maybank kim eng research
TRANSCRIPT
MAYBANK KIM ENG RESEARCH
SEE PAGE 77 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
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We are ASEAN2015 is set to be a watershed year as we enter the ASEAN Economic Community (AEC). To position for this, we are holding a series of conferences around the region. Our chief aim is to bring together the best companies, the top investors and influential public officials.
We also engaged our research team to offer their insights on the opportunities that lie ahead in our AEC journey.
This first report sets the stage and is designed to both challenge and focus our thinking on the big picture as well as on key sectors.
At Maybank Kim Eng, we continue to invest in research as we believe regional integration is the opportunity to adapt and grow. We intend to bring the best ASEAN growth ideas to the world.
We believe in our shared ASEAN identity and look forward to exciting times ahead.
Ami MorisRegional Head of Equities
John ChongCEO
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Thinking ASEANThe idea behind this chart book is to explore a few narratives as the AEC offers the opportunity for regional, rather than just country, growth.
From a macro perspective, the region as a whole could be at an inflection point given existing profitability, demographics and balance sheets.
Yes, the infrastructure spending bill is large. There are, however, clear signs of catch-up by the less developed ASEAN countries in infrastructure, education and importantly, connectivity.
We think connectivity and high education is a powerful cocktail for many sectors. It allows companies from the more developed markets to reach new consumers, and for less developed countries to benefit from technology leaps. In sum, it is about inclusion and that accelerates growth.
From a practical standpoint, it implies that companies need a technology driven strategy. This is consistent with our findings: the bulk of private equity fund raising in ASEAN has been consumer and technology based. Companies are already thinking regional.
One of the most exciting trends is the emergence of a new generation of educated, employed and confident ASEAN women who have a greater say in household finances. We think this is a big theme. And it is here, now.
A disappointing trend has been rising non-tariff barriers through much of the region. Change can be difficult and as with opportunities, there is also competition. But governments need to be committed and companies must adapt. Further out, we suspect technology will continue to lower barriers.
We are very thankful to those who have been helpful with discussions, their time and data, including McKinsey Global Institute, MasterCard International and J. Walter Thompson.
Sadiq CurrimbhoyGlobal Strategist
Willie ChanRegional Strategist
Suhaimi IliasChief Economist
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Our Six Favourite Charts
The six charts in this report we found most thought-provoking with typically multiple-sector implications:
ASEAN’s capital investment cycle suggests we could be at a major inflection point (Chart 1, page 9)
ASEAN Prime Savers ratio – a rising percentage of savers forecasted over the next two decades implies a big increase in the pool of investible capital (Chart 4, page 15)
Assessment by sector of where there has been greatest progress on integration and where there is greatest potential impact, by McKinsey Global Institute (Chart 6, page 19)
M-Commerce, the new way to buy. More ASEAN consumers use their mobile phones to purchase, even in countries where mobile broadband penetration rates are low (Chart 18, page 43)
Women in ASEAN: The majority of women surveyed feel they have a say in financial matters at home and this empowerment measure correlates strongly to confidence (Chart 24, page 55)
Rising non-tariff barriers: a sobering reminder of the work still ahead (Chart 28, page 63)
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Charting ASEAN
The case for an inflection point in ASEAN’s capex cycle given where we are, profitability, leverage ratios and demographics
Sectors with the greatest potential as integration increases, and where Private Equity and M&A money is going
Two charts on the potential of mobile technology on Banking and Insurance
Needs remain significant (housing included). Other logistics based indicators show marked improvements in recent years
Digital Evolution Index and getting ready for the E-consumer & the ads ASEAN consumers like
More educated, employed, empowered and confident
Two charts on urbanization, airports and tourism
Rise in non-tariff barriers, bilateral trade agreements rather than multilateral, taxes, pollution and corruption
The NAFTA Experience
Appendix
# Macro
# Sector Opportunities
# Financial Inclusion
# Infrastructure Catch Up
# M-Consumer & Digital ASEAN
# ASEAN Women
# Urbanization and Connectivity
# Risks
# Exclamation Point
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When seen as one region, ASEAN’s capital expenditure as a share of GDP has only been gradually increasing. A rising share simply means that capex is driving growth. The potential going forward is for an acceleration as free trade kick starts new capital investment.
While no comparison is perfect, an example is what happened in China following its WTO entry in 2001. As the chart shows, what was a gradual rise of capex as a share of GDP became an acceleration for the rest of the decade. China is now arguably over-invested.
For ASEAN, the potential is if the region gets it right, we could see an inflection point when capex drives growth.
For investors in Asia, there is arguably a clear divergence: China’s decelerating capex cycle and ASEAN’s accelerating capex cycle.
I: The Opportunity: CAPEX Inflection Point
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The potential of AEC is capex driving growth over a multi-year period
Source: CEIC, Maybank Kim Eng Research
Chart 1: ASEAN’s Capex Cycle Compared to China’s
China’s capex acceleration in the last decade was arguably helped by its WTO entry in 2001. China now is arguably over-invested.
For the AEC, the elimination of trade barriers has the potential to start a capex acceleration in under-invested ASEAN.
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ASEAN 6 Capex share of GDP (%)
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Rather than macro growth numbers, we looked at aggregated company operating margins. We used all the non-financials listed in the main indices together with companies that are also covered by Maybank Kim Eng equity analysts.
The results show that operating margins for ASEAN non-financials have been consistently high. And for the consumer sector, they have been very stable as well.
This is in contrast to the operating margins of Chinese companies, which again indicate little pricing power and are consistent with excess capacity.
Our suspicion is if the margin series show higher returns even before going into the AEC, a move to freer markets could see even better margins, and consequently, more capital attracted to the region.
I. Will Better Margins Attract Capital?
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Source: FactSet, Maybank Kim Eng Research
Operating margins for ASEAN companies have been consistently high and for the consumer sector, very stable
Chinese margins have been low and we shall see if the 2014 expected pick up happens given the overcapacity.
In contrast, AEC has the potential to boost margins in the coming years for ASEAN companies.
Chart 2: ASEAN Operating Margins
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The ability to fund capex relies on both favourable demographics and under-leveraged balance sheets.
The table shows the debt to GDP for the non-financial corporate sector and the public sector together with the aggregate debt to GDP.
While there is much debate about the sustainability of debt ratios, we suspect that an aggregate debt to GDP of over 250% or so may be difficult to sustain, particularly for emerging markets. Indeed, there is great discussion over whether China’s number is nearer 250%.
Under the aggregate debt to GDP measure, while Singapore and Malaysia, and less so Thailand are approaching levels of concern, the other economies are not. On average, the region is under-leveraged.
I: And Leverage Lower
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ASEAN is under-leveraged, particularly Indonesia, the Philippines and Vietnam. Both of ASEAN’s capex and credit cycles have capacity to accelerate
Source: “Deleveraging? What Deleveraging?,” by Luigi Buttiglione, Philip R. Lane, Lucrezia Reichlin and Vincent Reinhart, International Center for Monetary and Banking Studies, September 2014, CEIC, World Bank, Maybank Kim Eng Research
We suspect that an aggregate debt to GDP of 250% is high enough for an emerging market.
The developed markets may be struggling for growth given aggregate debt burdens.
Chart 3: Debt to GDP by Sector, 2013
% of GDP Total Private Sector
Debt to GDP Total Government
Debt to GDP Total Debt to GDP
Japan 168 243 411
US 160 105 264
Eurozone 164 93 257
China 168 49 217
Indonesia 55 22 77
India 68 67 135
Cambodia 54 n/a n/a
Malaysia 170 53 223
Philippines 44 53 97
Singapore 129 105 234
Thailand 181 32 213
Vietnam 110 49 159
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We selected three demographic indicators that are typically useful for anticipating stock-market performance and government expenditure on health, social security and education.
Prime Savers is calculated as the ratio of those aged between 40-60 to the total population. This cohort would typically save for retirement and therefore constitute a pool of capital. ASEAN’s Prime Savers Ratio is forecast to continue to rise. The mid-young ratio looks at those aged 40-49 divided by those aged 20-29. A rising ratio would indicate the population has relatively more higher earners. The dependency group, those aged between 0-14 and over 65 to the total population is also rising, but at a very slow pace, indicating less pressure on government and household finances.
For 2010-30E, the rising trend of the Prime Savers and mid-young ratios in ASEAN economies has the potential to benefit growth and financial market performance.
I: And Prime Savers Ratio Rising
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ASEAN demographic positives include an expected surge in the Prime Savers Ratio, helping to fund future capex
A potentially great demographic combination for the ASEAN for the coming decade or so: surging 40-60 year olds (savers), rising 20-40 year olds (earners), and an almost flat dependency ratio.
Source: UN Population Database, Maybank Kim Eng Research
Chart 4: Demographics Trend in ASEAN
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McKinsey Global Institute (MGI) suggests three potential drivers of returns for ASEAN companies, governments and investors: namely, globalization, urbanization and the deployment of disruptive technologies.
Each is already a force, but could further significantly add to growth, as shown in the chart, taken from MGI’s November 2014 report: “South East Asia at the crossroads: Three Paths to Prosperity.”
Each force has both positive and negative impacts and requires adapting to the new environment.
There is therefore a range of possible outcomes, dependent on the desire and initiative of both the private and public sectors to embrace change. Achieving the lower end of these targets we think would be disappointing.
II: McKinsey’s Three Paths to Prosperity
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These forces are already in place – so opportunity + competition. Adapting to the changing environment suggests significant upside potential
Source: McKinsey Global Institute analysis. Taken from “South East Asia at the crossroads: Three paths to prosperity”, November 2014. Reproduced with permission by Maybank Kim Eng Research
Chart 5: MGI’s Three Paths to Prosperity for South East Asia
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On a sector basis, a chart from MGI’s report also compares the potential benefits from integration with the progress on integration thus far.
In general, integration is more entrenched in the goods sectors. In particular, the auto, consumer and technology sectors stand out. In mining and agriculture, the potential for the rollover of the super-cycle in commodities suggests a shift to consolidation themes.
In services, progress on integration has been lagging. But there are opportunities, particularly in the financial sectors. This will arguably require the public and private sectors to work together to help with the mobilization and deployment of savings through the region.
II: Sector Opportunities
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1 2013 sector GDP for Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Tourism and e-ASEAN not included due to lack of available data. Agriculture-based sectors include fisheries.
Source: Expert interviews; IHS; McKinsey Global Institute analysis. Taken from “South East Asia at the crossroads: Three paths to prosperity” November 2014. Reproduced with permission by Maybank Kim Eng Research
Sectors that stand out where there is further potential include auto, electronics and consumer goods. Financial services is an area where progress has been slow but potential benefits are substantial
Chart 6: MGI’s Estimate of the Impact of Integration on Sectors
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Private equity money has also been rapidly rising in the region, albeit from low levels. Capital raising for start-up investments more than tripled from USD3.2b in 2013 to USD10.6b last year.
The bulk of the investments are in the tech and consumer spaces. Even in the consumer space, internet is driving investments.
The sector distribution we suspect means that many of the businesses are scalable. Effectively, companies are building online and tech-based strategies as the economies become more digitized. And companies are already beginning to “Think ASEAN.”
II: Private Equity Accelerating
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Source: Techlist, Maybank Kim Eng Research
Private equity investments are going into the technology and consumer sectors – likely scalable as ASEAN opens up
Total ASEAN start-up investments in 2014 was three times that of 2013. The high-tech and consumer driven capital raised would suggest scalable investments.
Chart 7: Private Equity Funding in ASEAN
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Funding (US$mn) -2013
Funding (US$mn) -2014
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Merger and Acquisitions (M&A) have risen in recent years in the lead up to the launch of the AEC. We think total M&A is a better reflection given the changing opportunities in the region.
In the five years prior to 2007, M&A, both within and outside the region, averaged USD23b a year. In the five years to 2014, it averaged USD47b, slightly more than double.
The sector composition is perhaps not too surprising, in that it’s dominated by the financials and consumer, particularly non-cyclical, sectors. The former arguably faces more regulatory scrutiny, but we reckon the consumer segment is set to continue to be a focus.
II: Sector Distribution M&A
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The consumer and financial sectors have seen the lion’s share of M&A in the region.
Source: Bloomberg, Maybank Kim Eng Research
M&A in the region has been dominated by the financials and consumer sectors.
It will be interesting to see whether there will be greater M&A in the resources sector as the commodity cycle rolls over.
“Chart 8: Consumer and Financials Dominate Regional M&A
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At the company level too, using foreign direct investment (FDI) data, there are signs that investment share is turning regional.
The chart shows the share of FDI that stays within the ASEAN region. In recent years, there has been a steady rise and one-fifth of all FDI is now inter-ASEAN.
We had thought that 20% was a little low but then considering that many corporations have been looking to North and South Asia, and even to developed markets, that may not be too surprising.
II: Intra-Regional FDI share rising
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Source: ASEAN Secretariat, CEIC, Maybank Kim Eng Research
Companies in ASEAN are increasingly investing within the region
A bigger share of FDI is finding opportunities within the ASEAN region.“
Chart 9: The Rising Trend of Intra-ASEAN FDI
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The relative under-leverage of the economies was shown on page 11. That offers opportunities for financials.
A lot of the ASEAN region also continues to show low levels of financial inclusion. For example, less than 50% of adults in many countries have a formal bank account.
With the development of technology, mobile banking strategies suggest we could see this improve sharply if banks start to offer customers the ability to use their phones for basic banking services and payments.
As the savings profile changes, and financial inclusion improves, the potential appears greatest in Vietnam, Cambodia, Indonesia, Laos and even the Philippines.
It will also be interesting to see the development of Islamic banking in markets such as Indonesia, where formal banking is relatively under-penetrated.
III: Financial Inclusion
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Source: World Bank Financial Inclusion Data, Maybank Kim Eng Research
An under-penetrated formal banking sector + demographics + mobile technology offer big upside for financials in Indonesia, Laos, the Philippines, Vietnam and Cambodia
Chart 10: Formal Bank Accounts
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The insurance industry remains under-developed in many ASEAN countries. The contrast to developed North Asia is immense, as shown in the chart.
As technology and markets deepen, the development of different products that mobilize savings suggests potentially significant upside to even the more developed of the ASEAN markets.
III: Getting Insurance
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Source: Swiss Re Sigma No 3/2014. Selected data published with permission granted to Maybank Kim Eng Research
Insurance is another mobilizer of savings with technology and new products offering potential upside in the more developed ASEAN nations as well
The scope for insurance growth also appears great, and in the more developed part of ASEAN as well.
Chart 11: Insurance Penetration as a % of GDP
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There are various estimates for infrastructure needs for the ASEAN economies and MGI’s estimate is that USD7t will be needed between 2014 and 2030.
This is based on the need to get infrastructure stock to GDP to the 70% range. In many countries, this will require spending multiples on what has historically been spent.
Given strong urbanization and demographic trends, such spending will need to occur to prevent growth from being curtailed by infrastructure bottlenecks.
This spending estimate includes development of the housing stock, where in many ASEAN countries, a large share of the urban population is in substandard housing. Affordable housing could be an important theme in the region.
IV. Infrastructure Needs
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To achieve high levels of growth, ASEAN countries will need to prioritize infrastructure. Residential real estate is a potentially powerful theme
Source: McKinsey Global Institute analysis. Taken from “South East Asia at the crossroads: Three paths to prosperity” November 2014. Reproduced with permission by Maybank Kim Eng Research
Chart 12: MGI Estimates of the Required Infrastructure and Real Estate Investment, USD trillion
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While the infrastructure bill is large, there have been improvements. One way to measure this is by looking at logistics data. This data captures the efficiency of customs clearance processes, the quality of infrastructure, shipment arrangement & services, ability to trace goods, and delivery within the scheduled time.
The vertical axis on the chart shows the measure of Logistics Performance in 2014. The horizontal access shows the change in this performance over the past seven years. We chose seven years to capture the logistics development after the global financial crisis.
Countries in the top-right corner will show those with strong logistics that have recently been upgraded.
For ASEAN, while the levels are low, the Philippines, Cambodia and Vietnam have started to improve logistics performance significantly and are catching up.
IV. Logistics Development
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Source: World Bank, Maybank Kim Eng Research
ASEAN logistics performance is catching up with significant improvements in recent years in the Philippines, Vietnam and Cambodia.
The top right hand of this chart is where you want to be – strong logistics performance and rapid improvements in recent years.
Chart 13: Logistics Performance Against Improvement since 2007
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The quality of port infrastructure is one component of the logistics performance indicator.
The chart shows that the greatest improvements have been in Indonesia and Vietnam. There is still some way to go to reach the developed economies but the improvement in recent years has been impressive.
In some countries, such as Thailand, there has been a decline in port infrastructure quality, illustrating the need for continued investment.
IV. Quality of Port Infrastructure
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The biggest improvements in port infrastructure in recent years has been Indonesia, Vietnam and the Philippines
Source: World Bank, Maybank Kim Eng Research
The top right is where you want to be. The bulk of Asia has yet to take that leap up to the developed economy countries but are getting closer. And fast.
Chart 14: Quality of Port Infrastructure and Change since 2007
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There has been a rapid electrification of the ASEAN countries.
As the chart to the right shows, many countries are over 80%, with the exception of Laos and Cambodia. The data source is the World Bank and we do not have data for Myanmar.
Even then, Laos increased electricity access for a fifth of its total population from 2000 to 2010, based on the latest available data.
IV. Access to Electricity
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Electricity is broadly connected to most of the ASEAN households. Laos and Cambodia’s levels are low but increasing rapidly
Source: World Bank, Maybank Kim Eng Research
In most of ASEAN, electricity access is no longer an issue. Where there is, we have seen big increases in electrification in recent years.
Chart 15: Electricity and Change in Access from 2000 to 2010
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To understand the extent to which the economies are prepared for the digital economy, we looked at the Digital Evolution Index.
This Index was built by Tufts University in collaboration with MasterCard Worldwide and DataCash. The index tries to capture the drivers and barriers for this evolution looking at demand, supply, institutional environment and innovation.
Like some of the other charts, higher up the vertical line is where you want to be. But if you are not, then you want to be on the right hand side, showing significant improvement in recent years.
The bulk of Asia is either high up or in the North East part of the chart. This underscores the e-commerce potential of ASEAN.
V: Digitalization of ASEAN
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Source: Digital Planet Report, Tufts University, Maybank Kim Eng Research
Countries higher up are better prepared for e-commerce. Those in the North East are the ones catching up fast and that is where many ASEAN countries are.
The ASEAN countries are increasingly prepared for e-commerce with Singapore leading the way. Vietnam, the Philippines and Thailand are moving faster than Indonesia on this metric!
Chart 16: Getting Ready for the e-consumer
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With the high costs of fixed line installation, the development of broadband is occurring via mobile. This is an example of a technology (fixed line) that could very well get mostly bypassed by mobile data as companies increase connectivity.
The iPhone 3G was announced in 2008. It used a 3G network and it was able to transfer a lot more data for actual applications. Since then, the demand for smartphones and mobile broadband have increased exponentially.
The chart shows that connectivity is still relatively low in ASEAN but on a per capita basis, mobile connectivity is higher than fixed-line connections for a number of countries.
V: Broadband Mobile
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Source: Think with Google - Our Mobile Planet Tool, World Bank, Maybank Kim Eng Research
Mobile broadband is driving electronic connectivity in ASEAN.
The smartphone penetration rate in Thailand, Malaysia and the Philippines is already over 30%. In Singapore, it’s nearly 90%
Chart 17: Smartphone Penetration Rate v Fixed Line Penetration Rate
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M-commerce is the next-generation of e-commerce and enables users to access the internet without needing to find a place to plug-in. The industries affected by m-commerce include: financial & information services, retail and marketing.
Smartphones are changing the retail landscape. They help shoppers to do research, compare and purchase products not just online but also in-store.
Many ASEAN countries’ smartphone penetration rates are not as high as in developed countries. However, the percentage of users who made purchases via their smartphones are much higher than other countries with higher smartphone penetration rates.
V: M-Commerce
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Source: Think with Google - Our Mobile Planet Tool, World Bank, Maybank Kim Eng Research
Many ASEAN consumers shop with their smartphones even though penetration rates are lower
Countries higher up are those where more smartphone users shop with their phones.
Many ASEAN countries are in there even though their smartphone penetration rates are lower than developed markets.
Chart 18: Smartphone Development and e-payments
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With how to build an ASEAN brand in mind, J Walter Thompson Asia Pacific’s “ASEAN Consumers and the AEC” is a particularly interesting report.
One of their findings was that many ASEAN consumers felt it was “our time”. Nearly 60% felt ASEAN was on precipice of a new era.
In addition, they also conducted a survey on the types of advertising ASEAN consumers responded positively to as companies try to build a regional brand.
One of the findings is reproduced in the chart: consumers across the region responded best to ads with humour. And less so with celebrities and expert endorsers.
V: Building an ASEAN Brand…Reach Out with Laughter
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Source: “ASEAN Consumers and the AEC” by J. Walter Thompson Asia Pacific, reproduced with permission by Maybank Kim Eng Research
Building an ASEAN brand requires thinking ASEAN, finding common threads and a regional identity
With mobile broadband, more ads will be seen. Common threads for ASEAN consumer is their love for ads with humour.
Chart 19: Adverts that are Most Preferred
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This link may be spurious: an increase in internet use and an increase in R&D as a percent of GDP.
But we are happy to go with it: put educated people together and connect them, the impact is likely to be very positive.
We feel that is why Frontier Markets are exciting: their growth we think will be accelerated as connectivity gives access to ideas that allow a leap frogging over technologies (e.g. straight to mobile broadband and e-banking). And this is before 3-D printing begins. And the real benefits of online education kicks in.
V: Technology Driving Innovation?
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The past 10 years has seen multiple increases in internet users throughout the region. And significant increases in R&D too.
Education + Connectivity = Innovation. Malaysia and Thailand seeing greatest increases in R&D spend as a % of GDP
Source: World Bank, Maybank Kim Eng Research
Chart 20: Connectivity and R&D
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With the rapid digitization of the economies, unsurprisingly, many of the entrepreneurs are young.
The chart shows the age profiles of those behind new start-ups, gathered from the Global Entrepreneurship Monitor.
In Asia, 9% of 18-24 year olds will launch a start-up and 16% of 25-34 year olds. That compares favourably with North America and far ahead of Europe.
While this data is all of Asia, we feel intuitively the picture is not far from what is happening in ASEAN.
V: Asia’s Entrepreneurs by Age
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Source: Global Entrepreneurship Monitor 2013 report, Maybank Kim Eng Research
Entrepreneurs in Asia start young, similar to those in North America. This links in with the increased private equity flow into technology
In Asia and the US, a great percent of the young will launch a start-up.
Chart 21: Early-stage entrepreneurial activity rates within age groups, by geographic regions
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ASEAN has typically high education and literacy rates (see Appendix on page 75). What has also been happening are big increases in secondary and tertiary education enrollment rates.
One of the most exciting trends has been the significant increase in female enrollment in secondary and tertiary education.
The chart shows, in percentage point terms, that over the past decade, female secondary school enrollment has typically outpaced male enrollment.
And in some places, this increase has been dramatic. In Indonesia, for example, 83% of the female cohort who can attend secondary school did so in 2012, compared to 58% in 2002.
VI: ASEAN Women & Education
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One exciting trend has been the sharp increase in women attending secondary school and then onto university. In ASEAN, this is being led by Indonesia, Thailand and Myanmar
Source: UNESCO, Maybank Kim Eng Research
The y-axis shows the increase in the eligible female cohort going to secondary school.The broad rise in Asian education trends has been driven by more females attending secondary school.
Chart 22: Education Statistics Driven by more Female Enrollment
China
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Macau Germany
India Indonesia
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Mexico
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With higher education, we also found that women labour participation rates are rising.
While overall female participation rates have been stable, looking at the 25-44 year old group, the overall trend has been rising labour participation.
One reason for this may be as more women are educated, they want to enter the workforce. Another could be that some of the social pressure to stay at home is diminishing.
Poorer countries tend to have higher female participation rates but the chart also shows the example of the US over the past 50 years. The current level of female participation is similar to what we see in Hong Kong and Singapore.
VI: ASEAN Women & Participation
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Labour participation rates among younger ASEAN women is rising, with the likelihood that they are also better educated. Noticeable increases are in Singapore and Malaysia
Source: International Labour Organization, Maybank Kim Eng Research
Female labour participation rates for the younger cohort of 25-44 year olds continue to broadly increase. The US example is instructive of how that rate can change over time.
Chart 23: Participation Rate for 25-44 year olds
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MasterCard recently launched its Index of Well-Being for Women 2014. They asked a series of questions to women in the region on how much say they had in household financial affairs, household non-financial affairs, work, satisfaction, safety, their personal well-being among others.
We plotted two series in particular: One, whether women surveyed felt their opinions on financial matters in the household were valued and two, how they felt about their own five-year outlook.
There are many observations but we’ll make two: One, well over 50% of women felt their opinion on household financial matters was valued (they had a voice). Second, the more women felt they had such a voice, the more optimistic about the future they were.
Given the importance of confidence in consumer purchases, and rising women education and labour earnings, corporations need to focus on women-decision makers.
VI: ASEAN Women & Empowerment = Confidence
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We’d say educated, working, confident women – increasing in number throughout ASEAN – could be the consumer segment to focus on
Source: MasterCard, Maybank Kim Eng Research
Easily more than 50% of women feel they have a valued say in household financial matters. And their response is positively correlated to their longer-term outlook.
Chart 24: Survey on Opinion Importance and Confidence
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The good correlation between urbanization increases and growth has been well documented.
We decided to take a different tack and look at urbanization increases together with increases in paved airports. The idea is as cities grow, are we also seeing greater connectivity?
Naturally, this is not a perfect measure as places such as Singapore and Hong Kong will be limited.
But the increase in Vietnam and, to an extent, Indonesia is consistent with the greater logistical improvements these nations have made in recent years.
VII: Urbanization with Connectivity
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Source: World Bank, Nationmaster, Maybank Kim Eng Research
Indonesia and Vietnam have added airports as they have grown, increasing connectivity
In many countries, more urbanization has coincided with more airports, but not everywhere. Indonesia and Vietnam have led the way.
Chart 25: Urbanization and the Growth in Airports
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A 2014 research report by the World Travel and Tourism Council (WTTC) found that ASEAN stands to gain between 6m to 10m additional international tourist arrivals by 2016 from improved visa facilitation.
The chart to the right shows travel and tourism total contribution to GDP for Southeast Asia along with capital spending and business travel spending. We also included the forecasts from the World Tourism Organization.
Unless there is a crisis, travel and tourism spending rarely declines. With AEC opening up, there is a possibility of further travel and tourism growth. Capital spending is forecast to rise from USD49b in 2013 to USD85b in 2019.
VII: Business Travel Boom
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Except for the Asian and global financial crises, travel and tourism has consistently added to GDP in ASEAN
Source: World Tourism Organization, Maybank Kim Eng Research
This is one of the few charts in this report where we have included forecasts, this time by the WTTC.
Business travel and tourism spending is forecast to double from USD41b in 2009 to USD82b by 2016.
Chart 26: Travel, Tourism and Investment
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The good news is that we are seeing the decline in tariff rates.
The chart to the right shows this trend, a key part of the AEC.
VIII: Average Tariff Rates Collapse
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Source: ASEAN Tariff Database, Maybank Kim Eng Research
CLMV represents Cambodia, Laos, Myanmar and Vietnam.
The ASEAN 6 are Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand.
The good news is that ASEAN tariff rates have indeed declined
Chart 27: Intra-ASEAN average tariff rate, 2000-2013
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The bad news is that countries are putting up non-tariff barriers.
Examples of such barriers include ownership restrictions, requirements for domestic inputs, extended approval processes, customs charges, technical measures on products and price controls to name a few.
Indonesia has added the most number of non-tariff barriers, but we are seeing sharp increases in the larger economies too, save the Philippines. Malaysia has the greatest increase in percentage terms.
VIII: But Non-Tariff Barriers Rise
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Source: Global Trade Alert, Maybank Kim Eng Research
The bad news is that non-tariff barriers are rising, slowing potential integration gains. Indonesia has added the most measures, with the strongest growth rate in Malaysia
Indonesia has added the most number of non-tariff barriers but Malaysia’s percentage increase has been the greatest.
Chart 28: Non-Tariff Barriers in the ASEAN countries
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Another potentially worrying trend is the development of visible groupings within the AEC
Malaysia and Singapore’s historical bilateral link has been strengthened by an improved political relationship and strategic initiatives, such as Iskandar Malaysia and the KL-Singapore high-speed rail link.
Further north, Thailand, Cambodia, Laos, Vietnam and Myanmar, together with China’s Yunnan and Guangxi-Zhuang Autonomous regions constitute the Greater Mekong Sub-region (GMS). The GMS is also trying to improve trade and infrastructure links between these countries. We held an investor conference in Bangkok this January together with the Stock Exchange of Thailand entitled “Thailand: ASEAN’s Gateway to GMS”.
VIII: Bilateral Trade rather than the AEC?
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Source: Maybank Kim Eng Research
Another risk is that governments find it easier to deal bi-laterally rather than multi-laterally, slowing the benefits of the AEC
Chart 29: Is the AEC breaking up into sub-regions?
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One tool to gain advantage over other countries is via taxes. Governments can adjust taxes to attract investment capital.
The chart to the right is from the World Bank Doing Business Report and shows income tax and total effective tax rates.
The highest rates are in Myanmar, Vietnam and the Philippines at over 40%. The large economies of China and India have, on the surface, rates exceeding 60%.
Cambodia, Laos and Thailand have the most competitive corporate tax rates.
VIII: Taxes as a Competition Tool
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Source: World Bank Doing Business Report, Maybank Kim Eng Research
Tax rates offer another tool for governments to attract capital: Singapore, Cambodia, Laos and Thailand have the lowest rates
Chart 30: Tax Burdens Vary
Payments (number per
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Time (hours per year) Profit tax (%) Labor tax and
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China 7 261 8 49 7 65
Hong Kong SAR, China 3 78 18 5 0 23
India 33 243 25 21 16 62
Indonesia 65 254 17 11 3 31
Lao PDR 35 362 17 6 4 26
Malaysia 13 133 22 16 1 39
Myanmar 31 155 25 0 22 48
Philippines 36 193 21 8 14 43
Singapore 5 82 2 15 1 18
Taiwan, China 11 221 13 18 3 34
Thailand 22 264 20 4 3 27
Vietnam 32 872 17 24 0 41
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Rising pollution could translate into much higher future healthcare costs and the high levels in mainland Chinese cities are a cause for concern.
The chart on the right shows annual average levels of PM10 and PM2.5 ug/m3 from the World Health Organization.
While the current levels in ASEAN capitals are not great, other cities have been able to grow strongly without it being a major issue.
We don’t see much sign anything is being done to curtail pollution. As such, it is set to be a longer-term risk for ASEAN rather than the nearer-term threat to other Asian countries.
VIII: And Pollution is Lurking
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Pollution is a long-term worry and unfortunately it may not improve anytime soon.
Source: World Health Organization, Maybank Kim Eng Research
Pollution levels are not ideal, but it’s a bigger worry in India and China than it is in ASEAN
Chart 31: Pollution Statistics by city
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Another worrisome aspect is that corruption remains an issue in the region.
We used historical Transparency International ranking data, which we converted into percentiles. That is, the higher the percentile, the less corrupt the country.
Singapore and Hong Kong are predictably those high up the list. With Cambodia, Laos and Myanmar showing lowest rankings, though we have seen improvement in the latter two.
The Philippines has seen the greatest improvement in recent years while there has also been a recent decline in China.
VIII: Corruption Remains An Issue
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Greatest improvement from a ranking perspective is the Philippines, but improving trends in Laos and Myanmar.
Source: Transparency International, Maybank Kim Eng Research
Corruption undoubtedly remains an issue for the region. But we have seen improvements, particularly in the Philippines
Chart 32: Corruption Percentiles
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Our last chart looks at the impact of the North American Free Trade Agreement (NAFTA) from a US perspective in terms of trade and FDI flows since its formation in 1993.
We reckoned NAFTA was a better point of comparison than the European Economic Community where there was an underlying desire to have a single currency.
Within five years, total trade had risen 66%, or at a 10.7% CAGR. FDI grew 9.5% CARR.
Over the 20 years, the CAGR of total merchandise and services trade was 6.9%. Over the same period, the compound annual growth rates of FDI was 8.9%.
IX: Exclamation Point: If ASEAN Gets It Right…
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Source: Congressional Research Service, “Nafta at 20: Overview and Trade Effects”, M. Angeles Villarreal and Ian F. Fergusson, April 2014, Maybank Kim Eng Research
In the first 10 years of NAFTA, total merchandise trade rose 109% and intra-regional FDI rose 176%
We thought NAFTA might be a better comparison for the AEC given the economies continue to have separate exchange rates.
Chart 33: The NAFTA case study
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Appendix
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Source: Bloomberg, IMF, Worldbank, CIA Factbook, UNESCO, MayBank Kim Eng*Singapore secondary and tertiary enrollment rate is based on net enrollment rate %
Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam
GDP, US$ bn 18 915 13 376 74 330 320 397 207
GDP, per capita (US$) 1,181 3,587 1,824 12,127 1,420 3,256 58,185 5,772 2,234
GDP, per capita PPP 3,534 10,759 5,357 25,833 5,208 7,412 84,821 15,320 5,983
GDP Growth 2014 7.2 5.1 7.4 5.8 8.5 6.1 2.8 0.7 6.0
GDP Growth 2015 (%) 7.3 5.5 7.2 4.5 8.5 7.0 3.0 4.0 6.2
Inflation 2014 4.5 6.4 5.5 3.2 6.6 4.2 1.2 1.9 1.8
Inflation 2015 3.5 7.3 5.3 4.0 6.3 3.5 1.0 2.3 4.8
Current Account, % of GDP (7.7) (2.5) (21.2) 3.5 (5.1) 2.8 19.0 0.3 5.3
FX Rate, end 2014 4,073 12,388 8,099 3.5 1,033 44.7 1.3 32.9 21,388
Savings Rate (%) 1.2 1.8 3.1 1.1 9.0 0.7 0.1 0.8 5.8
Population (mn) 16 255 7 31 53 101 6 69 91
Median Age 24 29 22 28 28 24 34 36 29
Literacy Rate (%) 74 93 73 93 93 95 96 94 94
Secondary School Enrollment, male (%) 49 81 50 68 49 81 52 85 74
Secondary School Enrollment, female (%) 41 84 43 66 51 88 48 89 81
Tertiary School Enrollment, male (%) 20 31 18 33 12 25 51 44 24
Tertiary School Enrollment, female (%) 12 32 15 39 16 31 49 59 25
Macro Forecast Table
Our Research TeamREGIONAL WONG Chew Hann, CARegional Head of Institutional Research(603) 2297 8686 [email protected] ONG Seng YeowRegional Head of Retail Research(65) 6432 [email protected] Alexander GARTHOFFInstitutional Product Manager(852) 2268 [email protected]
ECONOMICS Suhaimi ILIASChief EconomistSingapore | Malaysia(603) 2297 [email protected] Luz LORENZOPhilippines(63) 2 849 [email protected] Tim LEELAHAPHANThailand(66) 2658 6300 ext [email protected] JUNIMANChief Economist, BIIIndonesia(62) 21 29228888 ext [email protected]
STRATEGY Sadiq CURRIMBHOYGlobal Strategist(65) 6231 [email protected] Willie CHANHong Kong / Regional(852) 2268 [email protected]
MALAYSIA WONG Chew Hann, CA Head of Research(603) 2297 8686 [email protected]• Strategy • Construction & Infra-structure Desmond CH’NG, ACA(603) 2297 [email protected]• Banking & Finance LIAW Thong Jung(603) 2297 8688 [email protected]• Oil & Gas - Regional • Shipping ONG Chee Ting, CA(603) 2297 8678 [email protected]• Plantations - Regional Mohshin AZIZ(603) 2297 8692 [email protected]• Aviation - Regional • Petrochem YIN Shao Yang, CPA(603) 2297 8916 [email protected]• Gaming – Regional • Media TAN Chi Wei, CFA(603) 2297 8690 [email protected]• Power • Telcos WONG Wei Sum, CFA(603) 2297 8679 [email protected]• Property & REITs LEE Yen Ling(603) 2297 8691 [email protected]• Building Materials • Glove Producers CHAI Li Shin, CFA(603) 2297 8684 [email protected]• Plantation • Construction & Infra-structure Ivan YAP(603) 2297 8612 [email protected]• Automotive
Kevin WONG(603) 2082 6824 [email protected]• REITs LEE Cheng Hooi Regional Chartist(603) 2297 8694 [email protected] Tee Sze Chiah Head of Retail Research(603) 2297 6858 [email protected]
HONG KONG / CHINA Howard WONG Head of Research(852) 2268 0648 [email protected]• Oil & Gas – Regional Alexander LATZER(852) 2268 0647 [email protected]• Metals & Mining – Regional Jacqueline KO, CFA(852) 2268 0633 [email protected]• Consumer Staples & DurablesKa Leong LO, CFA(852) 2268 0630 [email protected]• Consumer Discretionary & Auto Benjamin HO(852) 2268 0632 [email protected]• Consumer & Auto Karen KWAN(852) 2268 0640 [email protected]• Property & REITs Osbert TANG, CFA(86) 21 5096 [email protected]• Transport & Industrials
Osbert TANG, CFA(86) 21 5096 [email protected]• Transport & Industrials
Ricky WK NG, CFA(852) 2268 0689 [email protected]• Utilities & Renewable Energy Steven ST CHAN(852) 2268 0645 [email protected]• Banking & Financials - Regional Warren LAU(852) 2268 0644 [email protected]• Technology – Regional Mitchell KIM(852) 2268 0634 [email protected]• Internet– Telcos
INDIA Jigar SHAH Head of Research(91) 22 6632 [email protected]• Oil & Gas • Automobile • Cement Anubhav GUPTA(91) 22 6623 [email protected]• Metal & Mining • Capital Goods • Property Urmil SHAH(91) 22 6623 2606 [email protected]• Technology • Media Vishal MODI(91) 22 6623 [email protected]• Banking & Financials Abhijeet Kundu(91) 22 6623 2628 [email protected]• Consumer
SINGAPORE NG Wee Siang Head of Research(65) 6231 5838 [email protected]• Banking & Finance
Gregory YAP(65) 6231 5848 [email protected]• SMID Caps – Regional• Technology & Manufacturing • Telcos YEAK Chee Keong, CFA(65) 6231 5842 [email protected]• Offshore & Marine Derrick HENG, CFA(65) 6231 5843 [email protected]• Transport (Land, Shipping & Aviation) WEI Bin(65) 6231 5844 [email protected]• Commodity • Logistics • S-chips John CHEONG(65) 6231 5845 [email protected]• Small & Mid Caps • Healthcare TRUONG Thanh Hang (65) 6231 5847 [email protected]• Small & Mid Caps
INDONESIA Wilianto IE Head of Research(62) 21 2557 1125 [email protected]• Strategy Rahmi MARINA(62) 21 2557 1128 [email protected]• Banking & Finance Aurellia SETIABUDI(62) 21 2953 0785 [email protected]• Property Isnaputra ISKANDAR(62) 21 2557 1129 [email protected]• Metals & Mining • Cement
Pandu ANUGRAH(62) 21 2557 1137 [email protected]• Infra • Construction • Transport• Telcos
Janni ASMAN(62) 21 2953 0784 [email protected]• Cigarette • Healthcare • Retail Adhi Tasmin(62) 21 2557 1209 [email protected]• Plantations
PHILIPPINES Luz LORENZO Head of Research(63) 2 849 8836 [email protected]• Strategy• Utilities • Conglomerates • Telcos Lovell SARREAL(63) 2 849 8841 [email protected]• Consumer • Media • Cement Rommel RODRIGO(63) 2 849 8839 [email protected]• Conglomerates • Property • Gaming• Ports/ Logistics Katherine TAN(63) 2 849 8843 [email protected]• Banks • Construction Ramon ADVIENTO(63) 2 849 8845 [email protected]• Mining Michael BENGSON(63) 2 849 [email protected]• Conglomerates Jaclyn JIMENEZ(63) 2 849 [email protected]• Consumer
Arabelle MAGHIRANG(63) 2 849 [email protected]• Banks
76
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The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.
US
This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.
UK
This document is being distributed by Maybank Kim Eng Securities (London) Ltd
(“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.
DISCLOSURES
Legal Entities Disclosures
Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regu-lated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.
OTHERS
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advis-ers as to the risks involved in making such a purchase. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.
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