CONFIDENTIAL
RESEARCH November 7 2016
ASEAN
Battling bottlenecks Infrastructure gets a push from new Philippine government
LAZADA FACES CHALLENGE FROM AGILE INDONESIAN E-COMMERCE FIRMS
RESIDENTIAL REAL ESTATE MARKET TO SOFTEN FURTHER IN MALAYSIA
WEAK GROWTH DRIVES DOWN ASEAN CREDIT CARD OWNERSHIP
NOV 7 2016
Macro | ASEAN
2 6 INFRASTRUCTURE Philippines: Pushing the accelerator on infrastructure build-out 13
CONSUMER Indonesia: Nimble local e-commerce players take fight to Lazada
18
REAL ESTATE Malaysia: Residential property weakness to continue
22
CONSUMER Survey finds fall in credit card ownership on economic weakness
25 METRICS
The resilience of consumer spending will be put to the test as this year ends Political risks in Asean appear to be multiplying following the death of the long-serving Thai king Bhumibol Adulyadej last month. They include a backlash against the agenda of Indonesian president Joko Widodo’s political party – PDI-P – intervention by the government in the rice market in Thailand, uncertainty within political elites in Manila regarding the foreign policy of Philippine president Rodrigo Duterte, and a more assertive Russian policy on the South China Sea. At the same time there have been signs of a pivot favouring China by the Philippines and Malaysia – both claimants in South China Sea territorial disputes with the regional giant to their north. In this report we analyse the Philippines’ infrastructure plans and find that while Mr Duterte is making progress, he may face obstacles in pushing through big-ticket projects backed by sovereign lending and risks creating confusion among both domestic and foreign private investors. With the exception of those in Vietnam, equity and bond markets in the region generally weakened throughout October, while in most countries both export and bank lending data remained on a downward trend. We expect these trends to persist into early 2017. As such, the resilience of consumer spending will be put to the test as this year ends. In this report, we survey three sectors dependent on resilient consumption. While the future looks bright for online retail in Indonesia, it is less bright for the residential property market in Malaysia and for credit card providers across most of the region.
Indonesia
Thousands of Muslims held a large rally in Jakarta on November 4 demanding that the city’s governor, Basuki “Ahok” Tjahaja Purnama – an ethnic Chinese Christian – be tried for allegedly insulting Islam. The protest turned violent, and the government acceded to the protestors’ demands. It will start an investigation into the Jakarta governor within the next two weeks.
1. Interest rate cutshave havehad hadlimited limitedimpact impacton onlending lendingrates rates in in Indonesia Indonesia Interest rate cuts Annual inflation
BI reference rate*
Commercial bank average lending rate
15 12 9 % 6 3 0 2009
2010
2011
2012
2013
2014
*Bank Indonesia adopted BI 7-day Repo Rate as reference, replacing BI Rate, in April 2016. Sources: Bank Indonesia, Financial Services Authority
2015
2016
NOV 7 2016
3
Government officials had previously told FT Confidential Research of a concerted internal effort to ensure that Mr Purnama secures a second term in upcoming gubernatorial elections in February 2017. The general consensus had been that Mr Purnama was sure to win, given both his proven competence and the limited appeal of the two other candidates. His chances of winning have now been severely damaged. Inflation continued to decline in October, with core consumer price inflation of just 0.1 per cent, the lowest since 2013. Year-to-date inflation was 2.1 per cent. This highlights weakness in both consumer and corporate demand. However, we still expect the central bank (BI) to resist a further cut to interest rates in the second quarter of next year. The central bank has lowered rates six times this year, with little impact on commercial bank lending rates (see chart 1). As a result, loan growth remained a tepid 6.9 per cent year-on-year in August, compared with 14.1 and 11.3 per cent in August 2014 and 2015, respectively. Banks are resisting cutting rates to help preserve net interest margins as a means to shoring up capital buffers: average margins have increased slightly to 5.59 per cent, up from 5.53 per cent a year prior, and 4.21 per cent two years earlier.
Thailand
Thailand has entered a one-year period of mourning following the death of King Bhumibol Adulyadej, during which political activity will remain subdued and short-term political risk should fall. Markets have largely taken the development in stride (see chart 2). The military government has promised that despite the king’s passing and the impending ascension of the crown prince to the throne, an election will still take place in late 2017 as promised. We are sceptical, particularly because this would put the election very close to the coronation ceremony, which is expected to take place in October 2017, a full year after the king’s death. FTCR’s latest consumer survey, for which data was collected before the king passed away, found a rise in our forward-looking Economic Sentiment Index to 56.5, from 51.1 in the previous quarter. Similarly, our Political Sentiment Index for Thailand rose to 64.6 from 56.5. However, we believe sentiment has deteriorated in the wake of the succession. Thailand’s official consumer confidence index fell to 73.1 in October, after three consecutive months of improvement. Seasonable flooding in Bangkok and regions further north, as well as low agricultural commodity prices, likely contributed to this fall. Exports climbed 3.5 per cent year-on-year in September on a US dollar, balance-ofpayments basis. For the first three quarters, outbound shipments fell 1.2 per cent against the same period in 2015, while imports ticked up 1.7 per cent. Thailand nevertheless posted
2. Thai market and currency largely unaffected by death of king Thai market and currency largely unaffected by death of king SET Price Index
Bt/$
1,550
37 Death of King Bhumibol
1,500
36
1,450
35
1,400
34
30
Source: Bloomberg
Bt/$
-S e 3- p Oc 4- t O 5 - ct Oc 6- t O 7- ct 10 Oct -O 11- ct O 12 c t -O 1 3 ct -O 14 ct -O 17 ct -O 18 ct -O 19 ct 20 Oct -O 21 ct 24 Oct 2 5 O ct 26 Oct -O 2 7 ct 28 Oct -O 31 ct -O 1-N ct 2- ov N 3- ov No 4- v No v
Bt
Inflation continued to decline in Indonesia in October, with core consumer price inflation of just 0.1 per cent
Macro | ASEAN
NOV 7 2016
4
Macro | ASEAN trade and current account surpluses of $3.7bn and $2.9bn, respectively, for the month of September, thanks largely to cheaper oil and gas.
Malaysia
Philippines
Despite international concern over the rhetoric of President Rodrigo Duterte, recent Philippine economic indicators suggest domestic confidence is solid. Bank lending grew 16.4 per cent year-on-year in September, quicker than in the previous month. Foreign exchange reserves remained stable at $85.9bn. Meanwhile, remittances unexpectedly grew 16.3 per cent in August, although this was partly due to low base effects from 2015. However, there is still ample cause for concern. Although accounting for a relatively low 32 per cent of GDP, exports continue to decline, down 4.4 per cent year-on-year in August,
3. Total FDI stockininMalaysia Malaysia Total FDI stock Selected Selected countries/regions countries/regions
Singapore
EU
Japan
US
China
120 100 80 Rm bn
President Najib Razak has been busy courting investment from China
Recent indicators suggest Malaysia’s economic slowdown may have, for now at least, hit bottom. Industrial production has risen 4-5 per cent year-on-year in recent months, up from roughly 3 per cent earlier in the year. Meanwhile, loan growth appears to have stabilised, up 4.2 per cent year-on-year in September, although still down from 10.2 per cent in September 2015. We think GDP growth could accelerate to 4.7-4.9 per cent next year, up from an estimated 4-4.2 per cent in 2016, as government spending increases in the run up to a general election that may be held as early as the second quarter (Asean Oct 26, Macro). Given an increasing likelihood that the Transpacific Partnership will not materialise in the medium term, President Najib Razak has been busy courting investment from China. This is also, in part, the payback for China’s help in bailing out the troubled 1Malaysia Development Berhad (1MDB) fund. Competition between China and Japan for the contract for the Kuala Lumpur-Singapore high-speed railway has been long expected (Asean May 31, Infrastructure). China has the advantage, although senior executives in Singapore told FTCR that Japanese banks are working overtime to structure a similarly competitive bid. The most recent project to have been awarded by Kuala Lumpur is a $13.1bn new rail line connecting the Malaysian capital with the east coast of the peninsula. China Communications Construction is expected to begin work in 2017, although we have reservations about the project’s high costs. The stock of Chinese investment in Malaysia remains relatively low (see chart 3) but this is set to change, given a series of planned investments – in particular the $9.3bn purchase of 1MDB’s power plants by China General Nuclear Power.
60 40 20 0
2010
2011
Source: Department of Statistics Malaysia
2012
2013
2014
2015
NOV 7 2016
5
Macro | ASEAN
Vietnam’s export growth is still strong, up 7.2 per cent yearon-year in the year to October
while imports rose 12.2 per cent. This downward trend has persisted for much of 2016, resulting in monthly trade deficits of more than $2bn, among the worst levels since the global financial crisis (see chart 4). This highlights the country’s lack of industrial capacity and will put downward pressure on the peso. Heightened levels of political risk will accentuate this trend. The peso was the worst performing Asian currency over the last two months, while the stock market fell 6.1 per cent from October 1 to November 4. Although Mr Duterte will likely retain strong support among the electorate, he needs to ensure he maintains the support of Manila’s political and business elite, particularly following recent public splits with erstwhile allies such as former president Fidel Ramos.
Vietnam
Vietnam is one of the few economies in the region where the domestic cycle remains in an upswing. Export growth is still strong, up 7.2 per cent year-on-year in the year to October, although down slightly from 8.3 per cent at the same point in 2015. The country’s privatisation drive continues to inch forward. Following the announcement of plans to sell majority stakes in the country’s two largest brewers, Sabeco and Habeco, in late October, Habeco listed a tiny portion – roughly 1 per cent – of its shares on the Hanoi exchange. Valuations from this sale will be used to help set the price of a larger stake at a later date. The sale of 9 per cent of Vinamilk, a company already listed on the Ho Chi Minh exchange and long a foreign investor favourite, has been scheduled for December or early 2017. The government has also announced plans to hasten sales of stakes in PetroVietnam, mining group Vinacomin, and power generation firms owned by state utility EVN, although we expect mixed receptions from investors. n
4. Philippines monthly tradebalance balance Philippines monthly trade 1.0 0.5 0.0 $bn
-0.5 -1.0 -1.5 -2.0 -2.5 -3.0
Aug-09
Aug-10
Aug-11
Aug-12
Aug-13
Aug-14
Aug-15
Aug-16
Source: Bloomberg
CONFIDENTIAL
RESEARCH
Asean: Principal Liz Chong Director of Research Gavin Bowring Researchers: Malaysia – Hafiz Noorshams Philippines – Felipe Salvosa Thailand – Dan Gallucci Indonesia – Andy Haswidi
FT Confidential Research: Chairman James Kynge Managing Editor Jeremy Grant Head of Production Heidi Wilson Sub Editor Richard Wells Senior Designer Paramjit Virdee Commercial Director James Mann Account Manager James Troy Product Managers David Griffith, Jenny Andrews Email: research.ftconfidentialresearch@ft.com Web: www.ftconfidentialresearch.com FT Confidential Research is published by The Financial Times Limited, Number One Southwark Bridge, London SE1 9HL © The Financial Times Limited 2016 The Client acknowledges that FT cannot provide the Client with any advice on dealing in specific investments and accordingly FT is not providing any such advice or making any recommendation to the Client on the merits of buying or selling or otherwise dealing in particular investments.
NOV 7 2016
Infrastructure | ASEAN
6
Philippines: Pushing the accelerator on infrastructure build-out •
New Philippine president Rodrigo Duterte has been swift to push through measures designed to create a more dynamic environment for infrastructure development.
•
A number of recent moves and project approvals should help alleviate crippling traffic congestion in Manila over the longer term.
•
Mr Duterte is playing off China and Japan against each other to secure investment in big-ticket projects, although implementation risk remains high, with many fundamental challenges to large-scale project development as yet unaddressed.
• FIRST PUBLISHED ON NOV 2
A number of obstacles faced by foreign investors remain, including major restrictions on foreign bank lending and tight rules on asset ownership that make it hard to recycle funds.
PPP PROJECTS AWARDED DURING THE AQUINO ADMINISTRATION Cost, pesos (bn) Completed/operational
Total: 292.3
Under construction 9.9 2.2 1.7
Pre-construction
School Infrastructure Phase 1 Daanga Hari-SLEX Road Project Automatic Fare Collection System
37.4
Manila Skyway Stage 3
17.9
NAIA Expressway Project
17.5 3.9
School Infrastructure Phase 2
Mactan-Cebu Airport building
69.3 MRT Line-7
64.9 LRT Line-1 extension Cavite-Laguna Expressway 35.4 15.0 Source: PPP Center of the Philippines
24.4 7.7
Bulacan Bulk Water Project South Integrated Transportation Project
NOV 7 2016
7
Infrastructure | ASEAN
Toll roads attract particular interest since private groups have incentives to connect their land banks, and are better placed to assess commercial risk
Philippines: Pushing the accelerator on infrastructure build-out During the six-year tenure of former president Aquino, the successful launch of an initiative to boost infrastructure through public-private partnerships (PPP) made the Philippines Asia’s third largest PPP market, behind China and India. However, implementation still fell well short of targets, with 12 projects worth 292bn pesos ($6bn) actually awarded out of a targeted 53 projects with a value of 1.31tn pesos. Of the 12 awarded, only 3 have actually been completed. Projects were often delayed by a lack of government coordination (Asean May 5, Macro). Since assuming office, however, President Rodrigo Duterte has taken steps to inject new momentum into the process (Asean Sep 30, Macro).
Fostering healthy competition
The government is hoping that three planned regulatory changes will create a more dynamic environment for infrastructure development: • Allowing unsolicited bids, whereby companies submit proposals that are subsequently opened for competitive bidding; • Granting emergency powers to secure land for infrastructure projects and shortening timelines for procurement; and • Raising caps on foreign equity ownership from 70 per cent to 40 per cent in several industries. FT Confidential Research found significant support for the introduction of unsolicited proposals, including from local conglomerates and foreign investors such as Macquarie Capital, which in 2014 invested in the consortium that operates and manages the LRT Line-1. “Toll roads attract particular interest since private groups – often with myriad real estate interests – have incentives to connect their land banks, and are better placed to assess commercial risk,” according to Rodrigo Franco, CEO of Metro Pacific Tollways. Discussions have been revived over blueprints for projects such as a planned 20km Manila subway (see map), a 15km “Trans-Manila” bridge connecting Cavite province with Bataan, as well as a planned $20bn international airport in Cavite province, proposed by San Miguel. Rene Almedras, CEO of Ayala’s infrastructure unit, told FTCR that, for the more ambitious projects, the key issue is the level of government support, which remains unclear. “The new administration’s revival of interest in the planned subway linking Pasay, Makati and Taguig is certainly a positive step. However, with an $8bn price tag, tunnel depths of 50 metres and an untested regulatory structure, it will require significant
Manila subway subwayproject project Makati Central Business District
MAKATI Bonifacio Global City Mall of Asia Arena PASAY
TAGUIG
1km Source: FT Confidential Research
NOV 7 2016
8
Infrastructure | ASEAN
Philippines: Pushing the accelerator on infrastructure build-out subsidisation and regulatory clarification.” Others voice mild concern about the government’s hasty approach. “On the one hand, we’ve had a sclerotic process for too long,” Karim Garcia, vice president of business development at Metro Pacific, said. “On the other, a number of PPP projects carried over from the Aquino era need to be heavily reassessed, either in terms of their planned costs, their financing structures, their planned land-use or their execution timelines.”
Unclogging Manila’s streets and airport
Nevertheless, initial progress has been tangible, particularly in Manila. Moves have already been made to accelerate the roll-out of infrastructure projects in the city, in addition to a series of stopgap measures, including widening side streets, introducing vehicle fees and improving bus and ferry connections. The city’s traffic congestion is now among the worst of any major world city, and without action will only get worse. Vehicle sales rose 22.9 per cent in 2015, and are set to rise even further this year (see chart 1). In late September, the National Economic Development Authority (NEDA) – in its first meeting under the new administration – approved a PPP proposal to upgrade Ninoy Aquino International Airport (NAIA), Manila’s main airport, worth 76bn pesos. NAIA handled over 35m passengers in 2015, exceeding its designed capacity of 31m. Arrivals are set to rise further this year (see chart 2). According to industry insiders, the
Philippines vehicle 1. Philippines vehiclesales sales 350
No. of units (000s)
300 250 200 150 100 50 0
2012
2013
2014
2015
2016E
Note: 2016 is FT Confidential Research estimate Source: Asean Automotive Federation
Ninoy Aquino 2. Ninoy AquinoInternational InternationalAirport Airportpassenger passengertraffic traffic Domestic
International
Designed capacity
40 35 No. of passengers (m)
Moves have already been made to accelerate the rollout of infrastructure projects in Manila
30 25 20 15 10 5 0
2012
2013
Note: 2016 is FT Confidential Research estimate Source: Manila International Airport Authority
2014
2015
2016E
NOV 7 2016
9
Infrastructure | ASEAN
The expansion of MRT Line-3, which currently services 600,000 passengers daily, has stalled due to poor maintenance
Philippines: Pushing the accelerator on infrastructure build-out plan would upgrade NAIA’s existing hardware and software infrastructure, ideally through a partnership between a foreign airport operator and a local conglomerate. This brings the number of projects that have secured NEDA approval but have yet to be tendered to 12 (see chart 3). Progress is, however, likely to be quicker in contracting out regional airport PPP projects in Bohol, Davao, Iloilo and Bacolod, according to Matthew Bubb of law firm Ashurst. Regional airports generally do not require new land acquisition, while terminal upgrades can quickly generate revenue through tourism-related shopping. According to Marianne Hontiveros, CEO of AirAsia Philippines, the private sector will also be brought in to co-invest in: • • •
Additional runways at both Clark and Cebu airports; and Night landing facilities in six regional airports – Cotabato, Osamiz, Dumaguete, Dipolog, Roxas and Tuguegarao These projects should help take pressure off Manila.
Urban rail network crucial for Manila
In addition, the expansion of Manila’s rail transport system is ongoing, including: • • • •
A 12km extension of LRT Line-1, awarded as a PPP to Ayala and Metro Pacific; Upgrading and extending MRT Line-3; New LRT lines. Line-4 is only at the planning stage, while Line-6 has received NEDA approval; and A new MRT line – Line-7 – being developed by San Miguel and South Korea’s Korail, which is in pre-construction.
The expansion of MRT Line-3, which currently services 600,000 passengers daily, nearly double its designed capacity, has stalled due to poor maintenance. “In 2012, the transport department refused to renew Sumitomo’s operations and maintenance contract for MRT-3, insisting on handling it itself. This has resulted in a huge mess, with a train derailing in 2014,” a senior executive at Metro Rail Transit, the original contractor of the project, told FTCR, adding that the company is in early negotiations with the government on how to deliver the MRT-3 expansion and improve its management.
3. Status of ongoing PPP projects in the Philippines Project Bidding stage Cost (pesos, bn) NEDA board approval completed NLEX-SLEX Connector Road Completed, contract awarded 23.2 Regional Prison Facilities through PPP Bid submission 50.2 Davao Airport Operations, Maintenance and Development Bid submission 40.6 Iloilo Airport Operations, Maintenance and Development Bid submission 30.4 Bacolod Airport Operations, Maintenance and Development Bid submission 20.3 Davao Sasa Port Modernisation Project Bid submission 19.0 Kaliwa Dam Project Bid submission 18.7 Laguindingan Airport Operations, Maintenance and Development Bid submission 14.6 New Bohol Airport Operations, Maintenance and Development Bid submission 4.6 LRT-2 Operation and Maintenance Bid submission n/a LRT Line-6 Project Performance qualification 65.1 document submission NAIA PPP Project Rollout 74.6 Awaiting NEDA board approval North-South Railway Project (South Line) n/a 214.0 Batangas-Manila Gas Pipeline n/a 14.7 Philippine Travel Center Complex Project n/a 1.8 Source: PPP Center of the Philippines
NOV 7 2016
10
Infrastructure | ASEAN
China has expressed interest in bidding for NorthRail, a 45km component of the north-south commuter rail project
Philippines: Pushing the accelerator on infrastructure build-out Progress on the construction of MRT Line-7 has also stalled, due in part to disputes between commercial property developers over the planned location of a station linking LRT-1 and LRT-2 with the new line. However, in late September, the Department of Transport proposed a compromise that placed the new station at a halfway point between SM’sNorth EDSA shopping mall and Ayala’s TriNoma mall. The two parties have since returned to the negotiating table, although a formal deal has yet to be finalised. The NLEX-SLEX Connector elevated toll road, which connects two major arteries to the north and south of Manila, has also regained momentum (Asean Jan 8, Infrastructure). Following a review of the bid during the last months of the Aquino administration, the contract was formally awarded to original bidder Metro Pacific in late September.
Reaping the benefits of the Japan-China rivalry
Mr Duterte has also been looking to push infrastructure forward via diplomatic means. A recent visit to Beijing by the president yielded $15bn of pledged investment (see chart 4). Most of the significant infrastructure deals unveiled – including port expansions in Cebu and Davao, and upgrading Manila’s transport systems – involve China Harbour Engineering and other subsidiaries of China Communications Construction, a state behemoth similarly lobbying for projects in Indonesia (Asean Sep 4 2015, Infrastructure). Although not on the list of pledges, China also expressed interest in bidding for NorthRail, a 45km component of the north-south commuter rail project that Transport Secretary Arthur Tugade indicated would “take centre stage” in coming months. It would link Manila with Clark International Airport, the growth potential for which is substantial, with under a million passengers using the airport in 2015 (see chart 5). This sets the stage for another competitive bidding process between China and Japan (Asean Aug 12 2015, Macro). In late 2015, Tokyo signed a $2bn loan agreement to develop
4. Major proposedprojects projectsasaspart partofofChina’s China’s$15bn $15bninvestment investmentin in the Major proposed Philippines the Philippines CHINESE COMPANY CCCC Dredging
Cebu International and Bulk Terminal project Subic-Clark railway project
China Harbour Engineering
LOCAL PARTNER
PROPOSED PROJECT
Sangley Point Transport and Logistics Project Davao coastline port development project Manila Harbour Center reclamation
Mega Harbour Port Bases Conversion and Development Authority Cavitex Holdings, International Container Terminal Services Mega Harbour Port R-II Builders
China Railway Engineering
Railway project (study group)
MVP Global Infrastructure
China Road and Bridge
Metro Manila Bus Rapid Transit EDSA Project
Bases Conversion and Development Authority
Bridge and flood control projects in Manila
Zonarsystems
River basin flood control project
One Whitebeach Land Development
Yangtse Motor, Minmetals International
EDSA Bus Transport programme
Phil State
Zhuhai Bus
Bus manufacuturing
Coach Co
Sinohydro
Source: FT Confidential Research
NOV 7 2016
11
Infrastructure | ASEAN
Philippines: Pushing the accelerator on infrastructure build-out 5. Clark InternationalAirport Airportpassenger passengertraffic traffic Clark International International
Domestic
2013
2014
$17bn Value of investment secured by Rodrigo Duterte on his recent China visit for mass transit, power, road and water projects
No. of passengers (m)
1.5 1.2 0.9 0.6 0.3 0.0
2012
2015
Source: Clark International Airport Corporation
the line, using narrow gauge rails. China’s rival proposal uses standard gauges, with the additional bonus of a separate rail link between Clark and Subic Bay, a strategic industrial zone 150km north-west of Manila. Following his China visit, Mr Duterte went to Tokyo, where he secured investment pledges of close to $17bn for mass transit, power, road and water projects, particularly from conglomerate Marubeni, which has an existing portfolio of investments across multiple sectors in the Philippines (Asean Aug 5 2014, Trade), ranging from telecoms to power.
Caution on China investment pledges
Playing Japan and China off against each other could prove a fruitful strategy for Mr Duterte, in the short term at least, though pledges do not always turn into action. Implementation of Chinese investment pledges has been patchy across much of Asean. This includes in Indonesia where much of the $20bn promised via bilateral deals in 2014 has failed to materialise. Planned rail deals in Indonesia and Thailand face significant delays, in large part due to the inability to agree on financing terms, and there is little to suggest this would be any different for the Philippines. Chinese companies looking at the Philippines are likely to remain cautious until it is clear that the thaw in bilateral relations under Mr Duterte persists. Moreover, there is growing resistance to some of the planned investments, with question marks over the prior behaviour of some of the companies involved and worries that China will use such investment as political leverage to extract concessions over disputed maritime resources.
Foreign investment still required
As such, securing foreign private capital remains important to creating sustainable infrastructure improvement. The government’s commitment to raising foreign ownership caps is aimed at boosting such investment – a strategy that should find support in growing international interest in the country’s renewable energy sector (Asean Aug 3, Energy and resources) and the planned listing of PPP projects on the Philippine stock exchange. However, of the 292bn pesos in PPP projects awarded during Aquino’s administration, only 15bn pesos was accounted for by foreign capital, and there are some important issues with the current PPP model that have yet to be resolved. “Fundamentally, the PPP programme has not been designed to attract foreign capital and it is unclear if this is changing. Major restrictions on foreign bank lending remain, even though domestic banks are often unwilling or unable to unilaterally finance projects,” said Dean Van Drasek, executive director at Arch Advisory. Existing investors in the country also find that the excessively tight rules on asset
NOV 7 2016
12
Infrastructure | ASEAN
Philippines: Pushing the accelerator on infrastructure build-out BLOOMBERG
The NLEX-SLEX Connector elevated toll road project connecting major arteries to the north and south of Manila, has regained momentum
ownership make it hard for investors to recycle funds, according to John Walker, head of Asian infrastructure at Macquarie Capital. Capital recycling is the process by which small portions of a project’s development are sold or leased to private buyers, the proceeds of which are used for re-investing elsewhere or improving the project’s general cash flow. The idea is to improve risk management by outsourcing various portions of the risks inherent in project development to third parties.
Progress still likely to be slow
15bn
Of the 292bn pesos in PPP projects awarded during the Aquino administration was accounted for by foreign capital
Furthermore, while government measures to expedite land transfer will streamline construction of transportation projects, completion remains distant for many. “If you take NorthRail, even assuming it is awarded the government will need to resettle hundreds if not thousands of squatters,” said Andre Palacios, lecturer at the University of the Philippines. “Significant new land acquisition in prime downtown areas would also be required. While there is an existing, antiquated link between Manila and Clark, this terminates in the old downtown area of Manila Bay, rather than Makati, Fort Bonifacio and Ortigas.” A planned rail link in Mindanao (Asean Dec 10 2014, Macro), another major Duterte-led initiative, presents an even greater challenge. “Mindanao is 100 per cent greenfield, where you also have mountainous terrain, security risks and sparsely populated areas. Perhaps a link from Cagayan de Oro to the city of Butuan is feasible, but this is several years away,” a World Bank official told FTCR. Vested interests could also drag on progress. The Davao Sasa port project in Davao City, for example, one of the NEDA-approved projects currently in the PPP pipeline, was “very close” to being awarded in the last few months of the Aquino administration, but has since been left in limbo, according to advisors working on the project. “This is a bit puzzling, particularly since this is Mr Duterte’s own hometown. However, we think that other private port operators in the city are pressuring the President to postpone the deal, since it runs contrary to their interests.” This highlights that many legacy problems – including the pernicious influence of local cliques – remain an obstacle for infrastructure development. Foreign investors will remain somewhat cautious until tangible progress is made on resolving these and other fundamental issues. But it is also clear that progress is being made in pushing forward PPP projects. And Mr Duterte’s preference for more centralised governance and sovereign-backed projects may yet win over the domestic conglomerates and the country’s traditional elites – economic and political constituencies crucial to maintaining the momentum of the infrastructure build-out. n
13 FIRST PUBLISHED ON OCT 21
Consumer | ASEAN
NOV 7 2016
Indonesia: Nimble local e-commerce players take fight to Lazada •
Customer-to-customer (C2C) platforms Tokopedia and Bukalapak are emerging as challengers to regional e-commerce giant Lazada, FT Confidential Research analysis and survey data show.
•
Online payment services remain underdeveloped, a situation which favours smaller, agile local players who are better navigating the challenges this presents.
•
No single player is likely to dominate Indonesia’s e-commerce market, which will remain fragmented due to the size and chaotic nature of its informal sector, which should support outperformance for C2C platforms.
I
ndonesia’s 250m population, rising smartphone adoption and a recent decision by the government to liberalise investment in internet-related businesses make the country’s e-commerce sector one of the most compelling in Asia. We think the growth outlook for C2C is especially strong in Indonesia, due to the large size of its informal sector, which comprises roughly 60m small and micro-businesses that generate nearly 60 per cent of the country’s GDP. We expect Indonesia to produce its first internet “unicorn” start-up – with a valuation exceeding $1bn – as early as next year. The candidates include motorcycle ride-sharing app Go-Jek, travel booking service Traveloka and two e-commerce start-ups with C2C business models: Bukalapak and Tokopedia (see Insight). All could achieve this status, though for the latter two, much will hinge on the investment strategy of global behemoths Amazon and Alibaba. The Chinese group recently acquired a controlling stake in Singapore-based Lazada, which operates a popular business-toconsumer (B2C) and more recently C2C, platform in Indonesia, Malaysia, the Philippines, Thailand and Vietnam. There is a widespread expectation that Amazon will follow suit, creating some nervousness among local players, compounded by the upcoming launch of C2C site Facebook Marketplace.
1. Average download speed in selected Asian countries Mb/s Singapore 122.4 Japan 82.1 Korea 59.8 Thailand 19.8 Vietnam 17.7 Cambodia 9.4 Malaysia 7.3 Indonesia 6.7 Myanmar 6.5 Philippines 3.6 Source: Ookla
Indonesian e-commerce set for take-off
In spite of low internet connection speeds in the country – among the slowest in Asia (see chart 1) – it is a good time to enter Indonesia’s e-commerce market (Asean Jun 11 2015, Consumer). Recent research by Google and Temasek predicts that this market is expected to grow at a world-beating 39 per cent a year in the ten years to 2025: from $1.7bn in 2015 to $46bn. In February the government allowed 100 per cent foreign ownership in e-commerce. President Joko Widodo also hired Alibaba founder Jack Ma as special advisor, a move to further boost the development of the sector. Major domestic players are somewhat more optimistic about the short-term outlook than many analysts, predicting three-digit revenue growth figures this year. Indeed, earlier this month, Lazada Indonesia, the most popular e-commerce site in Indonesia, reported 150 per cent year-on-year growth in transaction volume in the first nine months of the year, driven by fast-moving consumer goods and fashion products. Homegrown C2C platforms are growing even faster, driven by a price advantage on many goods, which appeals to very price-sensitive consumers. Bukalapak told FTCR
NOV 7 2016
14
Consumer | ASEAN
Indonesia: Nimble local e-commerce players take fight to Lazada that the company’s gross merchandise value (GMV) – the value of products sold via the platform – had tripled year-on-year in the year to September. Meanwhile, Tokopedia, which in April raised $147m in Series F funding – the sixth round of financing following seed-stage investment – expected the total number of goods sold on its platform to jump from 6m units a month in 2015 to 16.5m in 2016.
36.7%
Lazada still number one, but Tokopedia challenging
In our recent consumer survey, Tokopedia and Bukalapak were the most popular of the homegrown e-commerce websites, behind Lazada (see chart 2). Tokopedia’s popularity has improved dramatically in the past two years, rising from 10 per cent in 2014, to 22 per cent last year and 29.5 per cent this time. Data from traffic-tracking site Similarweb shows that it is not far behind Lazada in terms of visits, but actually performs better in terms of use – with longer average visits, more pages visited and a lower bounce rate (see chart 3). Tokopedia’s growth has been underpinned by massive advertising spending. Data from media research company Adstensity shows that last year it spent more than any other e-commerce firm in Indonesia on TV adverts, shelling out Rp560bn ($43m), a much higher spend than Bukalapak (Rp119bn) and Lazada (Rp107.7bn). Lazada nevertheless remains the established number one in the market and in our September survey, in which it was selected by 36.7 per cent of respondents, down fractionally from 37 per cent in 2015.
Of respondents in our September survey said they usually shop online on Lazada
Indonesia’s e-commerce upstart start-ups
INSIGHT: Indonesia’s e-commerce upstart start-ups Founded in 2010 by Achmad Zaky, a software developer and graduate of Bandung Institute of Technology 2014: Another round of funding from Aucfan, IREP, 500 Startups and Gree Ventures
Achmad Zaky (CEO)
FUNDING
FUNDING 2012: First seed funding from Batavia Incubator and Gree Ventures 2015: Indonesia’s second largest media company Emtek acquired a 49 per cent stake for Rp439bn
KEY FIGURES
2010: East Ventures 2011: Cyber Agent Ventures 2012: Netprice 2013: SoftBank Ventures Korea
2016: Received $147m in additional funding, reportedly in part from Li Ka-shing’s Horizons Ventures
Nugroho Herucahyono (CTO)
KEY FIGURES
Founded in 2009 by software and web developers William Tanuwijaya and Leontinus Alpha Edison
2014: Received $100m in investment from Sequioa Capital and SoftBank Internet and Media William Tanuwijaya (CEO)
Leontinus Alpha Edison (Director)
Fajrin Rasyid (CFO)
BUKALAPAK
TOKOPEDIA
Source: FT Confidential Research
NOV 7 2016
15
Consumer | ASEAN
Indonesia: Nimble local e-commerce players take fight to Lazada Ten most popular 2. Ten most populare-commerce e-commercesites sites
78.8%
Of female respondents said they had shopped online, compared with just 59.8 per cent of males
Lazada Tokopedia Bukalapak OLX Matahari Mall Elevania Zalora Indonesia Blibli Qoo10 BerryBenka 0
5
10
15
20 25 % of respondents
30
35
40
Q: Which e-commerce company do you prefer shopping with? (Multiple-choice question with a maximum of two possible answers) Source: FT Confidential Research
Increasing consumer comfort with e-commerce
This places the company well to capitalise on growing consumer comfort with online purchases. In our survey, 69.4 per cent of respondents had previously bought goods online. Women were more likely to have shopped online than men, with 78.8 per cent of female respondents saying they had done so, compared with just 59.8 per cent of males. A substantial 40.2 per cent of respondents said they were buying online more frequently than a year prior, with just 17.3 per cent saying they use e-commerce less often. Interestingly, 12.1 per cent of those surveyed said they preferred to buy products displayed on social media, precisely why Facebook Marketplace’s entry into Indonesia could prove disruptive to e-commerce. Facebook remains the dominant social media platform in the country (see chart 4).
Nimble local operators faster to broaden payment options
The absence of a scalable e-payment system has long been viewed as a major hurdle to e-commerce in Indonesia. Only 0.1 per cent of survey said third-party services, such
3. Visitor statistics leadingIndonesian Indonesiane-commerce e-commercesites sites Visitor statistics forforleading Lazada Indonesia
Tokopedia
Bukalapak
Visits/month (m)
42.5
36.8
26.3
Average duration (mm:ss)
04:38
10:05
07:33
Pages/visit
4.16
Bounce rate (%)*
10.59
57.9
7.07
34.9
38.9
*% of visitors who navigate away from the site after viewing only one page. Note: This data is based on the number of visits to websites using web browsers in September Source: Similarweb
NOV 7 2016
Tokopedia and Bukalapak have partnered with more banks for payments and introduced cashon-delivery systems well in advance of Lazada
Indonesia: Nimble local e-commerce players take fight to Lazada as PayPal, Doku or iPayMu, were one of the two online payment methods they most frequently used for online purchases (see chart 5). Although this does make e-commerce more costly and inefficient, we think this plays to the strengths of homegrown firms, which have shown themselves more nimble in dealing with challenges in certain areas. Looking to cater to those without bank accounts – which includes more than half of working-age Indonesians – Tokopedia and Bukalapak last year launched partnerships with the post office and convenience stores, such as 7-Eleven, Indomaret and Alfamart, to allow payments for goods to be made there. These stores typically charge a small fee of about Rp2,500 for such transactions. More recently, these local e-commerce sites also moved quickly to include e-money as a payment option. The most prominent players in this segment are Mandiri e-Cash, BRI e-Pay and BNI Tapcash. While this should boost the local players, our recent survey found that a majority of respondents (69.7 per cent) still said they pay for online goods via transfers through cash machines. Cash-on-delivery (COD) payment also remains popular, reflecting both a lack of trust that means consumers like to see goods prior to payment and limited bank penetration. While both these options are also available on Lazada, Tokopedia and Bukalapak have partnered with more banks for payments and introduced COD systems well in advance
4. Five most popularsocial socialmedia mediaapps appsininIndonesia Indonesia Five most popular 100 80 % of respondents
16
Consumer | ASEAN
60 40 20 0
Google+
Path
Q: Which social networks do you use most frequently? (Multiple-choice question with a maximum of two possible answers) Source: FT Confidential Research
5. Most commonly usedonline onlinepayment paymentmethods methodsininIndonesia Indonesia Most commonly used ATM transfer Mobile banking Cash on delivery Cheque Credit card Postal service Third-party service Other 0
10
20
30 40 % of respondents
50
60
Q: Which payment methods do you use when purchasing items online? (Multiple-choice question with a maximum of two possible answers) Source: FT Confidential Research
70
NOV 7 2016
17
Consumer | ASEAN
Indonesia: Nimble local e-commerce players take fight to Lazada BLOOMBERG
Last year Tokopedia spent more than any other e-commerce firm in Indonesia on TV adverts
of Lazada. The regional operator did launch a new self-operated e-payment system called HelloPay earlier this year, allowing payments to be made via Indomaret.
Indonesian sites taking lead in vendor financing
Following its $1bn acquisition of Lazada, Alibaba is sure to invest more in Indonesia to head off the rise of Tokopedia and Bukalapak
Local players are not just beating Lazada to the punch in adopting new payment options, but also in deploying new vendor financing products, which should boost the number and scale of merchants on their platforms. Earlier this year, Tokopedia and Bukalapak both launched financing programmes that would allow individual vendors on their sites to borrow capital from a range of partners, namely financial technology firms Tunaiku, Taralite and Modalku. The loans can range from Rp2m to Rp500m with a maximum maturity of 12 months, while interest rates range from 0.375 per cent a week to 3 per cent a month. This allows partners to these vendors access to a huge potential client base of borrowers, including a detailed breakdown of a seller’s financial performance – provided by the e-commerce sites – for risk assessment. Both sites have more than 1m vendors.
Feel the cash burn
Our analysis seems to suggest a bright future for homegrown players, given their track record in navigating the local market. This stands in contrast to Rakuten, the Japanese retailer, which closed its Indonesian site in March after five years. Rakuten had failed to implement new payment options effectively, demanding significant paperwork for many transactions, while its website was not redesigned for a local audience. Many Japanese websites, including that of Rakuten, are text-heavy and cluttered, and therefore hard to navigate for many non-Japanese users. Yet homegrown players will still face challenges. Uber – a foreign entrant – showed initiative and flexibility by starting to accept cash payments in Indonesia in February, responding to low credit card penetration rates. Furthermore, Amazon and Alibaba are cash rich, and local knowledge and talent can be bought. Amazon has invested $2bn in India since 2014 and is prepared to put in $3bn more. “If Amazon spends $1bn in Indonesia, it would be quite a formidable challenge for local startups,” Bukalapak CFO Fajrin Rasyid told FTCR recently. And following its $1bn acquisition of Lazada, Alibaba is sure to invest more in Indonesia to head off the rise of Tokopedia and Bukalapak. In the meantime, profitability is likely to take a back seat to market share. “In a way, it is a game of who can hold their breath the longest,” said Rama Mamuaya of Daily Social, an Indonesian tech portal. n
NOV 7 2016
Real Estate | ASEAN
18 FOLLOW US ON TWITTER: @FTCR_ASEAN
Malaysia: Residential property weakness to continue •
FT Confidential Research’s Property Buying Sentiment Index for Malaysia slipped 0.9 points sequentially in the third quarter to 38.7, indicating that consumers do not believe it is a good time to buy a property. Sentiment was weakest in the industrial hub of Johor Bahru – for years a hot spot.
•
We expect residential transaction volume to decline in the next two quarters, while home price growth decelerates further. Demand is weak across the board, but especially so for homes priced above Rm100,000 ($23,900).
•
There are calls to ease lending requirements but authorities have so far resisted these proposals.
T
he Malaysian residential property market is unlikely to recover in the next six months as consumer sentiment continues to weaken.The FT Confidential Research Property Buying Sentiment Index – which asks whether it is a good time to buy a home – for Malaysia fell to 38.7 points in the third quarter from 39.6 in the second, while the Property Purchase Index – gauging purchase plans for the coming six months – slipped 1.4 points quarter-on-quarter to 45.5 (see chart 1).
Johor most pessimistic major market
Respondents living in the three largest Malaysian population centres – Kuala Lumpur, Johor Bahru and George Town in Penang – are negative about the residential property market. Those in Johor Bahru expressed the least confidence in the housing market, with 71.1 per cent saying it was not a good time to buy. Nationally, 61.3 per cent of survey
1. FTCR property indicesfor forMalaysia Malaysia FTCR property indices Property Purchase Index Property Price Expectation Index
Property Buying Sentiment Index
100
50=no change
80 60 40 20
FIRST PUBLISHED ON OCT 11
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Q316
Q: Do you or anyone in your household plan to buy property over the next six months? Do you think now it is a good time to buy property? How do you expect property prices in the city where you live to change in the next six months? Note: Any index reading above 50 indicates positive sentiment/an increase; any reading below 50 indicates negative sentiment/a decrease Source: FT Confidential Research
NOV 7 2016
BLOOMBERG
19
Real estate | ASEAN
Malaysia: Residential property weakness to continue
respondents believed the same (see chart 2). Oversupply likely underpins the negative sentiment in Johor Bahru: roughly 18,000 mid-range or luxury high-rise apartment units are expected to be completed by 2018 in the city’s Danga Bay (Asean Nov 12 2014, Real estate). The biggest supplier of these properties is China-based Country Garden, which launched its largely residential Danga Bay project in 2013 on reclaimed land on the western waterfront of Johor Bahru. It planned to sell units to Malaysians and Singaporeans, but with both economies growing weakly, sales have been sluggish. As of the first quarter, Danga Bay had sold only 70 per cent of its 9,000-unit apartment complex. This is only marginally higher than the 60 per cent reported the last time we visited Johor Bahru in the fourth quarter of 2014. Part of the problem was that Country Garden released 9,000 units all at once into a market that had historically absorbed 1,000-2,000 apartment units from any individual project at any one time. For example, Tropicana managed to sell more than 90 per cent of units at its similarly priced 1,100-unit apartment complex As of Q116, Danga Bay had sold only 70 per cent of its 9,000nearby in 2014. unit apartment complex Danga Bay is the primary source of property glut in Iskandar. New supply is coming online in Nusajaya, about 20km to the south-west, but the biggest project is offering no more than 1,500 units in one go. Furthermore, Nusajaya was developed earlier than Danga Bay, and most of its properties were built and sold prior to the economic slowdown in 2015.
2. you think goodtime timetotobuy buyproperty? property? DoDo you think it it is isa agood % % of of respondents, respondents,Q316 Q316 Yes
No
Malaysia
38.7 George Town
ISKANDAR
Danga Bay Johor Bahru Nusajaya SINGAPORE
MALAYSIA
10km
Kuala Lumpur George Town
Seremban
39.7
Seremban Malacca
38.2
Kuala Lumpur
Note: Rebased to remove “unsure” responses Source: FT Confidential Research
28.9
32.3
36.1 Malacca
Johor Bahru
NOV 7 2016
20
Real estate | ASEAN
Malaysia: Residential property weakness to continue 3. Residential propertytransactions transactionsininMalaysia Malaysia Residential property 70
Our Property Price Index for Malaysia suggests that price growth will continue to slow at least up to Q117
Unit sales (000s)
60 50 40 30 20 10 0
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Source: National Property Information Centre
Transactions down, price growth slowing
Official statistics reflect the bearishness in our data. According to the National Property Information Centre (Napic), total residential property transactions fell 12.5 per cent year year-on-year in the second quarter to 52,487 units (see chart 3). Sales are likely to continue to drop in coming quarters, according to our survey data. Our Property Price Index for Malaysia also suggests that price growth will continue to slow at least up to the first quarter of 2017, with the index slipping 0.3 points quarter-onquarter to 77.2. While Napic has yet to release any of its quarterly 2016 house price data, price growth has been slowing in recent years. The latest data available from Napic is from fourth quarter of last year, when prices grew 5.8 per cent year-on-year, down from 9.6 per cent at the beginning of 2014 (see chart 4).
All segments remain under pressure
Napic data shows that, while transaction volumes are poor across market segments, they are weakest for higher-priced properties (see chart 5). There is a mismatch between demand and supply in the housing market, one exacerbated by recent economic weakness. Construction of the housing stock coming on stream now was started 3-4 years ago during a property boom, and is generally priced higher than average at about Rm400,000/unit. This is far more than most Malaysians can afford in the current economic climate. The government is attempting to address the mismatch through a public housing 4. Malaysian official programme called PR1MA that aims to build half a million homes in the 2016 to 2020 period. House Priceofficial Index House Although the initiative was launched in 2013, it is off to a slow start with only about 10,000 Malaysian Price Index % YoY units expected to be delivered this year, well below a target of 100,000 units. % YoYgrowth growth 10
Developers’ profits are down
Property developers are inevitably being hit by weakness in the housing market (see chart 6). Mah Sing’s revenue slipped 5.2 per cent year-on-year in the first half of 2016, while its net profit shrank 2.4 per cent. Tropicana’s revenue fell 29.8 per cent year-on-year over the same period, with net profit down 19.5 per cent. UEM Sunrise, which has a more diversified portfolio, performed better. Its revenue rose 0.7 per cent year-on-year but higher marketing costs due to aggressive discounting pulled down net profit 58 per cent.
8
6
Little prospect of a rebound 4
Q214 Q414 Q215 Q415
Source: National Property Information Centre
There have been two recent attempts to jump-start the housing market: by easing lending requirements and allowing developers to lend to homebuyers. Both measures have been rejected. The first proposal – to ease lending requirements – was rejected last month by the central
NOV 7 2016
21
Real estate | ASEAN
Malaysia: Residential property weakness to continue 5. Residential propertytransaction transactionvolume volumeby byprice pricebracket bracket Residential property 1-100k 300k-400k
100k-200k 400k-500k
200k-300k More than 500k
200
4.2%
YoY loan growth in August 2016, down from a monthly average of 9.6% in 2014
Q114=100
150 100 50 0
Q114
Q214
Q314
Q414
Q115
Q215
Q315
Q415
Q116
Q216
Source: National Property Information Centre
6. Financial performanceofofselected selectedMalaysian Malaysianproperty propertydevelopers developers Financial performance H115
Profit
H116
Revenue
Mah Sing
UEM Sunrise
Tropicana 200
150
100 Rm m
50
0
0
500
1,000 Rm m
1,500
2,000
Source: Bursa Malaysia
bank, due to anxiety about the level of Malaysian household debt, which stood at 89.1 per cent of GDP in 2015, up from 87.9 per cent the previous year. Under former governor Zeti Akhtar Aziz, the central bank imposed tight requirements on borrowers, with some success: the pace of loan growth decelerated to 4.2 per cent year-on-year in August 2016, down from a monthly average of 9.6 per cent in 2014. Indeed, this lending restriction is partly responsible for weak housing market sentiment. The second proposal, which originated from the housing ministry and was supported by Redha, an association of housing developers, was bolder, as it would have allowed homebuilders to lend money to buyers who were having trouble securing loans from banks. The homebuilders would have lent at a rate of as high as 18 per cent a year, much higher than the typical rate of 4-5 per cent offered by banks. The cabinet rejected the proposal last month, fearing it would increase default risk and destabilise the housing market. The government may try to stimulate the housing market through tax cuts or subsidies on October 21 when it puts forward its budget. But with revenue from the goods and services tax unable to plug the hole created by the collapse in energy prices, we do not think the government can do anything substantial without breaching its deficit target. Prime Minister Najib Razak, who is also finance minister, aims to balance the budget – expected to record a deficit of 3.1 per cent of GDP in 2016 – by 2020. Given current economic weakness and ongoing trends, Mr Najib risks missing his goal. n
NOV 7 2016
Consumer | ASEAN
22 CHECK OUT THE RESULTS OF OUR OTHER CONSUMER SURVEYS: FTCONFIDENTIALRESEARCH.COM
Survey finds fall in credit card ownership on economic weakness
CONSUMER SURVEY
•
FT Confidential Research’s latest consumer survey found that credit card ownership among Asean consumers fell more sharply year-on-year than at any time since we started our survey in 2013.
•
Indonesians are increasingly wary of credit cards as the government monitors transaction data to try to catch tax evaders.
•
Credit card penetration rates remain low in most countries, with Indonesian, Filipino and Vietnamese respondents still preferring to use cash for almost all transactions – including online ones.
F
T Confidential Research’s latest consumer survey found a sharp year-on-year drop in the use of credit cards among respondents in Asean. Only 31.2 per cent of our predominantly urban respondents said they had at least one credit card in 2016, down from 52.5 per cent last year (see chart 1).
Indonesians dump cards as the taxman snoops
FIRST PUBLISHED ON OCT 25
The drop was most pronounced in Indonesia, triggered by a government regulation announced in March and imposed on May 31 requiring banks to report all customer transaction data to the tax office every month as part of its attempt to widen its tax base. The authorities use the information to determine whether a person has undeclared income and whether he or she has evaded taxes. Potential tax evasion can be tracked by comparing a person’s credit card spending with reported income, with wide discrepancies potentially triggering investigations. Many Indonesians have reacted by cancelling their cards. Official data from the central bank show growth in credit cards in circulation fell to 1.9 per cent year-on-year in August 2016, down from a monthly average of 6.2 per cent year-on-year growth in 2015 (see chart 2). Our data suggest this figure could fall much further. Our Credit Card Ownership Index for Indonesia, calculated from our survey results, fell 39.3 points year-on-year in 2016 (see chart 3). In comparison – and in spite of weaker economic growth – the Malaysian and Thai index readings fell a more modest 12.6 and 9.5 points, respectively. Filipinos were the only group we surveyed in the region reporting rising credit card
Proportion ofofAsean 1. Proportion Aseanrespondents respondentswith withcredit creditcards cards 2013 55.5%
2014 48.7%
2015 52.5%
2016 31.2%
Note: % of respondents selecting any response other than "none" to question “How many credit cards do you have?”. Responses weighted based on population of countries Source: FT Confidential Research
NOV 7 2016
23
Consumer | ASEAN
Survey finds fall in credit card ownership on economic weakness 2. YoY growthininnumber numberofofactive activecredit creditcards cardsinincirculation circulation YoY growth Indonesia
Malaysia
Thailand
12 10 8 %
6 4 2 0
Fe b
-14 Ap r-1 4 Ju n14 Au g14 Oc t-1 4 De c14 Fe b15 Ap r-1 5 Ju n15 Au g15 Oc t-1 5 De c15 Fe b16 Ap r-1 6 Ju n16 Au g16
-2
Sources: Bank Indonesia, Bank Negara Malaysia, Bank of Thailand
3. FTCR Asean CreditCard CardOwnership OwnershipIndex Index FTCR Asean Credit Indonesia
Malaysia
Philippines
Thailand
Vietnam
130 120 110 2013=100
Filipino consumers prefer to pay with cash than take any kind of financing when buying cars
100 90 80 70 60 50
2013
2014
2015
2016
Note: Calculated from % of respondents selecting any response other than “none” to question “How many credit cards do you have?” Source: FT Confidential Research
ownership. Our survey data has consistently found them to be among the most enthusiastic consumers in Asean, with many planning to buy new smartphones (Asean Sep 9, Consumer) and new cars (Asean Jul 29, Consumer), reflecting strong economic confidence. In Malaysia, central bank data show credit card growth peaked at 7.5 per cent year-onyear in May. We think this will likely slow down well into 2017. Domestic banks are reacting aggressively to the expected slowdown by boosting their marketing efforts and cold-calling potential customers. Banks are also waiving cardholder service fees and credit card tax in order to entice new users.
Credit card proliferation still low in Asean
Credit card demand is weak despite low credit card penetration throughout the region (see chart 4). Indonesia, the Philippines and Vietnam in particular are especially cashdependent. So much so that even most online transactions get settled via cash on delivery or cash machine transfers, rather than by credit card payment (Asean Oct 21, Consumer). This distrust of credit extends to many large purchases. For instance, Filipino consumers prefer to pay with cash than take any kind of financing when buying cars. In Indonesia, a Honda representative told our Jakarta-based researcher that about 30 per cent of its domestic car sales were paid for in cash.
NOV 7 2016
24
Consumer | ASEAN
With demand so weak, we believe these smaller card networks will struggle to expand their Asean coverage
Survey finds fall in credit card ownership on economic weakness Recognising this fact, car-hailing apps Grab and Uber began accepting cash as payment in a number of Asean locations late last year. Previously, passengers required a credit card to use the apps.
Visa and MasterCard monopolising Asean
Our survey shows Visa and MasterCard remain widely used. Visa was the top choice among our Asean respondents, except in the Philippines where MasterCard was most popular. Other brands, including American Express, JCB and China UnionPay, barely registered in our survey of 5,000 respondents across the region. With demand so weak, we believe these smaller card networks will struggle to expand their Asean coverage, in the short term at least. n
4. Credit card penetrationininAsean Asean Credit card penetration CREDIT CARDS PER 100 PEOPLE 33.4
Thailand 28.7
Malaysia 7.5
Philippines
6.5
Indonesia Vietnam 3.3
PREFERRED PAYMENT METHODS FOR ONLINE PURCHASES (% OF RESPONDENTS)* Cash machine transfers
69.7
Mobile banking
Cash on delivery
Credit card
14.6
81.0
14.5
31.1
23.9 64.8
Thirdparty services
19.2
30.8
21.7
65.0
32.7
26.4
40.7
26.6
TOP THREE CREDIT CARD NETWORKS (% OF RESPONDENTS)** 1.
2.
3.
80.2
54.6
1.9
Thailand
79.4
67.2
10.3
Malaysia
3.5
Philippines
73.5
58.4
69.5
54.1
46.8
40.1
1.1 2.1
Indonesia Vietnam
*Q: Which payment methods do you use when purchasing items online? (Multiple-choice question with a maximum of two possible answers). **Q: Which of the following credit card networks do you use the most? (Multiple-choice questions with a maximum of two possible answers) Sources: Bank Indonesia, Bank Negara Malaysia, Bank of Thailand, Monetary Authority of Singapore, FT Confidential Research
25
Metrics | ASEAN ASEAN CONSUMER INDICES
GOING UP
3.1%
$97.7bn
13.6%
Indonesia: YoY CPI in September, up from 2.8% in August
Malaysia: Foreign reserves in September, up from $97.5bn in August
Philippines: YoY industrial production in August, up from 11.2% in July
GOING DOWN
4.75%
Indonesia: Benchmark rate in October, down from 5.00% in September
Malaysia: Interest
on loans in 5.39% rate September, down from 5.46% in August
3.4%
NOV 7 2016
Thailand: YoY exports in September, down from 6.5% in August
Asean 5 Indonesia Malaysia Philippines Thailand Vietnam FTCR Asean Economic Sentiment Index 4Q15 63.0 74.5 24.2 48.4 53.9 66.7 1Q16 60.3 66.6 30.2 54.2 52.1 65.4 2Q16 66.8 75.2 35.7 66.9 51.1 65.5 3Q16 67.0 73.0 29.6 72.3 56.5 64.6 FTCR Asean Political Sentiment Index 4Q15 56.3 63.8 24.8 39.2 59.2 62.3 1Q16 59.5 66.6 23.1 51.7 57.1 62.2 2Q16 62.0 64.1 30.9 69.4 56.5 62.4 3Q16 62.0 63.1 29.1 71.3 64.6 58.0 FTCR Asean Household Income Index 4Q15 76.8 83.2 71.3 70.5 69.0 73.3 1Q16 80.3 86.2 73.5 75.1 68.9 80.2 2Q16 75.4 79.6 73.2 71.9 67.1 74.6 3Q16 76.0 78.1 72.5 75.6 64.4 80.5 FTCR Asean Discretionary Spending Index 4Q15 77.4 85.3 72.6 65.0 68.3 77.3 1Q16 73.5 78.3 75.8 64.2 63.9 76.8 2Q16 72.9 76.9 78.7 65.1 63.7 75.3 3Q16 70.8 73.7 79.4 61.3 63.0 76.2 FTCR Asean Average Cost of Living Change YoY (%) 4Q15 29.8 32.1 38.5 24.9 22.4 31.8 1Q16 26.5 28.8 32.8 23.7 20.3 25.8 2Q16 26.9 28.7 31.5 24.5 21.9 27.0 3Q16 23.4 22.4 27.2 23.4 16.1 30.6 FTCR Asean Consumer Borrowing Index 4Q15 67.2 73.1 67.3 62.0 60.1 61.4 1Q16 69.2 76.6 68.4 62.8 59.3 63.1 2Q16 66.4 69.6 68.1 64.9 62.4 61.4 3Q16 65.3 69.2 65.4 60.9 62.7 61.4 FTCR Asean Future Consumer Borrowing Index 4Q15 58.5 54.8 66.4 61.2 58.2 63.6 1Q16 59.2 55.6 67.9 59.6 59.3 65.8 2Q16 56.1 50.2 65.7 58.9 60.2 63.2 3Q16 57.4 52.4 65.6 61.7 60.1 61.9 FTCR Asean Motorbike Purchase Index 4Q15 30.1 37.9 13.9 13.7 24.0 36.4 1Q16 32.9 43.0 16.0 18.4 19.8 36.0 2Q16 24.9 31.9 10.9 15.7 15.8 26.6 3Q16 28.1 34.5 17.3 14.9 19.7 34.5 FTCR Asean Car Purchase Index 4Q15 26.4 31.8 24.0 22.9 27.9 15.0 1Q16 30.0 36.5 22.9 27.5 24.5 20.7 2Q16 28.5 36.6 16.0 25.1 28.3 14.2 3Q16 23.8 26.8 24.4 25.1 22.4 15.0 FTCR Asean Property Purchase Index 4Q15 51.0 62.3 44.7 42.7 39.9 39.0 1Q16 51.3 61.9 42.2 45.6 34.1 44.2 2Q16 49.4 58.8 46.9 44.6 37.9 37.8 3Q16 47.9 54.5 45.5 47.2 33.0 42.0 FTCR Asean Property Buying Sentiment Index 4Q15 53.9 55.1 31.8 63.9 39.2 58.1 1Q16 56.7 60.5 33.6 67.4 33.4 59.8 2Q16 52.6 53.0 39.6 64.1 31.7 58.9 3Q16 50.0 47.9 38.7 65.3 32.5 55.7 FTCR Asean Property Price Expectation Index 4Q15 81.5 82.4 76.2 84.9 78.4 79.4 1Q16 83.8 85.6 76.2 87.0 81.1 79.9 2Q16 82.3 83.2 77.5 83.9 79.6 81.7 3Q16 82.7 83.4 77.2 85.6 81.2 80.6
NOV 7 2016
26
Metrics | ASEAN MONEY AND BANKING Indonesia Malaysia Philippines Thailand M1 (YoY change %) Jun-16 13.9 0.9 17.4 7.6 Jul-16 10.9 2.0 17.2 6.8 Aug-16 10.6 1.0 16.1 4.7 Sep-16 – – 16.3 6.3 M2 (YoY change %) Jun-16 8.7 1.8 12.8 4.3 Jul-16 8.2 2.0 13.9 4.2 Aug-16 7.7 2.3 12.4 4.3 Sep-16 – – 13.1 3.9 Total loans (YoY change %) Jun-16 8.7 5.6 16.2 5.0 Jul-16 7.6 5.1 15.8 4.4 Aug-16 6.8 4.2 15.6 4.4 Sep-16 – – – – Total deposits (YoY change %) Jun-16 5.5 -0.8 12.1 3.0 Jul-16 6.8 1.0 – 3.2 Aug-16 6.7 1.0 – 3.5 Sep-16 – – – – Interest rate on savings (%) Jun-16 1.25 1.07 0.69 0.50 Jul-16 1.24 0.98 0.75 0.50 Aug-16 1.25 0.95 0.73 0.50 Sep-16 – – – 0.50 Interest rate on loans (%) Jun-16 13.22 4.61 5.55 6.97 Jul-16 13.22 4.52 5.51 6.97 Aug-16 13.21 4.46 5.46 6.97 Sep-16 – – 5.39 6.97 Foreign reserves ($bn) Jul-16 111.4 97.3 85.5 180.2 Aug-16 113.5 97.5 85.8 180.8 Sep-16 115.7 97.7 86.1 180.5 Oct-16 – – – – Benchmark rate (%) Jul-16 5.25 3.00 3.00 1.50 Aug-16 5.25 3.00 3.00 1.50 Sep-16 5.00 3.00 3.00 1.50 Oct-16 4.75 3.00 3.00 1.50
GOVERNMENT Indonesia Malaysia Philippines Thailand Revenue (YoY change %) Jun-16 2.8 -30.6 7.3 -8.0 Jul-16 19.8 -14.4 -4.6 52.2 Aug-16 18.7 26.9 18.6 -1.6 Expenditure (YoY change %) Jun-16 -6.6 9.5 -6.5 24.1 Jul-16 -12.4 -9.9 4.9 9.2 Aug-16 -9.1 2.5 9.5 8.0 Government debt (YoY change %) 3Q15 2.9 9.5 3.7 3.6 4Q15 11.3 8.2 3.8 10.7 1Q16 14.3 5.0 1.9 8.3 2Q16 18.4 4.5 2.3 7.7
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Metrics | ASEAN TRADE Indonesia Malaysia Philippines Thailand Exports (YoY change %) Jun-16 -3.9 3.4 -11.4 -0.1 Jul-16 -16.9 -5.3 -12.3 -6.5 Aug-16 0.2 1.6 -4.4 6.5 Sep-16 – – – 3.4 Imports (YoY change %) Jun-16 -6.8 8.3 15.8 -10.2 Jul-16 -10.6 -4.8 -1.7 -7.2 Aug-16 -0.1 4.9 12.2 -1.5 Sep-16 – – – 5.6 Exports to Brunei (YoY change %) Jun-16 -63.6 -38.6 20.8 -26.5 Jul-16 -33.2 -26.1 -48.7 2.3 Aug-16 6.4 -13.5 – -52.4 Sep-16 – – – 7.5 Exports to Cambodia (YoY change %) Jun-16 1.3 61.8 407.3 -19.4 Jul-16 3.9 18.1 42.7 -20.0 Aug-16 -8.8 12.1 – -18.0 Sep-16 – – – 1.0 Exports to Indonesia (YoY change %) Jun-16 – -27.2 -27.6 -16.6 Jul-16 – -11.2 -7.5 10.8 Aug-16 – 3.3 – 29.9 Sep-16 – – – 7.4 Exports to Laos (YoY change %) Jun-16 149.7 10.1 148.6 -4.9 Jul-16 31.3 -8.1 78.1 -15.8 Aug-16 -26.8 49.4 – -4.7 Sep-16 – – – -13.4 Exports to Malaysia (YoY change %) Jun-16 -13.0 – -3.4 -12.8 Jul-16 -23.9 – -33.4 -14.0 Aug-16 9.1 – – -5.9 Sep-16 – – – 2.6 Exports to Myanmar (YoY change %) Jun-16 34.7 19.1 -73.5 7.7 Jul-16 -14.3 33.5 -30.9 11.6 Aug-16 18.7 108.8 – 6.1 Sep-16 – – – -8.5 Exports to Philippines (YoY change %) Jun-16 27.9 7.5 – 21.5 Jul-16 21.3 -14.2 – -0.6 Aug-16 43.5 7.7 – 22.4 Sep-16 – – – 7.7 Exports to Singapore (YoY change %) Jun-16 -11.1 12.7 -0.6 -49.7 Jul-16 -19.0 5.9 3.5 -9.6 Aug-16 -8.8 3.1 – -17.1 Sep-16 – – – -1.5 Exports to Thailand (YoY change %) Jun-16 -10.2 -1.4 -3.4 – Jul-16 -12.1 10.5 -33.0 – Aug-16 6.6 -11.4 – – Sep-16 – – – – Exports to Vietnam (YoY change %) Jun-16 24.9 76.7 -5.7 -6.8 Jul-16 -15.6 24.7 2.1 -4.7 Aug-16 -3.8 40.8 – 10.2 Sep-16 – – – 13.8
NOV 7 2016
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Metrics | ASEAN MACRO Indonesia Malaysia Philippines Thailand GDP (YoY change %) 1Q16 4.9 4.2 6.9 3.2 2Q16 5.2 4.0 7.0 3.5 Unemployment rate (%) Apr-16 – 3.5 6.1 1.0 May-16 – 3.4 – 1.2 Jun-16 – 3.4 – 1.0 Jul-16 – 3.5 5.4 1.0 Aug-16 – 3.5 – 0.9
CONSUMER Indonesia Malaysia Philippines Thailand Car sales, unit (YoY change %) May-16 11.5 -12.8 31.0 16.0 Jun-16 11.3 -0.1 36.4 9.5 Jul-16 12.5 -27.6 22.0 -0.4 Aug-16 6.4 -2.1 40.1 2.6 Sep-16 0.1 -5.7 16.2 2.7
PRICES Indonesia Malaysia Philippines Thailand CPI (YoY change %) Jun-16 3.5 1.6 1.9 0.4 Jul-16 3.2 1.1 1.9 0.1 Aug-16 2.8 1.5 1.8 0.3 Sep-16 3.1 1.5 2.3 0.4 PPI (YoY change %) Jun-16 11.8 -1.3 -4.1 -1.3 Jul-16 8.7 -2.1 -4.1 -0.8 Aug-16 11.5 -0.1 -4.5 -0.4 Sep-16 7.9 0.4 – -0.7
REAL ESTATE Indonesia Malaysia Philippines* Thailand House price index (YoY change %) 4Q15 4.6 7.2 – 1.1 1Q16 4.2 7.0 – -0.1 2Q16 3.4 5.3 – 4.7
INDUSTRIAL Indonesia Malaysia Philippines Thailand Industrial production index (YoY change %) Jun-16 7.8 5.2 10.5 1.9 Jul-16 7.1 4.1 11.2 -4.2 Aug-16 4.8 4.9 13.6 3.6 Manufacturing capacity utilisation (%) 4Q15 75.2 83.6 83.5 66.5 1Q16 75.8 82.0 83.4 65.7 2Q16 77.0 81.0 83.5 65.5