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Stock Index
Bahana Securities

23 Oct 2019 | 18:16 WIB
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Currencies
Bahana Securities

23 Oct 2019 | 18:16 WIB
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First quarter corporate results; The good, the bad, and the ugly

1Q16 results season is upon us with the first two companies, Bank Jatim (BJTM IJ-REDUCE-IDR464) and Bank Negara Indonesia (BBNI IJ-HOLD-IDR5,075-TP:IDR5,600) having already reported earnings in the past couple of days.

Overall, we estimate some rebound in corporate earnings with the 102 stocks in our coverage expected to book 1Q16 operating-profit growth of 5.6%, compared to negative 1.2% in 1Q15 (exhibit 1).  On the bottom line, we also expect net-profit growth of 6.7% y-y, vs. negative 8.5% in 1Q15.

On poultry, higher DOC and broiler prices coupled with the low base effect from 1Q15, should allow the sector to book the highest growth rates at both the operating and net-profit levels in 1Q16. For the telcos, players will likely continue to benefit from solid revenue on significant increases in data-revenue growth backed by a higher number of smartphone users as well as higher data usage.

On infrastructure, last year’s low base on the back of ministerial restructuring should result in a strong earnings rebound, helped also by budget disbursement acceleration. For the automotive sector, 1Q16 performance should be aided by the low base effect in 1Q15 as auto sales bottomed out last year.

In the consumer space, top line should be supported not only by job creation on the infrastructure push, but also Jokowi’s card programs. Although we expect Consumer Staples to book above-market growth rates at both the operating and net-profit levels, we note that Consumer Discretionary should actually be in the Ugly section given expected poor performances at both those levels.  Due to their defensive nature, staples should perform better than discretionary.

On the flip side, in the discretionary sector, retail companies are burdened by swelling operating expenses such as salaries, utilities and rentals, which should outstrip top-line growth. For the two media companies in our coverage, we expect sub-optimal GDP growth to cap ad-spend growth.
It is interesting to note, that we only have one sector in the bad section: plantations, reflecting its mixed performance.  At the operating level, the sector’s earnings are likely to be below market due to lower CPO prices which averaged USD640.96/ton in 1Q16, vs. USD671.8/ton in 1Q15.  However, on the bottom line, our expectations of less FX losses should allow for overall y-y 1Q16 net earnings growth to be higher than our expected market growth.
In 1Q16, we expect the property sector, suffering from last year’s weak pre-sales and the government’s aggressive taxation drive, to experience severe deceleration compared to its 1Q15 performance, making it the worst performing within our coverage.  For oil, it is clear that players are hurt by the current low oil-price environment, with the price averaging USD35.24/bbl in 1Q16 (-36.1% y-y), vs. USD55.17/bbl in 1Q15.

Similar to oil, the coal price remained weak at USD50.79/ton in 1Q16, vs. USD62.27/ton in 1Q15, pressured by China’s slowdown as well as weak global oil prices. In cement, persistent weakness in commodity prices and the property market has continued to negatively impact domestic cement sales in 1Q16. Additionally, increased production capacity by new and existing players has created greater competition, especially in Java, which is hurting company margins. For Metals, the average 1Q16 nickel price was down 40.7% y-y to USD8,502/mt while tin prices came off by 15.9% y-y on average to USD15,489/ton in 1Q16.

In the banking sector, we expect earnings deceleration from slower loan growth and rising NPLs in 1Q16. We have recently cut the sector from Neutral to Underweight on over regulation.  At this stage we expect NIM contraction to occur and we have no buy rating on any of our covered banks. Happy trading!

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