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Stock Index
Bahana Securities

26 Sep 2018 | 13:20 WIB
INDEX
SCORE
POIN
%
COMPOSITE
5.867,577
-14,643
-0,249%
Last 1 day
IDX30
506,315
-1,426
-0,281%
Last 1 day
MBX
1.652,827
-3,955
-0,239%
Last 1 day
DBX
973,853
-3,190
-0,326%
Last 1 day
KOMPAS100
1.191,793
-3,851
-0,322%
Last 1 day
BISNIS-27
512,230
-1,815
-0,353%
Last 1 day

Currencies
Bahana Securities

26 Sep 2018 | 13:20 WIB
KURS
BUY
SELL

Corporate earnings preview: The good, the bad and the ugly

In our view, the current market downturn will be somewhat cushioned by relatively solid 3Q16 earnings performances from stocks under our coverage. Our result preview for the 102 stocks under our coverage to book overall 3Q16 operating-profit growth of 5.2% y-y, slightly weaker than 3Q15 level of 8.3% (exhibit 1).


However, on the bottom line, we expect earnings to accelerate to 24.7% on a y-y basis, compared to a 6.9% y-y decline in 3Q15, helped by currency gains from IDR appreciation (current: IDR13,300/1USD; 3Q15: IDR14,651/1USD). Note that our sensitivity analysis reveals that every 1% IDR appreciation, market EPS growth will rise by 0.7%.        

With recovery in commodity prices, we expect the good section in this 3Q16 result round ups to be mostly occupied by cyclical counters. On plantations, we expect operating recovery to stem mainly from higher CPO prices (3Q16 average: USD628/ton; 3Q15: USD520/ton) as well as a low base effect set in 3Q15.

On poultry, it is pretty much the same story, where we also expect growth to be driven by higher broiler and DOC prices coupled with IDR appreciation to boost FX gains for the sector’s net earnings.

However, for the Oil-related sector, price recovery (3Q16 Brent average: USD47/bbl; 3Q15: USD52/bbl) did not materialize; hence, earnings rebound predominantly occurred on the back of last year’s low base effect.

On infrastructure, we expect continued strong earnings growth due to robust order books and solid project realizations.

Amid the current weak economic environment, we expect defensive sectors like Telcos and Staples to report relatively solid earnings performances compared to the market, although with mixed results.

On Telcos, players will likely continue to benefit from solid data growth while rational pricing should result in buoyant margins. However, at the operating level, telco players are likely to suffer from high depreciation charges caused by 4G-related expansions, resulting in low single-digit operating profit growth in 3Q16. On a more positive note, its net profit growth will remain strong at 22% on a y-y basis, helped by FX gains on stronger IDR.

On the Consumer side, Staples (F&B, healthcare and cigarettes) outshined Discretionaries (media and retail) due to their defensive nature amid the current soft operating environment.  

For Property, we expect the sector to suffer from slower revenue recognition and higher construction costs at the operating level while on the bottom line, stronger IDR provided support in the form of FX gains.

On Cement, we expect some operating turnaround to materialize, although margin pressure should still weaken operating profit growth. However, at the net profit level, we expect a low base effect and FX gains on stronger IDR to pave the way a jump in net earnings.

Finally, on Metals, while we expect weak operating earnings, we expect some bottom line rebound on FX gains caused by stronger IDR and last year’s low base effect.

In the ugly section, we expect banks to be in this category, mainly due to slower loan growth and possible higher NPLs resulting in sizeable provisioning during the period.

For coal, the sector’s higher prices (3Q16 average: USD66/ton; 3Q15 average: USD58/ton) are being offset by increased moisture content due to the current La Nina phenomenon, resulting in low yields.      

September remains as a pivotal period for the Indo market. Market participants have been disappointed by Bank Indonesia’s decision to leave rates unchanged at 5.25% in August’s Board of Governors (BOG) meeting.

Without a rate cut from BI, we believe that the Jakarta Composite Index is likely to continue heading south in September, particularly if the tax amnesty program does not pan out as per expectations. That said, we list below our preferred defensive stock picks for investors to help weather the current market downturn.


Harry Su
Senior Associate Director
Head of Corporate Strategy and Research
Bahana Securities

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