🎙️ | Bukalapak Deep Dive
🎙️ | Bukalapak Deep Dive
Ep. 55 with Aaron Pek
In this conversation, we cover the business of Bukalapak, who they are, their valuation, and interestingly, the role of the Salim group in both Bukalapak and the wider ASEAN economy.
Joining me to discuss and dive deep into Bukalapak’s business is Aaron Pek, the author of Value Investing Substack, and not surprisingly, a Value Investor in ASEAN.
Super interesting and very valuable, I hope you enjoy this deep dive on Bukalapak with Aaron Pek.
My takeaways and lessons:
Betting on Bukalapak is a bet on Indonesia
“The upside is pretty simple, right? If Bukalapak is eventually successfully in replacing part of the Salim groups brick and mortar retail entities is definitely worth much more than 12 times price to sales, because the sales right now is really insignificant, even relative to the likes of the Shopee, Tokopedia, right?Because again, as I said, most of the. GDP of Indonesia is concentrated, in tier-one cities. So presumably that means ex-tier one cities have a lot of growth to do. And a bit of context for viewers. Indonesia has a population of 270 million. Right? So that's pretty much what, one-fifth of China, and has the largest Muslim population in the world, right? It's the fourth-largest population period, right? So any economy will tell you that population growth is the most important driver behind GDP growth. And a story is very simple. It's GDP growth, right? So think about Vietnam's projected 7% GDP growth over the next, Indonesia is not there yet, but it will get there and the base that is growing from is a lot larger.
All aboard the ASEAN hype train
“think about post-WTO China in 2001, right? That was where the axis of geopolitical, or, or the geo-economic influence was concentrated for the past 20 years. Right now that China has become rich, basically, the labour cost of China are no longer tenable for manufacturing.They need to graduate to a service economy to sustain its growth. And the next China, which is basically the next factory of the world, will need to be a place which qualifies two broad reasons. One, obviously low labour costs,. Comparable to China 30 years ago. And two stable enough political environment, right, which allows the labour cost advantage to be executed. So for instance, you may not wanna go to Africa, right? You may not wanna go to Russia. Even Latam or Mexico right, is questionable, So for whatever reason, ASEAN happens to have a relatively stable political environment, So it allows, and also low labour pool costs as well as large population.
The Cukong relationship
“this Cukong relationship where, there is a self-sustaining cycle here because obviously the Cukong (e.g Robert Kuok) supplies funding to the political patron (e.g Suharto), whereas the political patron needs an isolated Chinese, an overseas Chinese Cukong, right, to remain loyal to him.
So ASEAN as a whole, the economy, if you look by hindsight, was built on the backs of these overseas Chinese tycoons. Given all the context I've given, the economy was developed economically based on this Cukong relationship. There is the common thread in the entire Asian economic development of the past 50 years.”
Questions around the Overseas Chinese Tycoons
“the bigger question is this, if they're so loyal to each other just because of heritage, who could be pulling the strings behind them? Right? So China is 40% of Robert Kuok’s largest business. And Robert Kuok has a lot of photos with the Chinese premiers, all of them, from Deng Xiaoping, right?There is a lot of reason to speculate, that, the overseas Chinese are basically a backdoor of the Chinese economy into the ASEAN economy. And to be fair, vice versa, right? So for instance, if Anthony Salim of the Salim group wants to sell palm oil from Wilmar International, one of his subsidiaries to the edible oil market in China. Guess what? He just gives a call to Robert Kuok, right?
So with China's growing geo-economic significance on the global stage, this is no longer just an Indonesian story, nor is it just an ASEAN story. It's also a China story, which makes it all the more exciting.
Listen to this episode on Apple Podcasts, Spotify, Stitcher, Castbox, Google Podcasts, or on your favourite podcast platform.
Mentioned/Recommended Content:
BUKALAPAK 2077: The Future Pinduoduo of ASEAN’s China (Part 1)
BUKALAPAK x SALIM: Planning for Indo-Pacific Domination (+China!)
My video about Robert Kuok - The Sugar King, based on Asian Century Stock’s great write up
Show Notes:
[00:00:31] – [First question] – Bukalapak’s business model
[00:03:02] – What is a Warung?
[00:04:39] – What problem does Bukalapak solve, and why does this problem persist?
[00:08:22] – The rise of Indonesia and what this means for Bukalapak
[00:12:23] – Bukalapak’s relationship with The Salim Group
[00:17:50] – Chinese tycoons and the influence on the ASEAN economy
[00:22:33] – Bukalapak’s valuation and opportunity
[00:26:22] – The Macroeconomic context of Indonesia with Indo-Pacific
[00:32:13] – Wrapping up
Connect with Aaron:
Transcript
[00:00:31] Kalani Scarrott: A deep dive today, this time in Bukalapak. Joining me to discuss and dive deep into Bukalapak’s business is Aaron Pek, the author of Value Investing Substack, and not surprisingly, a Value Investor within ASEAN. So in this conversation, we cover the business of Bukalapak, who they are, their valuation, and interestingly, the role of the Salim group in both Bukalapak and the wider ASEAN region.
[00:00:56] So this one is super interesting and also very valuable, but I hope you enjoy my deep dive on Bukalapak with Aaron Pek. Aaron, thank you so much for coming on today for the deep dive on Bukalapak. So maybe just for, to start us off with, in its simplest form, could you explain Bukalapak and its business model?
[00:01:14] Aaron Pek: Sure. So Bukalapak is basically an Indonesian e-commerce company. it primarily caters to the low-income segment of the population. So, as you know, Indonesian is still, pretty low income per capita country, or rather emerging market. Right? And it has the government does categorize something called MSME Segment, which means micro, small and medium enterprises.
[00:01:41] Most countries just do SME, right? The distinction here being a micro, is attributed to what they call the Warung’s or the stores translated where the wars are pretty much 99% of the volume. Of, businesses in Indonesia, they're pretty much one or 2% operation sustain sustenance kind of businesses where the goal is just to earn enough to feed your family, right?
[00:02:06] And they typically roadside stores or, you know, not even a container size store or a, or even, you could even go up to a typical small business size, which is a proper shop lot, right? But, the idea being that there are, a lower income segment, In excess of the small business, typical small business segment, so caters to the supply chain of these micro businesses, the wars, right?
[00:02:30] if we have time, we can go into the similarities on the Philippines, but you get the parallels, right? And also has another angle to it, which is with the sale group, one of the big, conglomerates in Indonesia. So I would like to draw a parallel to the tables in Korea, South Korea. Right.
[00:02:50] They're basically a gigantic family dynasty, but of course we'll go in there later. Right. I just wanted to highlight it right now, but pretty much that's why it, it caters to the Indonesian warung’s on the supply chain side.
[00:03:02] Kalani Scarrott: So I've been to Indonesian, so I've got a bit more invited. Yeah. But for someone who has never been to Indonesia, could you explain what a warung is and why they're important to Bukalapak?
[00:03:10] Aaron Pek: So, building on the illustration I gave you earlier, the reason why Bukalapak can treat these warungs as customers, despite being an e-commerce operation, is precisely because they are just one or two main business. Because if you think about a typical e-commerce operation, the end customer is actually a B2C relationship, right?
[00:03:32] A business-to-customer relationship where they deliver to your door the last mile kind of thing, right? in the warung context, Bukalapak is actually having a B2B relationship because they are just fulfilling the supply chain side of the equation, right? Of the retail supply chain. But the reason why they can.
[00:03:52] the s as a customer in an e-commerce context is because they're so small. Right? When the business is run just by one or 2%, you're effectively a B2C customer, even though substantially you are a B2B customer, right? And we're going to this later, but they do a lot of full FMCG businesses, our sales.
[00:04:12] so sorry, this. The relationship between Bukalapak and a warung room. So to go back to your first question, ARU is basically loosely translated as a stall. I think in some countries they call them Hawker, right? But while the term hawker is usually associated with, food sales, right fresh food sales in the warung context, they are actually proper FMCG businesses.
[00:04:39] Kalani Scarrott: Thank you. So what problem then does Bukalapak solve, and then why does this problem also persist?
[00:04:46] Aaron Pek: So the thing is this, as I've alluded to earlier, Indonesia is still a pretty low income country and, to draw a contrast to the developed nations, right? The e-commerce operations tend to be nation.
[00:04:57] With large economies of scale, penetrated by our bottleneck by the warehouses, right? The fulfillment centers. So that's where the economy of scale happen in the e-commerce sector. now coming to Indonesia, the context, the legacy context is that, there hasn't really been a lot of e-commerce development pre covid.
[00:05:19] So to this, or, or at least to the pre covid era, there is still a very big presence among the brick and mortar distributors. For instance, one of the Salim Group's competitors, another table like conglomerate is called Ena, the Sinar Mas Group. And Sinar Mas owns basically, the biggest brick and mortar retail distributor.
[00:05:45] So what do I mean by distributor? Just think about the middle mile of your typical e-commerce operation, right. Where they are, they are delivering it from the source to the end customer. So that's what we call the middle mile. The last mile is from the warehouse near your, near your address to your doorstep.
[00:06:03] Right? Right. So, even prior to e-commerce in the retail sector, there is a minimum, right? So for instance, in Walmart, in your Tescos, right? And, busy distribution is still a very huge presence in Indonesia as a brick-and-mortar retail distributor, right? The space it occupies in the national retail supply chain.
[00:06:25] Now let's bring Bukalapak, and its peers in. So, as I mentioned, Bukalapak doesn't deliver per se to the end customer, it delivers to the warungs. So it's a B2B relationship and therefore it fulfills a quasi-middle mile. Right? Although it more resembles last mile. And here's where comes in. They are basically digitalizing busy distributions, physical, bring and mortar retail distribution supply chain, right?
[00:06:55] And bringing an e-commerce solution. So what that means is that, it cuts out, it, it presumably cuts out the middleman. We'll go into why it doesn't actually do that later. Right? And even in the wars most owners have a smartphone. So for you to set up a retail distributor relationship with, it's as easy as downloading an app and filling some forms.
[00:07:18] So, what Bukalapak is trying to do is basically cutting out the middle. , right. to reduce the cost for the end consumer, right? And also another thing is that with the scale, the, the, the scalability of an digital solution, which is e-commerce, you can actually basically create eCommerce of scale by let's say tapping a larger pool of wirings compared to busy distribution requiring physical agents to meet each and every single one.
[00:07:48] Right? So let's say if you can. I, a million warung customers in Java Island. You could then go to someone like the sale group who is selling edible oils, right? And immediately start, minimal operation, a logistics operation because you're connecting end-to-end, right? One is the factory, the other is the warung .
[00:08:10] So you are fulfilling the supply chain and you can do it with all the typical benefits of digital operat. In e-commerce, which I probably don't need to explain to your viewers. Yep. Perfect.
[00:08:22] Kalani Scarrott: And this is a big question, so apologies. But given Indonesia's structure, Java's the main island and given that Bukalapak’s bread and butter is ex-tier one cities, so everything excluding tier one cities, as Indonesia develops, becomes more modernized.
[00:08:37] And as more cities develop, is this a risk for Bukalapak and how do they maintain this stranglehold? Oh, how do they maintain this stranglehold? Ex-tier one cities because B2C incumbents like Tokopedia, or GoTo now, Shopee in the tier one cities, what strategy do they employ to sort of combat them?
[00:08:54] Aaron Pek: Sure. So just for context, tier-one cities draw parallels to the tier-one cities in China, right? They're basically where the belt of Indonesia's GDP is concentrated. For instance, Jakarta alone, is 15% of Indonesia's entire GDP, right? The greater Jakarta. So, just thinking about something like Beijing or Shanghai, you get the idea right?
[00:09:15] And, back to your question, at this point, the ex-tier one cities are still not attractive enough, for basically anyone including Bukalapak and its peers to, immediately start a profitable operation. So the big boys that your Tokopedia’s, your Shopee’s, they're not necessarily trying to penetrate the ex-tier one cities, yet.
[00:09:36] Think about the logistics of it, right? You're dealing with very small ticket sizes, right? unsophisticated, warung owners who need to be taught, and very large distances, which means few costs, CAPEX, stuff like that, right? And in contrast to within a tier one city, which has all the trappings of your typical developed nation, city you know, lots of fulfillment centers every.
[00:10:00] where a lot of high density of customers, right? So lower unit costs. So because of that, none of the big boys, let's wait it that way, like tokopedia or shopee are actually bothering with ex-tier one cities. For instance, Shopee, Indonesia it might surprise you to learn that it only does digital, sales, sales of digital products with ex-tier one cities, right?
[00:10:24] All the Indonesian revenue that you see on Shopee’s disclosure. only within tier one cities. So for context, there are only five or six tier-one cities, right? There's Jakarta, Samara, Medan I can't remember off them, off top head, but you get the point, right? most of the wealth in Indonesia is concentrated in the tier-one cities as a result.
[00:10:43] It just makes a lot more sense to compete there, if you can. Now back to Bukalapak and its peers. So the rights of boa, the Amazon funder, Ola, the SY funder. Was it wa Wrong Digital, was it? What's the competitor's name called? right. Yeah. I, I forgot already. so basically book Labban is peers, right?
[00:11:05] they are basically left alone to their own devices in this unprofitable than grab, right? To try and, gain the ex-tier one cities, right? And. Given the context, you, it's very intuitive to understand that the big boys just are not really a threat to these guys at the moment until the day when, and his peers have developed the market to the point where it is actually profitable.
[00:11:30] Right? So until then, which is probably 10 years away, I don't think they need to worry about the likes of Shopee or Edia coming to your turf and design them. Right? Like I said, Shopee is only doing sales of digital products. , but then the question then becomes, what if after that? Well, it's possible, right?
[00:11:49] But possibly by then, the likes of Bukalapa and Ola have already developed their first mobile advantage in the ex-tier one cities. They've developed their branding, they've developed their relationships, right at the B2B level, distributor level relationships are quite a bit of. in contrast to B2C. Right.
[00:12:10] And, we'll see what happens then. Right? And if we have time, we'll even explain a little bit more about why it's so interesting for the big voice. But at this point, I don't think you have to worry about the risk of competition from the big voice.
[00:12:23] Kalani Scarrott: Cool. Perfect answer. Love it. And we've touched on it a couple times, but could you explain, and speaking of relationships, but could you explain Bukalapak's partnership with its major shareholder, Salim group, and why that's so important and do you wanna explain some context there maybe?
[00:12:37] Aaron Pek: Yes, sure. So the Salim group for Li context is basic. Basically one of, the quasi Chaebols right. To use a Korean term. So think about the large family trees se like LG, Samsung, right? Right. In Korea, you have the very same relationship in Indonesia. And just to digress for 30 seconds, the reason is because Indonesia is basically copying Korea's model of economic development where Korea copied the Zaibatsu model in Japan.
[00:13:09] Right? And in fact, China's doing the same thing. So, no world's actually quite small. But here's the thing so you know that Salim is basically a Chaebol itself and I have release some Chaebols in, I think my part two Bukalapak article. So, its immediate competitor is Sinar Mas, right? So, as you can imagine in this kind of family dynasties in emerging market nations, right?
[00:13:33] the economies resemble the medieval times where most of the GDP so-called is concentrated in the hands of a few rich families, right? So you can think of them as kings and the government as an emperor, right? So they all have their own teams to protect. For instance, Salim Group owns Indomie, the largest noodle manufacturer by volume in the world, right? So it's definitely a retail champion. He also owns IndoRetails, the country's Tesco basically, right? And his competitor Sinar Mas owns, I think Sinar Mas is palm oil, if I'm not wrong, right? You, you get the point there are a lot.
[00:14:12] I mean each controlling certain sectors. So it so happens that Sinar Mas and Salim group both have a stranglehold on the retail sector of and where they come into Bukalapak as well as the Sinar Mas presence is that they are basically already controlling the brick-and-mortar retail industry.
[00:14:35] They are obviously seeing that that's being disrupted by the digital e-commerce retail industry, and they want to maintain a market share or even grow it right. right. Brick and mortar has structural impediments in terms of how far you can grow into the ex-tier one cities. So now with digital, presumably it's actually more economical to do so, and they don't want to leave the land grabs to the likes of your Tokopedia’s and Shopee’s, right?
[00:15:06] They want to maintain their stranglehold on the retail sector of Indonesia. So, this is a attempt do so. Why is it important? Because like I said, these ex-tier one cities are not profitable yet, so you really need a large backer to just subsidize the heck of your unprofitable decade long you know, commitment to this sector and who better do it than ex-growth company, right?
[00:15:33] A GDP plus growth company like Sinar Mas, or Salim. Is basically our next chapter of growth. And the distinction here to be made is that Salim and Sinar Mas basically already control the brick and mortar retail distribution supply chain, right? Which means that they act as gatekeepers to the actual suppliers of the FMCG goods.
[00:16:00] They are being delivered to the Warung precisely because those source suppliers are also owned by the Chaebols, right? So oil is owned by Sinar Mas. bread is owned by Salim. Obviously Noodles are owned by Salim Rice is also owned by Salim. You get the point, right? So if you are a new entre, entre, without the necessary connections to reach the source, the source supplier, you're only allowed to operate at the downstream of the retail supply chain.
[00:16:34] Right? So given the size and the complexity of Indonesia's national supply chain, they are basically about five to six layers from the source manufacturer to the, to the, to the end customer. With the Huong being on the the final sixth. The Chaebols already control the first four tier. So currently as near Entran only can penetrate the last two tier.
[00:17:00] And as you can imagine, the margins, they are not very attractive, right? So they do need to the blessing of the Chaebols who control the first four tiers to tap into those margins. And that is where sad. The partnership with Salim as well as Warung Pintar comes right? They actually need the blessing of the Chaebols.
[00:17:23] And the way they do that is by becoming part of a conglomerate. So that is why independent of the wider context where Bukalapak is part of the Salim group, you are actually not seeing the full picture when you're analyzing Bukalapak. Bukalapak is not a standalone Indonesian e-commerce company. It is the retail arm, or rather the e-commerce arm of the Salim group and that's how its valuation should be understood.
[00:17:50] Kalani Scarrott: Perfect. slightly off-topic but still related, but I did note that in your report you mentioned that overseas Chinese tycoons and their outsize influence on the future of the regional ASEAN economy, why is this so, yeah, just curious cause how that influences things down the line. What do you think there?
[00:18:06] Aaron Pek: Yeah, so the Salim group's owner, or rather the current CEO, his name is called Anthony. And he actually inherited the Salim group from his father, which is Sudono Salim. Sudono Salim actually, came from Fujian, China. He escaped it when the Japanese invaded China during around the time of the Chinese Civil War.
[00:18:28] So basically he fled to Indonesia the way the Ukrainians might be fleeing to Moldova right now. Because of war, right? So, pulled themselves from their bootstraps and you know, made the necessary connections. Got to know Sukarno and President Suharto and build up the Salim group as he is today.
[00:18:50] Right. And, the thing about Sudono Salim’s story is that it's not a unique story. Across the border in Malaysia, you have the likes of Robert Kuok of who, although he did not, he wasn't a first generation Chinese the way Sudano was first generation, implying that they flee from China. He was a second generation Chinese, but still, he also built up his connections, right?
[00:19:16] Pull up from his bootstraps and build up the Robert Kuok empire that is today, which owns 40% of China's edible oil markets. and you cross, cross the straits. You go to Philippines, you see Lucio Tan who basically did the same thing with the Marco Senior, which is especially relevant today because Marcos Jr just won as a president, right?
[00:19:36] So it's the same thing. Put himself from his bootstraps, gain the political connections, right? You know the story. And then you have Chin Sophonpanich in Thailand doing the same for Bangkok bank and to a less extent you have it happen in Hong Kong, right. And, it's just that they weren't dealing with the indigenous peoples.
[00:19:58] They were dealing with their Cukong benefactors who are basically the British, but it's the same relationship. It's a political patronage relationship. And they're all. by one common thread, which is what the Indonesians refer to as the Cukong class. Cukong loosely translates to, prime Servant or something like that, right?
[00:20:23] So it's a conservative relationship to the political patronage class, right, where there's an element of corruption going on. the president or prime minister of the indigenous country, Oh, sorry. Indigenous class there, right? bestows upon this overseas Chinese, a monopoly license over certain exports or production or something.
[00:20:46] Right? So in Sudono Salim’s case, it was flour as well as, palm oil, if I'm not wrong, right? And, it enforces this Cukong relationship where, there is a self-sustaining cycle here because obviously the Cukong supplies funding to the, to the political patron, whereas the political patron needs an isolated Chinese, overseas Chinese Cukong, right, to remain loyal to him.
[00:21:16] And the way he does that is that he uses a monopoly license, which can withdraw anytime. Right. And, and this isolated overseas Chinese tycoon is pretty much hated by the other indigenous people because, it's corruption and he's much richer them, right? So he's isolated. So it's a very self-reinforcing relationship, right.
[00:21:43] As opposed to, prior to the Cukong classes development. where the political patron would have to rely on a fellow indigenous tycoon who can just leave him anytime. For another indigenous political patron. So that's how the Cukong class developed. Okay. Sorry, just let me wrap it up with one last thing. So ASEAN as a whole, the economy, if you look by hindsight, was built on the backs of these overseas Chinese tycoons.
[00:22:12] Right. Given all the context I've given. the economy became very, it was developed economically based on this Cukong relationship. There is the common thread in the entire Asian economic development of the past 50 years. Which is why we call them the overseas Chinese.
[00:22:33] Kalani Scarrott: Perfect. Love that, that, yeah. Love that primer. back to Bukalapak. Do you want to touch on valuation there about Bukalapak?
[00:22:44] Aaron Pek: Yeah, sure. Some Bukalapak’s valuation is a pretty simple, not a lot of moving parts because it's currently trading at about 12 to 13 times price to sales. Right, which was acceptable two years ago, but for some reason not now.
[00:22:58] Right, But, I mean, objectively speaking, a 12x PS ratio is quite expensive. Right. And the reason for that is not necessarily because of its fundamentals per se, right? It's just that I think people have a lot of hope that with the time goes backing, it will eventually develop into. comparable retail, establishment or other retail company to Salim group's, existing bread and water retail companies, right?
[00:23:30] So, like I say, is power of Salim group. That is the only way to do this evaluation. To ignore it is will be myopic, right? And so the upside is pretty simple, right? If Bukalapak is eventually successfully in replacing part of the Salim groups brick and mortar retail entities is definitely worth much more than 12 times price to sales, because the sales right now is really insignificant, even relative to the likes of the Shopee, Tokopedia, right?
[00:24:04] Because again, as I said, most of the. GDP of Indonesia is concentrated, in tier-one cities. So presumably that means ex-tier one cities have a lot of growth to do. And a bit of context for viewers. Indonesia has a population of 270 million. Right? So that's pretty much what, one-fifth of China, and has the largest Muslim population in the world, right?
[00:24:34] It's the fourth-largest population period, right? So any economy will tell you that population growth is the most important driver behind GDP growth. And a story is very simple. It's GDP growth, right? So think about Vietnam's projected 7% GDP growth over the next, Indonesia is not there yet, but it will get there and the base that is growing from is a lot larger.
[00:25:05] I will even go so far as to liken the ex-tier one city population growth and GDP growth to China 30 years ago. Right? That's the kind of base we are talking about. So if everything is successfully executed, and we have the Salim group behind, I think you agree, you mean that they can easily justify a 12x PS just from GDP growth.
[00:25:30] But of course there's the risk component, which is that why if it doesn't work out right, and you know, it's a bit like Bitcoin where you have 12x PS ratio right now. Right. And the worst case scenario is that it’s worth nothing. So there's a lot to drop, right? So it's really a VC kind of risk-reward exposure, right?
[00:25:50] It can either do extremely well or you can go to zero. And being cognizant of that, the way to approach it would be probably smaller position sizing, right? Just putting whatever you can lose, right? And, if it doesn't work out, that's all you lose, right? But it's not really a hundred percent sure thing.
[00:26:10] I think happening, but that's kind of it, right? Because other than that, there's just nothing else to analyze When your PS ratio is 12x, right? Everything else just falls in the background to revenue. Yeah.
[00:26:22] Kalani Scarrott: Perfect. No, thank you for the explanation. I appreciate the reasoning. That was, yeah, great summary of it, short and sharp one today, I'm loving it. This is great, but is there anything we haven't touched on that's important about the future of Bukalapak or Indonesia or the Salim group? Anything else you wanna touch on before we wrap up?
[00:26:37] Aaron Pek: Let me see here. Ola, Bukalapak. Sure. Okay, so I think the last thing I touch on is the macro context because Indonesia is located in what is called the Indo-Pacific zone.
[00:26:49] Which is basically where the axis of geopolitical significance over the next generation is going to be concentrated. So think about post-WTO China in 2001, right? That was where the axis of geopolitical, or, or the geo-economic influence was concentrated for the past 20 years. Right now that China has become rich, basically, the labour cost of China are no longer tenable for manufacturing.
[00:27:16] They need to graduate to a service economy to sustain its growth. And the next China, which is basically the next factory of the world, will need to be a place which qualifies two broad reasons. One, obviously low labour costs, comparable to China 30 years ago. And two stable enough political environment, right, which allows the labour cost advantage to be executed.
[00:27:40] So for instance, you may not wanna go to Africa, right? You may not wanna go to Russia. Even Latam or Mexico right, is questionable, So for whatever reason, ASEAN happens to have a relatively stable political environment, right? So it allows, and also low labour pool costs as well as large population.
[00:28:03] What a large population does, sorry, a large and young population. What a large and young population base does is that not only it provides you with cheap labor, it provides you with ready consumer base as well, right? With high discretionary income to spend on the products you're producing in the country.
[00:28:21] So it's a very China like situation right from 20 years ago. And this is the reason why I call aian basically the next China. . And from a geo-economic perspective, you can start to see why Indonesia's macro, prospects over the next 10, 20 years are looking very attractive, right? So the Philippines has about half of Indonesia's population and the population growth of their working-age population is even larger, right? I think it from now to 2060, it's basically a straight line. Even India doesn't cut that, you know? So, there's a very ready consumer base. And here's the thing. The Philippines also has a very large ballroom class Now, they don't quite war there, but they're quite micro-businesses.
[00:29:08] And the same goes for. , it's basically the same thing. It's just one, two man businesses, right? They also have the MSME segment classification and Bukalapak is already stepping into Philippines as well. So you can see the Salim group's ambitions are not just contained Indonesia alone, and here is where the overseas Chinese come in, right?
[00:29:28] Because overseas Chinese are loose web of interconnected Chinese tycoons located all over ASEAN, and, due to their Chinese heritage. They have, for whatever reason, they have a blood is thicker than water kind of relationship. So they're not necessarily loyal to their governments, their countries.
[00:29:46] They're actually more loyal to each other, for instance. Right. I just give you a very funny anecdote. Robert Kuok actually trusted, Sudono with his investment in Indonesia's largest flour miller Bogasari for 20 years without a strand of paper to it. Right. And on Salim’s part, he duty fully, forwarded 20 years of dividends from Bogasari to Robert Kuok without stealing from him right.
[00:30:12] With no contract appropriate. Because at the time foreigners like Malaysian-born Robert Kuok was not allowed to own strategic business in, Indonesia. So there is this funny, loyalty among overseas Chinese tycoons, and it exists to this day. For instance, five years ago, both Robert Kuok and Sudono Salim actually, entered Indonesia and acquired the second largest retail manufacturer Goodman Fielder, an Australian is the company, right?
[00:30:44] So this relationship, no doubt. And, the bigger question is this, If they're so loyal to each other just because of heritage, who could be pulling the strings behind them? Right? So China is, you know, 40% of, Robert Kuok’s largest business, And Robert Kuok has a lot of photos with the Chinese premiers, all of them, from Deng Xiaoping, right?
[00:31:12] there is a lot of reason to speculate, right, that, the overseas Chinese are basically a backdoor of the Chinese economy into the ASEAN economy. And to be fair, vice versa, right? So for instance, if Anthony Salim of the Salim group wants to sell palm oil from Wilmar International, one of his subsidiaries to the edible oil market in China. Guess what?
[00:31:38] He just gives a call to Robert Kuok, right? So will China's growing geo-economic significance on the global stage? This is no longer just an Indonesian story, nor is it just an ASEAN story. It's also a China story, which makes it all the more exciting. I'll just leave it there because of brevity, right?
[00:32:00] But yeah, go, go read up on my posts. You'll see that there is a lot of potential in the entities owned by the overseas Chinese who live in Asia
[00:32:13] Kalani Scarrott: Spicy way to finish. I love that. That was so good. yeah, Aaron, thank you so much for coming on today. I'll plug all the articles, link them all. Anything else where can people find you on Twitter? anything else you wanna plug?
[00:32:23] Aaron Pek: Yeah, sure. So please have a look at my blog it's called value investing.com, right? I basically write about ASEAN stocks in a value investing context. So I'm actually a fan of Warren Buffet and his very investing philosophy.
[00:32:40] And, if you are normal about that, you can read the very investing philosophy articles on my blog. But if you're a value investor and you believe in the buffer way of doing things of invest, you know, I'm probably the only guy on CK who does ASEAN stocks in that, fashion, right? So, just give you a better of context.
[00:33:01] from the beginning of Covid, let's say January 2020, right? Or February 2020. Until today, the S&P 500 has done something at negative 1.5%. on over three years. So this is not okay. Growth is an absolute negative 1.5%. The MSCI ASEAN has done something at positive 2.8%, right? If you strip Vietnam is down negative 1.7.
[00:33:27] Okay? The MSCI world has done something like around the same, right? Negative 1.3. So if you were to invest in all the stocks on my blog on an equally rated basis, you will be up about almost 12%, right? right? So on an episode basis, so it's not keer, it's from the beginning of 2020, which means that it's a very risk-conscious strategy, right?
[00:33:54] And of course, I'm sure you've heard it all before. Rule number one, never lose money, right? Your Warren Buffet stuff, your Howard Marks stuff, right? I'm a true believer in that, and I really do would like to evangelize that as well, right? Because the Indo-Pacific is here to stay, right? It is the next chapter of.
[00:34:11] Four investors who are looking for the next China. Right. And of course I understand that people in develop economies may want more structure, may want less risk, but they want growth obviously. Right. So very investing is a very risk-focused strategy, which care prioritizes downside while allowing you to benefit from the macro tailwinds of investing in ASEAN.
[00:34:34] I think it's a very suitable strategy for emerging market investing as. . And if you'd like to know more, come to my block, visit me on LinkedIn, send me an email let's talk.
[00:34:46] Kalani Scarrott: Perfect. I'll link to everything. Totally agree about Indo-Pacific being here to stay, and I'm looking forward to it. But yeah, Aaron, cheers for coming on today.
[00:34:55] Aaron Pek: Yeah. Yeah. Yeah. See My Malay is not good enough.
[00:35:02]Kalani Scarrott: Haha, mate better than mine.