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Stock Index
Bahana Securities

18 Dec 2018 | 01:40 WIB
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Bahana Securities

18 Dec 2018 | 01:40 WIB
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2nd quarter corporate earnings: The good, the bad and the ugly

In our view, it is imperative that the recent index ascension is accompanied by solid earnings performance in the lead up to the 2Q16 result season at the end of July. We expect the 102 stocks in our coverage (80% of total JCI’s market capitalization) to book overall 2Q16 operating-profit growth of 16.5% y-y, compared to a 7.7% y-y decline in 2Q15 (exhibit 1). We also expect net-profit growth of 15.9% y-y, vs. a 6.7% y-y decline in 2Q15.


On poultry, we expect growth to stem from an operating recovery as well as the low base effect versus 2Q15, which should allow for the sector to book the highest growth rates at both the operating and net-profit levels in 2Q16. For the telco sector, players will likely continue to benefit from solid data growth while rational pricing should result in buoyant margins.

On infrastructure, last year’s low base due to ministerial restructuring should result in a strong earnings rebound, helped also by budget disbursement acceleration. In the consumer space, we expect the biggest rise in earnings to come from the discretionary side (i.e., retailers) due to the low base effect versus 2Q15.

It is interesting to note that this time around there is no sector that falls in the bad section, as sector performances appear to be quite polarized.

We expect banks to perform much better in 2Q16 by booking relatively solid earnings growth of 12.2% y-y, supported by higher net interest income due to improvements in loan growth, especially coming from SOE banks which engage in infra-related projects. However, slower-than-expected economic conditions are expected to lead to a deterioration in asset quality in the industry, as we estimate NPLs to rise in 2Q16 relative to previous quarters, prompting banks to book higher provision charges.

On plantations, we expect earnings improvements due to last year’s low base effect and the slightly higher CPO price, which averaged USD687/ton in 2Q16, compared to USD676/ton in 2Q15.

In cement, we expect to see a slight rebound, helped by improved demand due to higher infrastructure spending. However, increased production capacity by new and existing players has created greater competition, especially in Java, which is hurting companies’ margins.

On the property sector, the industry suffered from last year’s weak pre-sales and the government’s aggressive taxation drive, experiencing severe deceleration compared to its 2Q15 performance, making it one of the worst-performing sectors within our coverage, despite a stronger IDR, lower BI rates and LTV loosening.

In the auto sector, despite higher q-q car sales, the still-weak earnings should be caused by the dealership-rearrangement impact. For the oil-related sector, expected performance improvements in 2Q16 should be mainly due to MEDC (on higher cost efficiencies and a new income stream from Senoro) and AKRA (on higher fuel distribution volume).

On coal, the 2Q15 average price was USD58.2/mt while the 2Q16 average price reached USD52.1/mt, likely resulting in worsening y-y performance in terms of growth. Finally, on metals, the average 2Q16 nickel price was down 32% y-y to USD8,822/mt while tin prices rose 9% y-y on average to USD16,937/ton in 2Q16, which should result in continued weak earnings performance.

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