monthly asia presentation december 2014

www.businessmonitor.com

Asia: Key Themes For 2015

December 2014


Cedric Chehab – Head of Asia Research


1. 2014: Review of Key Macro & Political Themes

2. 2015: Key Macro & Political Themes

3. Power: Asia To Outperform

4. Agribusiness: Structural Changes Ahead

5. Telecoms: Revenue Diversification Will Accelerate

6. Autos: A More Positive Year Ahead

7. Oil & Gas: Fundamentals To Remain Weak

8. Pharma: Large Opportunities In EM

Outline


2014: Themes In Review

Last December, we highlighted several key macroeconomic themes.

Theme Result

China: Reform progress leads to renewed

growth weakness.

Growth averaged 7.3% in the first three quarters, below the

government's growth target of 7.5%.

Japan: 'Abenomics' could come apart at the

seams.

Japan entered recession, with the economy contracting by

7.1% in Q2 and 1.9% in Q3.

Thailand: Multiple headwinds could lead to an

investment downturn.

Thailand saw a military coup, which resulted in a huge

slowdown in growth.

Indonesia: Short-term pain for long-term gain. The election of pro-business Joko Widodo, combined with a

hawkish central bank, restored confidence in the economy.

Regional Property: From driver to drag. Property prices have started to decline in several countries with

China and Singapore seeing the broadest declines.

India: Rehabilitation complete, recovery ahead.

The election of business-friendly Narendra Modi, combined with

a rebalancing of the country's external accounts, has seen

confidence in the country soar.

Vietnam: Further signs that the recovery is for

real.

Growth remains strong and the government continues to

amend the business environment to attract more foreign

investment.


2015: Key Macro & Political Themes

We see a broad range of themes for

2015, some, a continuation from 2014.

• China’s economy slows below

7.0% as financial market reform

picks up.

• India & Indonesia to see reforms

spur an acceleration in economic

activity.

• Japan risks falling into a

stagflationary spiral.

• South Korea to face deflationary

slowdown.

• Regional property markets to

cause a policy headache.

• Myanmar elections to pose biggest

test yet.

2012 2013 2014 2015 2016 2017

China 7.7 7.7 7.3 6.7 5.8 5.8

Japan 1.4 1.6 0.3 0.7 0.7 0.7

India 4.5 4.7 5.6 6.3 6.6 6.6

Indonesia 6.3 5.8 5.1 5.5 6.3 6.5

Table: Growth Forecasts (% chg)

2014-2017 = BMI Forecasts

Regional Growth To Slow (%)

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

2013 2014e 2015f 2016f 2017f 2018f

Emerging Asia APAC


Sectors Focus


Power: Asia To Outperform

2014-2017 = BMI Forecasts ,NA/WE = North America, Western Europe

Asia Leads Power Capacity Additions in 2015 (GW)

Table: Electricity Generation (% chg)

2012 2013 2014 2015 2016 2017

China 3.7 6.7 7.1 6.0 5.9 5.9

India 5.3 4.9 5.2 5.6 5.7 6.3

Japan -6.6 -0.4 0.2 0.8 0.5 1.1

Australia 1.1 2.0 2.0 2.0 1.9 2.0

Asia will remain the fastest growing

market for power and renewable

generation capacity in 2015.

• There will be policy slippage and

fatigue towards renewable energy on

the back of fiscal consolidation and

the cheaper cost of traditional fuels.

• Price of renewable energy

equipment will stabilise following

sharp declines in recent years.

• Reform in the power sector to

increase private participation in India

and Indonesia.

• Greater regional grid integration

and cooperation in the power sector

with more partnerships in 2015.

0

20

40

60

80

100

120

140

Asia NA/WE Lat Am MENA SSA CEE


Agribusiness: Structural Change Ahead

2014-2017 = BMI Forecasts, *Whole Milk Powder Production Balance ('000 tonnes)

The Dairy Deficit To Rise*

Agribusiness markets will continue to see

structural changes in Asia.

• We expect continued agricultural

reform in India, Indonesia and Japan.

• Asia’s imports will remain on an

uptrend as prices fall and production

deficits rise.

• Larger imports of higher-value

goods such as dairy, cattle and meat.

• Thailand and Vietnam will emerge as

new suppliers within the region,

although Australia and New Zealand

will remain the dominant players.

• Profitability in the palm oil sector will

remain low on price weakness and

overcapacity in the refining segment.

2012 2013 2014 2015 2016 2017

China 9.5 -1.6 0.1 4.9 5.4 5.0

Indonesia 1.5 -5.5 2.9 8.6 7.3 6.5

India -5.6 0.6 -0.8 3.6 7.0 5.1

Australia 2.7 -15.9 1.3 -6.5 7.7 2.4

Table: Agribusiness Industry Value (% chg)

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

-140

-120

-100

-80

-60

-40

-20

0

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

e

20

14

f

20

15

f

20

16

f

20

17

f

20

18

f

Indonesia Malaysia Vietnam China (RHS)


Telcos: More Diversified Revenues

2014-2017 = BMI Forecasts, OTT = Over The Top

Data Volumes On The Rise

Table: Monthly Blended ARPUs (% chg)

2012 2013 2014 2015 2016 2017

China -5.7 3.0 0.0 -3.9 -3.1 -1.1

India -0.6 14.3 -8.5 4.3 -2.4 -0.6

Japan -4.7 -22.1 -9.2 -6.7 -4.5 -2.2

Thailand 4.2 -9.5 -10.4 0.0 3.3 1.6

Falling revenues due to increased

competition and OTT will see a trend

towards revenue diversification:

• Operators will increasingly enter

into partnerships with OTT*

platforms in order to offset the decline

in traditional voice and SMS revenues.

• The provision of banking services

to rural areas via messaging or apps

will continue to be in high demand.

• Operators will improve enterprise

market offerings, where profit

margins are higher.

• We expect tower sharing to grow in

prominence as operators divest assets

and as tower companies see an

increase in co-location.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

2013 2014f 2015f 2016f 2017f 2018f

IP Traffic (PB per month)


Autos: A More Positive Year Ahead


SUV Sales Have Room To Rise (% of Total)

Table: Vehicle Production (% chg)

2012 2013 2014 2015 2016 2017

China 4.6 14.8 8.0 7.5 7.4 6.4

India -0.2 -7.2 6.2 7.1 7.7 8.0

Japan 18.4 -3.1 3.0 1.2 1.9 2.0

Thailand 67.5 0.6 -25.0 4.2 4.8 4.6

2015 looks set to be a more positive

year for Asia's auto sector.

• Thailand, India and Indonesia will

see a rebound in sales on the back of

stronger growth and policy clarity.

• ASEAN to develop as a production

hub for fuel efficient cars as they

benefit from government support and

AEC integration.

• Manufacturers will continue to

localise production within the

existing hubs such as Thailand,

Indonesia and Malaysia.

• We expect strength in the SUV

segment, as earning power and

consumer preferences shift towards

larger cars.

0%

5%

10%

15%

20%

25%

30%

35%

Russia Australia US South Korea

India Europe China Japan

Group Average


O&G: Fundamentals To Remain Weak


Overcapacity At Refiners

The Oil & Gas sector will remain weak

globally, and we see four key trends in

Asia over the quarters.

• Capex will be hit, particularly in high-

cost unconventional exploration.

Malaysia is most at risk in the region.

• Increased oil consumption. Major

net importers India and Indonesia will

see an increase in demand.

• LNG market to slacken as weaker

demand growth in North East Asia and

growing supply will help loosen the

market.

• Refiners to remain under pressure.

Despite a short-term boost to margins

from lower crude prices, rising supply

to the market will narrow margins by

H2 2015.

2012 2013 2014 2015 2016 2017

China 4.8 4.1 1.7 2.0 1.7 1.5

India 0.0 7.1 2.0 5.0 5.0 5.0

Indonesia 5.0 3.0 1.5 -3.0 -2.0 0.8

Japan 6.0 -2.5 -4.3 -0.8 -0.4 -0.2

Table: Key Refined Consumption (%, chg)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2014e 2015f 2016f 2017f 2018f

Asia oil consumption, % y-o-y

Asia oil refinery capacity, % y-o-y


Pharma: Large Opportunities In EM


Emerging & Frontier Markets Offer Fastest Growth

The region will provide opportunities for

multinational pharmaceutical companies

and private healthcare providers:

• Universal healthcare will continue to

be rolled out in 2015 as governments

are incentivised by both the economic

and political benefits of strong medical

coverage.

• Cost containment will remain a key

trend in Asia Pacific, posing downside

risks to sales of patented medicines,

but upside risks for generics.

• Medical tourism will continue to

gain traction in the Asia Pacific

region, and in particular South East

Asia given ASEAN integration in 2015

and beyond.

2012 2013 2014 2015 2016 2017

Malaysia 67.1 70.5 74.7 84.6 93.8 102.1

China 52.2 62.5 72.1 80.6 89.8 99.1

Thailand 65.2 69.2 66.9 72.0 79.0 86.2

Vietnam 31.2 35.9 41.1 47.7 55.8 65.0

Table: Per Capita Pharmaceutical Sales (USD)

0.00 5.00 10.00 15.00 20.00

South Korea

Australia

Philippines

Thailand

Singapore

Japan

Hong Kong

Indonesia

Pakistan

Bangladesh

India

China

Vietnam

Myanmar

Pharmaceutical Sales (% chg)


For more information please contact:

[email protected]



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monthly asia presentation december 2014

Documents

key themes

growth forecasts

key macroeconomic themes

bmi forecasts regional

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western europe asia

broad range of themes