As Head of Asia Internet and Telecom Equity Research for Maybank Kim Eng, Mitchell Kim is well-versed in technology and its applications.
Kim spoke to DEALSTREETASIA, on the sidelines of Maybank’s Invest ASEAN event in Singapore recently, on investments in the e-commerce sphere in China and Southeast Asia, cryptocurrency, and the role of telecom firms in ever-changing technology landscape.
What are your thoughts on Alibaba’s recent investment into Lazada?
I think it’s a good, strategic move on the part of Alibaba. However, Lazada, if you look at it just on a financial basis, is still very small. At the same time, if you look at ASEAN e-commerce — it’s still very small. In 2013, most of the data showed it to be about $7 billion. If you were to assume, let’s say 25 per cent per year growth to 2015, you’re probably talking about somewhere about $10-12 billion market, which is much smaller than some $600-$700 billion that we see in China. But given the population and rise in income in ASEAN, we obviously think that’s going to change, especially as smartphone and broadband penetration, and income rises, we will definitely see e-commerce growth accelerating.
How long will it take?
If you look at China, it accelerated very quickly. Of course, if you look at Alibaba, Taobao, they have been around for over 10 years. But it has evolved, transformed from B2B to more C2C and now it’s more B2C. I don’t necessarily think that Southeast Asia will go through the same path, but I do see that it’s going to be more of B2C. Globally, you’re going to see more B2C.
One of the talks you moderated (at the conference) was about bitcoin. What do you think about it? How does Maybank think about a technology like bitcoin?
It’s efficient. I’m actually from New York, and my family is still in New York so I still make a lot of large overseas transfers, and every time I do that, $35 here, $50 here, it’s very inefficient. $70 just to transfer money, but if bitcoin can do that at a fraction of the cost, I think that’s pretty meaningful.
Well, I think from the bank’s perspective, obviously they’re going to be threatened by it, right? Also, the regulators’ perspectives. I think they are going to be very cautious about it because if you look at how intricate the web of regulations on money transfers and what not, it is very complex, especially and not only because they want to be able to track it, but also because we don’t want illegal money laundering and so forth. Those are some of the challenges I think they see, and from the bank’s perspective, obviously they don’t want somebody stepping in and moving into their business but we’re already seeing that.
In China, as Alipay grew, banks were very reluctant initially to cooperate with Alipay but because it is so big, they had no choice. Sometimes, if you have the size, whether you like it or not, you have to accept it. I think the whole world goes in the way: either you have to join them or you get crushed. Eventually, you may have to accept it.
Currency is very complex. It’s not about just having an instrument that everybody can use for transactions. There are country issues, geopolitical issues that are involved in money and currency. So, it’s not a simple matter of efficiency. One example would be, if you look at the Euro, because of Euro, when economies are faltering, a lot of smaller markets have difficult times.
What do the traditional telcos have to do in order to ride on the change that digitisation brings? What are the successful models?
Telcos are in a very tough, challenging position. Not because they’re not well-equipped per se but telcos are a utility.
If you look at the history of telecom, there are not that many paradigm shifts per se. There’s voice and you have mobile for voice, and finally we’ve got data, and then we’ve got mobile data. When you reach a certain point, it takes a long time before there’s a major shift for telcos to get another leg up.
Right now, I think telcos are at a stage where all they do is milking out their network to generate free cash flow. Therefore, it becomes a utility and they have got to be good at returning capital to shareholders. With the exception of some ASEAN companies like Telekom Indonesia are still seeing better growth in average, and that’s still because voice is growing there and data usage is relatively low in Indonesia. China is pretty low for a different reason.