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Stock Index
Bahana Securities

23 Oct 2019 | 17:25 WIB
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Bahana Securities

23 Oct 2019 | 17:25 WIB
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Equity market: Scarcity of growth

Our on-the-ground channel checks suggest severe economic growth deceleration with various sectors experiencing declines of 30-90% y-y. From brick sellers (middle-low) to diamond shops (high), the adverse impact of the current economic slowdown appears to be quite widespread.

We believe this downturn is caused by three main factors: 1. Low commodity prices translating to lower farmers’ incomes; 2. Weak IDR reflecting lower imports and delayed capital expenditures; and 3. The government’s aggressive taxation drive resulting in a slowing economy, putting off investors.

Some early 1Q15 results (exhibit 2), released since last week, back our anecdotal evidence as a couple of companies (i.e. AALI and LEAD) booked 80% y-y declines in net earnings. Thus far, the non-financials (rated as well as non-rated companies) have booked an overall contraction of 2.3% in revenue, 9.4% decline in operating profit and 10.2% drop in net profit.  At this stage of the cycle, we believe Indonesia’s 1Q15 GDP growth is likely to dip below 5%.

Furthermore, we believe weak 1Q15 economic reports are likely to persist in forecasts for 2Q15. Recent data such as the all-time low PMI of 46.4 in March, would suggest that a rebound could only occur in 3Q15, particularly given the current economic deceleration which has persisted into April and likely to linger in the next couple of months.

Note that based on data from the Ministry of Public Works, only 31.7% of infrastructure tenders have been awarded (exhibit 3). This is way behind compared to President Jokowi’s plan of finishing all tenders by the end of March 2015.

In line with Indonesia’s 1Q15 subdued economic performance, which is likely to persist into 2Q15, we are currently looking at EPS growth of just 11.7% for the full-year 2015, compared to Bloomberg’s consensus growth of 16.3%. We would expect earnings revisions by the street assuming we are correct.

The main difference in our more conservative forecasts is in the plantation, coal, metals and oil & gas sectors. On valuation, based on our earnings estimates, the Indonesian market is currently trading on a 2015F PE of 20.1x, the region’s most expensive, despite yesterday’s 2.6% market drop.


Due to the current economic slowdown, our top 10 picks are mostly defensives (staples and telcos). For our top sells, we continue to dislike the consumer discretionary sector, including automotive, particularly given lower GDP outlook.  Lower ad-spend should adversely impact the media companies while taxi companies could suffer from lower tariffs.

Other government policy risks include the Single Presence Policy (media), zoning (retailers) and ERP (automotive). For AKRA, we think the stock will be hit by BI’s policy to disallow FX transactions locally starting 1 July 2015 as well as the current low oil price environment.

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