RHB Indonesia - Financial Technology - Embracing The Disruptor (Financial Technology, Ace Hardware, KMI Wire, Wijaya Karya, Cement) Unknown Rabu, 09 Agustus 2017


Good morning,

Financial Technology – Embracing The Disruptor

Love it or hate it, we believe fintech is here to stay. Relative to Western countries, the evolution of fintech is still in its early stages across the ASEAN region and China. We see strong growth potential in fintech, and believe that forward-looking banks and telcos are rightly positioning themselves to ride the fintech wave as part of their growth strategies. As of now, China has the highest fintech adoption in the region, followed by Singapore, Thailand, Malaysia and Indonesia. Potential winners in the fintech race include UOB, CIMB, KBank, BTPN, Singtel, China Unicom, Axiata Group and True Corp.


¨ Fintech adoption rising... The evolution of financial technology (fintech) from institutional-focused to consumer-facing, increasing ownership of smartphones, and a thriving e-commerce ecosystem have catalysed the adoption of digitalised consumer financial offerings over the past two years. Telcos have joined the fray with their offerings of mobile financial services (MFS), as they seek to strengthen the overall data proposition and provide strategic monetisation opportunities over the longer term. Still, fintech adoption within the ASEAN-4 markets remains below the global average, although China has emerged as the world leader.
¨ …could leapfrog with government support. We believe fintech adoption would rise rapidly over the next few years, particularly in ASEAN-4. New technologies such as blockchain, Application Programming Interfaces and artificial intelligence are driving fintech innovations. Governments and regulators are also supportive of technological developments to drive their countries towards digitally advanced nations (Singapore/Thailand) or improve financial inclusion (Indonesia).
¨ Digital disruption evolving beyond payments. Currently, fintech products and MFS offered in China and ASEAN-4 are typically centred around payment and remittance solutions. Digital disruption, we believe, would gradually move into alternative financing (eg peer-to-peer (P2P) lending and equity crowdfunding (ECF)), wealth management, stockbroking and insurance segments. The pace of adoption would vary across the markets, reflecting developments in banking and telecommunication industries, as well as country demographics.
¨ Banks rising to the challenge, telcos sharpening customer engagement. Faced with the risk of losing as much as 20-30% of their revenues to new digital business models, traditional banks are embracing digital technology and seeking partnerships with fintech start-ups to create their own online presence. For telcos, while there are synergies in collaborating with independent fintech firms, current MFS models also see them incubating investments as part of their focus on adjacent businesses with the objective of staying relevant in the digital age.
¨ Markets and stocks to watch. We believe Singapore banks are most advanced in efforts to stem the migration of consumer banking revenues. By comparison, China’s state-owned enterprise (SOE) banks are moving at a slower pace. In Malaysia, Indonesia and Thailand, incumbent banks in general have better planned digital strategies. Still, regulatory guidelines aimed at preserving financial stability could restraint growth in fintech offerings. Bank stocks to watch are UOB, CIMB, KBank and BTPN. We see larger telcos benefitting owing to their vast subscriber population, market knowledge across footprints, strong framework for digitalisation, and partnerships forged with fintech stalwarts – factors we believe are essential to drive MFS adoption. Singtel, Axiata Group, True Corp and China Unicom are well positioned in this regard, in our view. (Fiona Leong, Jeffrey Tan)

Link to report: Regional Thematic - Financial Technology : Embracing The Disruptor
Link to daily report: Indonesia Morning Cuppa 090817

Company Update:

Ace Hardware (ACES IJ, Sell, TP: IDR2,000), July 2017 SSSG at 2.1%
ACES' July sssg landed at 2.1%, 7M17 at 9.4%. Decent number compared to peer's (LPPF) indication, but a slowdown compared to performance in the previous months. Net-net, we see it more negatively as there was overall consumer spending slowdown in July. Ace trades at 26/23x 2017/18F PE. (Stifanus Sulistyo)


KMI Wire’s (KBLI IJ, NR), Meeting key takeaways
We met with KMI Wire’s CEO yesterday. Here are the key takeaways:
¨ 1H17’s revenue was flattish, while its opex was up by 20.5%. It was due to requirement to stock up high voltage products for PLN around six months before payment. Having said that, KMI expects better performance in following quarters.
¨ Despite its higher risk and higher value, high voltage cable will have similar margin with Low and Medium cable due to “open book policy” by PLN.
¨ FY18’s growth should be faster than FY17F’s growth. Currently, the company expects IDR3.2trn (+16%YoY) revenue and IDR350bn (excluding IDR100bn from gain on bargain purchase) net profit in FY17F. IDR100bn gain on bargain purchase was from KBLI’s acquisition on Langgeng Bajapratama (steel wire supplier).
¨ Assuming IDR350bn net profit in FY17F, KMI is currently trading at 5.4X FY17F. (Dony Gunawan)


Wijaya Karya (WIKA IJ, BUY, TP: IDR2,600), 1H17 net income indicated to grow 72% YoY
Wijaya Karya indicates that its net profit grew +72%-74%YoY in 1H17, 40.2%/35.3% to our and consensus estimates (above 1H16’s seasonality of 25%), while its revenue is expected to grow +62%YoY, 42.9%/43% to our/consensus estimates, slightly above last year’s performance of 39% in 1H16. Maintain BUY on the stock. (Dony Gunawan)
Sector Update:

MoM Cement retail selling price was stable to down in July
Our monthly ground checks – on building material stores in South Jakarta, Bali, and Makasar – suggested that MoM cement retail selling price trend was stable-to-down.

¨ Jakarta: Semen Gresik retail selling price declined by 2% MoM, while Tiga Roda selling price rose by 2% MoM
¨ Bali: Cement retail selling price declined by 1-2% MoM
¨ Makasar: cement retail selling price remain same

QoQ, Jakarta recorded the steepest cement retail selling price declined which indicated tough competition in the area.

We are Neutral on Indonesia’s cement sector since we see this year’s domestic overcapacity situation is likely to remain. However, cement sales which are cyclically high in 2H, should ease competition in the domestic cement market. (Andrey Wijaya)
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia

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