said, “Our acquisition of CitySavings is aligned with UnionBank’s long-term strategy of building a great retail bank. CitySavings has a business model that gives us a strategic opportunity to expand our customer franchise, and an existing management team we have full confidence in.”
After the acquisition, CitySavings will remain as a separate corporate entity, keeping its company name as well as its brand identity of simple and straightforward banking.
CitySavings President & CEO Mikel Aboitiz said, “We are very excited about this development. Increasing our strategic cooperation with UnionBank and combining our unique strengths will enable us to not only accelerate our plans to be the preferred teacher bank nationwide but also provide the next growth leg by expanding into broader civil servant and payroll loans market segments.”
Yesterday in Asia
Tokyo was also weighed by a rise in the yen, which has suffered heavy selling in recent weeks, while the South Korean bourse slipped on disappointment over the latest earnings guidance from Samsung Electronics.
Tokyo slipped 0.86 percent, or 90.95 points, lower to 10,508.06, Sydney lost 0.57 percent, or 27.1 points, to close at 4,690.2 and Seoul was 0.66 percent lower, shedding 13.31 points to 1,997.94.
Hong Kong lost 0.94 percent, shedding 218.56 points to 23,111.19 while Shanghai fell 0.41 percent, or 9.29 points, to 2,276.07.
In other markets:
– Taipei fell 0.43 percent, or 33.43 points, to 7,721.66.
Taiwan Semiconductor Manufacturing Co. was 0.80 percent lower at Tw$99.7 while leading smartphone maker HTC lost 3.99 percent to Tw$276.5.
– Manila was flat, nudging up 3.99 points to a new record 6,048.90.
SM Investments added 1.73 percent to 939 pesos, BDO Unibank gained 0.13 percent to 75.15 pesos and Philippine Long Distance Telephone dropped 0.60 percent to 2,646 pesos.
– Wellington rose 0.14 percent, or 5.53 points, to 4,090.37.
Telecom added 2.3 percent to NZ$2.23, Fisher & Paykel Healthcare was up 1.7 percent at NZ$2.47 and Metlifecare surged 4.4 percent to end at NZ$3.35.
– Singapore slipped 0.40 percent, or 12.74 points, to 3,205.52.
Global integrated supply chain manager Olam International dropped 2.13 percent to Sg$1.61 while Oversea-Chinese Banking Corporation gained 0.10 percent to Sg$9.69.
– Jakarta ended up 0.12 percent, or 5.17 points, at 4,397.55.
State-controlled miner Aneka Tambang jumped 2.99 percent to 1,380 rupiah, while Bank Negara Indonesia rose 1.97 percent to 3,875 rupiah.
– Kuala Lumpur lost 0.31 percent, or 5.25 points, to 1,688.91.
Kuala Lumpur Kepong shed 1.4 percent to 22.62 ringgit while Astro Malaysia gained 0.7 percent to 3.02.
– Bangkok rose 0.14 percent, or 2.01 points, to 1,417.33.
Oil company PTT dropped 1.20 percent to 330 baht, while power giant Electricity Generating Public Co. added 0.33 percent to 150.50.
– Mumbai rose 0.26 percent, or 51.10 points, to 19,742.52.
Conglomerate ITC group rose 2.18 percent to 285.3 rupees while private housing finance firm HDFC rose 1.95 percent to 839.65.
Shayne Heffernan Ph.D.
Economist/Hedge Fund Manager
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