RHB Indonesia Morning Cuppa - 27 July 2016- (Regional Telco, AKR Corporindo, Bank Mandiri, Unilever, Transportation) Unknown Rabu, 27 Juli 2016




Good morning,

Regional Telecommunications: Pokémon GO Data Conundrum

Pokémon GO (PKG) could be a blessing in disguise, potentially driving stronger mobile data uptake for telcos although the pressure on data yields across the ASEAN-4 markets would still dilute the overall positive impact on mobile revenue in the near term, in our view. We believe Indo telcos stand to gain most, with average data consumption possibly doubling from the gaming app. Preferred regional picks: Telkom Indonesia, AIS, XL Axiata and Time dotCom. Still OVERWEIGHT on Indo telcos, NEUTRAL on Malaysia/Singapore telcos and UNDERWEIGHT on Thai telcos.

¨ Coming to a small screen near you. PKG has taken the mobile gaming industry by storm since its official launch in the US, Australia and New Zealand on 6 Jul. A key concern raised by industry proponents of the augmented reality game, which utilises the location-based setting and camera of a smartphone, is the extent of data consumed by the gaming app. Anecdotal evidence points to higher data traffic, as more users download and access PKG on the go but random trials conducted among gamers have yielded inconclusive results. We think PKG would have near-term implications on mobile data (potential ARPU uplifts), as avid gamers could breach their monthly data caps (data overage) due to the habit-forming feature of the game. That said, the actual impact on mobile networks could be much less or insignificant. Our channel checks in Indonesia, one of the first in the ASEAN-4 markets to have fairly widespread access to PKG via unofficial platforms suggest that:
i. The gaming app is immensely popular among youths already accustomed to Niantic’s previous AR app, Ingress, which shares similar maps; and
ii. Mobile operators’ have seen traffic spikes on their networks in recent weeks (possibly also distorted by extended Lebaran promotions). Meanwhile, the reception to PKG appears relatively more muted in Malaysia, Singapore and Thailand – which can mean the novelty value is thin (we may be wrong).
¨ IND telcos best play on the PKG theme, followed by TH. Among the ASEAN-4, we think Indo and to a lesser extent, Thai telcos offer the best “opportunities” to ride on the PKG theme. Data from third party consumer analytics group, 3P Communications, indicates that the average mobile data consumption of PKG is 5-10MB for up to an hour of play, ie a fraction of a high-definition (HD) video stream which remains the key driver of mobile data consumption. A linear extrapolation (assuming two hours of a PKG session) would imply a monthly data usage of up to 900MB. Given that the average mobile data usage per subscriber/month of 810MB,1.9GB, 3.2GB, 2.2GB for ID, MY, SG, and TH respectively, PKG would account for 74%, 31%, 19%, and 27% of the respective monthly data consumption. The data propensity is most pronounced in the Indonesian market (a predominantly prepaid market), which suggests that mobile gamers are more likely to purchase additional data to satisfy their gaming needs. The Indonesian market also ranks highest in terms of 2016F mobile gaming receipts in the ASEAN-4, followed by Thailand, Malaysia and Singapore, with mobile gaming revenue accounting for 33% of mobile ARPU. While the Singapore market has the largest mobile gaming spend as a percentage of ARPU, already-high mobile data usage/bundles (>3GB/mth) suggest limited scope for incremental monetisation opportunities, in our view.
¨ Telkom Indonesia, AIS, XL Axiata and Time dotCom are top regional picks. We remove M1 from top BUYs following the recent downgrade. The Indo telco sector remains our only OVERWEIGHT among the ASEAN-4 markets, predicated on superior industry mobile revenue growth prospects, steady/rational competition and attractive sector EV/EBITDA valuations. Among the Big-3 Indo telcos, our preferred exposure remains Telkom Indonesia, as it is well-positioned to capture stronger data growth and a beneficiary of the tax amnesty. (Jeffrey Tan, David Hartono)

Result Reviews:
AKR Corporindo (AKRA IJ, BUY, TP: IDR8,000) - 2Q16 results, QoQ improvement, broadly in-line
AKR Corporindo (BUY, TP:8,000) 2Q16 net profit shows improvement (up 29.4% QoQ, 6.5% YoY), margin expanded but volume was soft, broadly in-line, 46% of RHB, 50% of consensus

Outlook:
¨ 2Q16 gross profit saw a 28.3% QoQ jump due to higher margin/liter of its petroleum business and91bn gross profit contribution from industrial estate, contribution of industrial estate was Nil in 1Q16.
¨ Higher margin of petroleum business is driven by higher ASP, with average Brent oil price also being42% higher, revenue on QoQ basis on +6.3% only due to lower sales volume .
¨ AKRA has demonstrated its ability to maintain the profitability of its trading and distribution segment under Brent oil price of USD50-60/bbl. Although the company stopped disclosing its margin/litre on petroleum segment,we can see the blended gross margin per unit of this segment in 2Q16 is similar to 2Q15, this is predicated on the stability of margin and volume of its chemical distribution business and hence, most margin improvement of this segment is coming from petroleum business.
¨ Volume is soft at this quarter, Petroleum distribution volume fell short of management guidance at 42% of its full year target of 2.5mn kiloliters,QoQ volume was -5%, company attributed this to lower demand from mining sector and PLN, ithas revised down its FY16 petroleum distribution target to 2.3-2.4mn kiloliters, compared to our 2.38mn kiloliters volume estimate.
¨ On our estimate, AKRA still has 15 ha of industrial land sold in FY15 that hasn’t been book in its P&L, about IDR315bn in revenue or IDR157.5bn of gross profit, assuming GP margin of 50%.
¨ Overall good improvement QoQ but soft volume is a drag. (Norman Choong CFA)

Bank Mandiri (BMRI IJ, NEUTRAL, IDR10,100)- Weak qoq performance
Mandiri just released its 1H16 result – weak qoq performance.

Key highlights:
¨ 1H16’s net interest income represents 49.8%/48.6% of our/consensus forecast.
¨ Net interest income in 2Q16 down by 3.4% qoq despite +6.3% qoq loan growth.
¨ Net interest margin (NIM) slipped to 6.0% in 2Q16 due to lower asset yield of 8.5% (1Q16: 8.9%) with stable blended CoF.
¨ NPL elevated to 3.9% (Mar-16: 3.2%) contributed from commercial segment with NPL position of 6.7% (Mar-16: 4.4%) as Mandiri downgraded c.IDR4.7trn in 2Q16 from this specific segment only.
¨ Such high NPL along with major provisions in 2Q16 (credit cost: 357bps) brought down loan loss coverage (LLC) ratio to 112.7% by June-2016 (Mar-16: 131.1%).
¨ Net profit represents 37%/36.4% of our/consensus forecast. (Eka Savitri)

Unilever (UNVR IJ, Neutral, TP: IDR42,500) - Robust 2Q16 earnings, in line
Unilever Indonesia’s 2Q16 earning reached IDR1.7trn (+10% QoQ, +29% YoY), achieved at 51%/51% of our/consensus full-year estimates. Better 2Q16 earning was driven by higher sales volume, as well as better margin thanks to improved operating efficiency and stronger IDR. Unilever management revealed that no selling price hike in 2Q16. Our IDR42,500 TP implies to 50x/45x FY16F/FY17F P/Es respectively. Maintain Neutral. (Andrey Wijaya)

Sector Update:
Transportation - Odd Even License Plate Start Tomorrow
One more day before DKI Jakarta and Provincial Police (POLDA) Metro Jaya will begin testing the restriction four wheeled vehicles with a system of number plates odd-even. Here are some things you need to know:

- When to odd, when to be fulfilled?
On odd dates, only cars with odd numbered plates only be passed in the place and time specified. Similarly, even numbered dates, only for even numbered licenses plates
- Where do these rules apply?
In the meantime, Police establishes the following area: Singamangaraja Road, Sudirman Road, MH Thamrin Road, Medan Merdeka Barat, and partly Gatot Subroto Road (between the overpass intersection Senayan Brass)
- How long the entry into forces?
Odd and even rule does not apply 24 hours/day; but, only at 7AM-10AM and 4PM-8PM. Monday to Friday and not valid on Saturday, Sunday, and National events
- When will the trial period is valid?
The trial is set from 27 July to 26 August 2016. After that, it will start to begin on 30 August 2016 – this rule will apply full binding sanctions for violators of the rules
- Are there exceptions?
Sure. Rules odd even does not apply to the group of President, Vice President, Senior Government Officials (with code number plate RI), fire department, ambulance, public transportation (yellow plates). It does not apply to online ride apps (c. Uber and Grab)
- Any sanctions if violated?
At trial, each violation will receive a blank red warning from police, and the number of vehicles violators will documented

What is our view?
Obviously, the try out of odd-even license plate could give a positive signal to the transportation sector in Indonesia, esp. for Blue Bird. We view that this regulation could improved the utilisation rates and increased the average daily revenue for Blue Bird in one month period and more – if the local government decided to continue the odd even regulation. The reverse impact could be felt by the online ride applications, like Uber and Grab - as their fleets are considered as a normal license plate that has to follow the odd-even regulation as well. We maintain our OVERWEIGHT call on the Indonesia Transportation Sector – we view that the online ride application will face a soften utilisation rates on the odd even license plates regulation. (David Hartono)


Media Highlights:

Corporates
Felda is cancelling the acquisition of Eagle High Plantation
Krakatau Steel to seek bank loan worth IDR1.4trn
Modernland Realty booked IDR404bn marketing sales
Toba Bara aim USD140m bank loan
Vale’s nickel production recorded a 1.2% YoY decrease
Three ministries to form partnership for HSR construction
Our Recent Publication:
Sector Update: Regional Construction: As Many As Stars In The Sky
Company Update: Astra International: Better Car Sales Outlook In 2H16, Upgrade TP
Sector Update: Regional Property - Watch Out For The Turning Point
Economic Highlight: BI Mantained The Benchmark Rate at 6.50% and the BI 7-Day (Reverse) Repo Rate at 5.25%
Company Update: Bank Negara Indonesia : In Better Shape
Sector Update: Plantation: Government To Impose 5-Year Moratorium
Sector Update: Building Materials: Expect Better Sales, But Competition Rising
Company Update: Waskita Karya: Strong Earnings Visibility To Drive Stellar Performance
Economic Highlight: Exports Continue to Improve in June
Company Update: Media Nusantara Citra: Margin Boost From Integrated TV Studios
Sector Update: Regional Telco: Re-Winding The Yield Compression Theme


Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia
 
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