The Journal. 12 November Research Team ext. 611

Transcription

1 The Journal 12 November 2018 IDX to implement free-float methodology starting Feb-19. Last week, the IDX gathered several domestic asset managements and published slides regarding its plan to replace the weighting methodology for IDX30 and LQ45 from market cap weighted to freefloat adjusted. Meanwhile, JII s and JCI s weighting will not be changed. At the interim, here are our view regarding the changes and implications: Research Team ext. 611 research@sinarmassekuritas.co.id Changes: Currently IDX30, LQ45, JII, and JCI are weighted using the market cap mechanism. Starting from Feb-19, the IDX plans to switch the weighting method for IDX30 and LQ45 to free-float adjusted weight. The rationales behind that are: 1) better representative of market condition as it opts out the majority shareholder s portion, 2) increases portfolio efficiency as it reduces the weight of companies with relatively lower free-float portion, 3) incentivizes companies to increase the free-float portion, and 4) it is commonly used in other equity indices. To note, at the time of evaluation, the maximum weight limit of a single equity is set at 15%; this only affects BBCA which accounts for 17.5% in IDX30 and 16.7% in LQ45. We await for further confirmation regarding the weight limit and how it translates to other constituents weighting. Index = n i=1 (Market Cap i Rasio Free Float i ) 100 Base Market Cap As of 25 Oct 2018, the free-float portions of IDX30 and LQ45 stood at ~40%, while JII s and JCI s portion are well below 30%. This implies that equities outside the IDX30 and LQ45 are much less liquid compared to the IDX30 and LQ45 constituents. Percentage of Free-float to Total Shares 39.7% 41.0% 27.5% 27.0% JCI ISSI LQ45 IDX30 Source: IDX, Sinarmas Investment Research

2 IDX 30 Weighting Changes Per Sector Agriculture 16% Mining 20% Basic Industry & Chemicals Miscellaneous Industry Consumer Goods Industry Property, RE & Bld. Construction 4.5% 3.4% 7.1% 5.9% 1.7% 1.3% 10.8% 8.4% 13.9% 28.8% Infras., Utilities % Transportation 16.2% 11.9% Finance Trade, Services & Investment 4.6% 3.6% IDX30FF IDX30 Source: IDX, Sinarmas Investment Research LQ45 Weighting Changes Per Sector Agriculture 0.324% 0.286% Mining Basic Industry & Chemicals Miscellaneous Industry 6.1% 5.4% 8.5% 8.2% 9.1% 7.1% Consumer Goods Industry 13.0% Property, RE & Bld. Construction 2.5% 2.0% Infras., Utilities % Transportation 14.8% 11.1% Finance Trade, Services & Investment 6.0% 4.6% LQ45FF LQ45 Source: IDX, Sinarmas Investment Research 41.2% 36.8% 27.2% 39.6% 34.2% acquisition anymore. Based on the information from investor relation of TLKM, currently government is working on a new regulation to set guidance on tariff gap between starterpacks and reload packages with price of reload packages must be lower than starter packs to encourage sustainable customer shift to reload/renewal packages. Doing so would help prevent the industry from returning to starterpackheavy sales model lead to a lower churn rates and achieve the efficiency objectives as set by the existing prepaid SIM card registration policy. Potential surge in data pricing on welcoming festive season. After the recent price wars caused by the SIM card regulation, we expect there will be an increase in data pricing considering that the price wars is beginning to subside and the implementation of SIM regulation would reduce the potential price war in the Implications: While we believe the changes will be good to the market as it leads to lower index volatility, there are few things that we believe the market needs to be aware of. Companies with big market capitalization but small free-float portion will be put at a disadvantage (HMSP, UNVR, ICBP, GGRM) as we expect continuous capital 40,304 outflow from active-managed fund until the evaluation date. At the time of the adjustment, indexing fund will flee from these stocks until they reach the corresponding weight while active-managed fund may enter these stocks in the interim as their position in these stocks will be minimal at this point. Hence, we advise investors to be cautious until the transition completes While for conventional or active-managed funds stock picking is open-end, many mutual funds tend to maintain the stock weighting future. Source: Furthermore, based on our meeting with Investor Relation, there is an indication that 2 Coal Houseware The Journal Mining - Sector WOOD 12 November 2319 January September

3 relatively close to the index. Given that some stocks will weigh above 10%, a maximum limit for a single stock for conventional funds, there will be a greater return divergence between index funds and conventional funds. We view that indexes with free-float adjusted weight tend to be 20% less volatile compared to indexes with market cap weight. For instance, post evaluation, HMSP s weight in IDX30 will be around ~2.3% while weight in JCI will be ~6.9%. Given the 7.5% free-float, dictation towards 16% JCI will be bigger than IDX30. Lastly, we view big market capitalization companies with high freefloat portion will be mandatory to both conventional and indexing funds as fund managers try to minimize alpha and keep it close to the index. Hence, the free-float adjustment will be phenomenal for stocks with free-float adjusted weight of above 10% IDX 30 Weighting Adjustment Per Sector IDX 30 Mkt Cap Full (in IDR Tn) LPPF IJ % % 0.5% 33.2% 9.0% 4.4% 16.5% SMGR IJ % % 0.5% 32.1% 20.5% 9.1% 17.4% INDF IJ % % 0.5% 18.7% 17.9% 16.5% 19.4% TLKM IJ % % 3.3% 27.4% 16.4% 10.6% 16.7% Source: Bloomberg, KSEI, Sinarmas Investment Research 40,304 Weight Full FF Mkt Cap (in IDR Tn) FF Weight Adjustment Mutual Fund Ownership as a % of Free-float Pension Fund Insurance Others HMSP IJ % % -8.8% 38.1% 8.4% 23.3% 30.3% UNVR IJ % % -4.9% 29.5% 19.6% 19.2% 17.3% ICBP IJ % % -1.2% 23.6% 21.3% 16.8% 16.1% GGRM IJ % % -1.2% 41.7% 9.2% 15.8% 17.3% BRPT IJ % % -0.3% 7.1% 1.0% 6.8% 60.9% JSMR IJ % % -0.2% 20.2% 29.9% 19.5% 23.8% PTBA IJ % % -0.1% 22.2% 14.1% 13.8% 27.3% MEDC IJ % % -0.1% 6.9% 1.8% 2.8% 21.9% WSKT IJ % % 0.0% 17.1% 22.9% 10.2% 36.9% ANTM IJ % % 0.0% 23.2% 10.4% 23.9% 43.2% SRIL IJ % % 0.0% 3.0% 1.4% 1.2% 30.2% WSBP IJ % % 0.0% 10.8% 10.0% 9.5% 57.2% BSDE IJ % % 0.1% 8.0% 8.6% 4.7% 18.2% BBTN IJ % % 0.1% 27.5% 17.9% 13.8% 25.3% PTPP IJ % % 0.1% 25.1% 8.0% 8.3% 21.2% PGAS IJ % % 0.3% 22.2% 14.1% 13.8% 27.3% ADRO IJ % % 0.3% 9.2% 5.7% 4.1% 33.7% KLBF IJ % % 0.3% 13.0% 6.3% 3.1% 20.4% UNTR IJ % % 0.4% 30.1% 16.8% 11.2% 18.0% BBNI IJ % % 0.5% 28.7% 18.7% 11.3% 18.7% INKP IJ % % 0.6% 14.4% 5.5% 13.4% 23.0% INTP IJ % % 0.6% 14.0% 6.4% 2.7% 15.3% BMRI IJ % % 0.9% 37.6% 16.3% 7.7% 17.5% BBRI IJ % % 1.9% 34.5% 15.5% 7.7% 18.2% BBCA IJ % % 3.0% 36.6% 12.4% 5.7% 22.3% ASII IJ % % 3.2% 35.4% 19.5% 9.3% 18.1% Source: 3 Coal Houseware The Journal Mining - Sector WOOD 12 November 2319 January September

4 LQ45 Weighting Adjustment Per Sector LQ 45 Mkt Cap Full (in IDR Tn) 20% FF Mkt Cap Weight Full (in IDR Tn) UNVR IJ % % -4.5% 29.5% 19.6% 19.2% 17.3% TPIA IJ % % -1.6% 0.7% 0.1% 1.3% 21.6% ICBP IJ 16% % % -1.1% 23.6% 21.3% 16.8% 16.1% GGRM IJ % % -1.1% 41.7% 9.2% 15.8% 17.3% LPPF IJ % % 0.5% 33.2% 9.0% 4.4% 16.5% SMGR IJ % % 0.5% 32.1% 20.5% 9.1% 17.4% BBNI IJ % % 0.6% 28.7% 18.7% 11.3% 18.7% TLKM IJ % % 3.3% 27.4% 16.4% 10.6% 16.7% Source: Bloomberg, KSEI, Sinarmas Investment 40,304 Research FF Weight Adjustment Mutual Fund Ownership as a % of Free-float Pension Fund Insurance Others HMSP IJ % % -8.1% 38.1% 8.4% 23.3% 30.3% BRPT IJ % % -0.3% 7.1% 1.0% 6.8% 60.9% INCO IJ % % -0.3% 22.7% 15.1% 22.4% 30.2% JSMR IJ % % -0.2% 20.2% 29.9% 19.5% 23.8% BJBR IJ % % -0.1% 9.3% 0.7% 24.5% 29.3% PTBA IJ % % -0.1% 22.2% 14.1% 13.8% 27.3% MEDC IJ % % -0.1% 6.9% 1.8% 2.8% 21.9% SSMS IJ % % 0.0% 4.2% 1.0% 1.2% 21.5% INDY IJ % % 0.0% 4.5% 1.3% 0.8% 32.2% EXCL IJ % % 0.0% 34.2% 7.5% 11.2% 18.1% ITMG IJ % % 0.0% 33.2% 11.4% 8.4% 22.7% WSKT IJ % % 0.0% 17.1% 22.9% 10.2% 36.9% BKSL IJ % % 0.0% 10.8% 0.6% 2.6% 65.9% LPKR IJ % % 0.0% 4.6% 1.4% 5.5% 20.6% ANTM IJ % % 0.0% 23.2% 10.4% 23.9% 43.2% WIKA IJ % % 0.0% 16.5% 17.6% 19.9% 45.0% ELSA IJ % % 0.0% 14.0% 32.1% 7.7% 45.5% SRIL IJ % % 0.0% 3.0% 1.4% 1.2% 30.2% MNCN IJ % % 0.0% 11.4% 2.8% 1.0% 16.7% WSBP IJ % % 0.0% 10.8% 10.0% 9.5% 57.2% ADHI IJ % % 0.0% 37.4% 8.0% 12.1% 43.4% AKRA IJ % % 0.1% 40.7% 6.3% 3.6% 24.2% SCMA IJ % % 0.1% 26.3% 21.2% 7.0% 33.1% BSDE IJ % % 0.1% 8.0% 8.6% 4.7% 18.2% BBTN IJ % % 0.1% 27.5% 17.9% 13.8% 25.3% PTPP IJ % % 0.1% 25.1% 8.0% 8.3% 21.2% PGAS IJ % % 0.3% 22.2% 14.1% 13.8% 27.3% ADRO IJ % % 0.3% 9.2% 5.7% 4.1% 33.7% KLBF IJ % % 0.3% 13.0% 6.3% 3.1% 20.4% UNTR IJ % % 0.4% 30.1% 16.8% 11.2% 18.0% INDF IJ % % 0.5% 18.7% 17.9% 16.5% 19.4% INKP IJ % % 0.6% 14.4% 5.5% 13.4% 23.0% INTP IJ % % 0.6% 14.0% 6.4% 2.7% 15.3% BMRI IJ % % 1.0% 37.6% 16.3% 7.7% 17.5% BBRI IJ % % 2.0% 34.5% 15.5% 7.7% 18.2% BBCA IJ % % 3.1% 36.6% 12.4% 5.7% 22.3% ASII IJ % % 3.2% 35.4% 19.5% 9.3% 18.1% Source: 4 Coal Houseware The Journal Mining - Sector WOOD 12 November 2319 January September

5 Widening current account deficit (CAD) in 3Q18. Bank Indonesia (BI) released Indonesia s 3Q18 CAD which reached US$ 8.8bn or 3.37% to GDP, widened from 3.02% in the previous quarter. Cumulatively, this brings Indonesia s 9M18 CAD to 2.86%, which is slightly below of 3% borderline. Rising current account deficit was mainly due to lower 20% performances of current account for both goods and services. In 3Q18, Indonesia saw a deficit of US$ 0.4bn in the goods side, from a surplus of US$ 0.3bn in 2Q18. This was mainly on higher deficit 16% in oil and gas (migas) section, as oil import reached US$ 7.3bn, up by 12.1% QoQ deriving from higher volume and oil price 66% (US$ 76.6/barrel vs US$ 73.2/barrel in 2Q18). Meanwhile, current account deficit from services was posted at US$ 2.2bn vs US$ 1.9bn in 2Q18. High CAD figures normally lift up risk level, which means more capital outflow. However, recent strong money flow to bonds could strengthen Rupiah and minimize currency volatility. Furthermore, we expect CAD to improve on the back of better trade balance and lower oil price. The import tax adjustment implemented in early Sept 18 should better reflect in moderate import growth in the upcoming quarters, while the recently gradual oil price decline should also pull down the deficit in oil and gas section. Widening CAD in 3Q % -0.50% -1.00% -1.50% -2.00% -2.50% acquisition anymore. Based on the information from investor relation of TLKM, currently government is working on a new regulation to set guidance on tariff gap between starterpacks and reload packages with price of reload packages must be lower than starter packs to encourage sustainable customer shift to reload/renewal packages. Doing so would help prevent the industry from returning to starterpackheavy sales model lead to a lower churn rates and achieve the efficiency objectives as set by the existing prepaid SIM card registration policy Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2Q18 3Q18 Current Account Deficit (USD Bn) CAD to GDP -3.00% -3.50% -4.00% -4.50% -5.00% Potential surge in data pricing on welcoming festive season. After the recent price wars caused by the SIM card regulation, we expect there will be an increase in data pricing considering that the price wars is beginning to subside and the implementation of SIM regulation would reduce the potential price war in the Source: Bank Indonesia, Sinarmas Investment Research Expecting a correction in Indonesian bonds. For the past two weeks, Indonesia s bond market has rallied. Yield on the nation s 10- year bonds dropped to the lowest level at 7.99% on 8 November 2018 (-70 bps from its 26 October 2018 high). The rally was mainly driven by the Rupiah strengthening (+3.5% in the past 2-weeks), limited Q4 bonds supply, and attractive real yield compared to other EM peers. This results in a net buy of IDR 15.6tn since 26 October 2018 from foreign investors, which led to a total of IDR 878.7tn foreign outstanding ownership in ID Government bonds (second highest compared to position of IDR 880tn 40,304 in Jan-18). From the supply-side, the government only needs to issue new bonds amounting to ~IDR 15tn to achieve this year s target as it has already completed 91% of target issuance (IDR 368tn of IDR 383tn target). Therefore, the market expects 1-2 bond auctions left until end of year However, going forward we expect a short-term correction in the domestic bond market as the spread between US Treasury-yield and ID Government bondsyield has moved below its 8-years average (503 bps), which has lessened the attractiveness of our bonds. In addition to that, we view future. Source: Furthermore, based on our meeting with Investor Relation, there is an indication that 5 Coal The Journal Mining Sector 12 November 23 January

6 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 that the forecasted FFR hike in December will attribute to stronger DXY and higher US Treasury-yield, thus leading to more pressure towards our currency. ID 10Y vs US 10Y 20% % Source: Bloomberg, Sinarmas Investment Research Yield Spread Average -1Std +1Std Foreign Ownership in Indonesia Bonds Market Source: Bloomberg, Sinarmas Investment Research close, Democrats took control of the House of Representative (HoR) Democrats being able to block proposed legislation before it can reach 40,304 Midterm election conclusion. As the midterm election came to a and Republicans kept the Senate. This outcome translates to the Senate and exposes Trump to the possibility of an impeachment, despite the unlikelihood of the Republican-controlled Senate voting for it. What s in store for the Rupiah? The Democrat-ruled HoR sets the stage for potentially no new tax cuts, which in turn will lower growth expectation. This leads to potentially lesser than previously forecasted rate hikes by the Fed, which was previously stated at 1 more in 2018, in 2019, and 1 in Thus, a certain degree of pressure on Rupiah has been alleviated in the near term as the dollar weakens. Source: 6 Coal The Journal Mining Sector 12 November 23 January

7 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 All eyes on the Fed and trade war. With one source of uncertainty out of the way, the focus now shifts to the Fed s future rate hike decision and U.S. China Revenue trade Share(%) relations. Trump s loss of control of the House might result in the President dialing up the pressure on China even further. It remains to be seen as to how the standstill will progress during 20% the G20 meeting where President Trump is scheduled to meet with President Xi Jinping, which might be the tipping stone for U.S. growth outlook that affects the Fed s rate hike decision, which ultimately either 16% removes or add pressure to the Rupiah. USDIDR Exchange Rate Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Source: Bloomberg, Sinarmas Investment Research USDIDR acquisition anymore. Based on the information from investor relation of TLKM, currently government is working on a new regulation to set guidance on tariff gap between starterpacks and reload packages with price of reload BI 7DRRR vs Fed Rate BI 7DRRR Source: Bloomberg, Sinarmas Investment Research Fed Rate Crude oil plunge into bear market. In the past 2 weeks, crude oil has plunged by more than 10.5%, trading at just below the USD 60 per barrel mark, the lowest level 40,304 since March 2018 as global supply increased and worry on fuel demand from lower economic growth and trade wars impact. Oil price peaked in October on concerns that US sanction on Iran will lead to supply shortage. However, big producers such as Saudi Arabia, Russia and U.S. have increased output steadily, more than enough to compensate the lost of Iranian barrels. The big 3 nations are currently pumping oil at a record high with combined total output of 33.5 million barrels per day. In addition, U.S. has also granted a waiver to Iran s biggest buyer, allowing them to buy limited packages must be lower than starter packs to encourage sustainable customer shift to reload/renewal packages. Doing so would help prevent the industry from returning to starterpackheavy sales model lead to a lower churn rates and achieve the efficiency objectives as set by the existing prepaid SIM card registration policy. Source: Potential surge in data pricing on welcoming festive season. After the 7 Coal The Journal Mining Sector 12 November 23 January

8 amounts of oil for at least another six months. This gave downward pressure for oil prices. In response to US waivers, local news stated that OPEC and its allies Revenue are considering Share(%) to cut oil production by up to 1 million barrel per day to prevent further oil price slide. Despite no official statement has been given, this could potentially give upward pressure to oil price. We view oil price volatility will persist in the next few trading days 20% given the lack of clarity on demand supply direction in the near term. Rising oil production 16% lead to lower price Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 US Arab Saudi Russia Oil price Source: IEA, Bloomberg, Sinarmas Investment Research acquisition anymore. Based on the information from investor relation of TLKM, currently government is working on a new regulation to set guidance on tariff gap between starterpacks and reload packages with price of reload packages must be lower than starter packs to encourage sustainable customer shift to reload/renewal packages. Doing so would help prevent the industry from returning to starterpackheavy sales model lead to a lower churn rates and achieve the efficiency objectives as set by the existing prepaid SIM card registration policy. Potential surge in data pricing on welcoming festive season. After the 40, recent Source: price wars caused by the SIM card regulation, we expect there will be an increase in data pricing considering that the price wars is 8 Coal The Journal Mining Sector 12 November 23 January

9 DISCLAIMER This report has been prepared by PT Sinarmas Sekuritas, an affiliate of Sinarmas Group. This material is: (i) created based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such; (ii) for your private information, and we are not soliciting any action based upon it; (iii) not to be construed as an offer to sell or a solicitation of an offer to buy any security. Opinions expressed are current opinions as of original publication date appearing on this material and the information, including the opinions contained herein, is subjected to change without notice. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. The analyst(s) responsible for the preparation of this publication may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, integrating and interpreting market information. Research will initiate, update and cease coverage solely at the discretion of Sinarmas Research department. If and as applicable, Sinarmas Sekuritas investment banking relationships, investment banking and non-investment banking compensation and securities ownership, if any, are specified in disclaimers and related disclosures in this report. In addition, other members of Sinarmas Group may from time to time perform investment banking or other services (including acting as advisor, manager or lender) for, or solicit investment banking or other business from companies under our research coverage. Further, the Sinarmas Group, and/or its officers, directors and employees, including persons, without limitation, involved in the preparation or issuance of this material may, to the extent permitted by law and/or regulation, have long or short positions in, and buy or sell, the securities (including ownership by Sinarmas Group), or derivatives (including options) thereof, of companies under our coverage, or related securities or derivatives. In addition, the Sinarmas Group, including Sinarmas Sekuritas, may act as market maker and principal, willing to buy and sell certain of the securities of companies under our coverage. Further, the Sinarmas Group may buy and sell certain of the securities of companies under our coverage, as agent for its clients. Investors should consider this report as only a single factor in making their investment decision and, as such, the report should not be viewed as identifying or suggesting all risks, direct or indirect, that may be associated with any investment decision. Recipients should not regard this report as substitute for exercise of their own judgment. Past performance is not necessarily a guide to future performance. The value of any investments may go down as well as up and you may not get back the full amount invested. Sinarmas Sekuritas specifically prohibits the redistribution of this material in whole or in part without the written permission of Sinarmas Sekuritas and Sinarmas Sekuritas accepts no liability whatsoever for the actions of third parties in this respect. If publication has been distributed by electronic transmission, such as , then such transmission cannot be guaranteed to be secure or error-free as information could be intercepted, corrupted, lost, destroyed, arrive late or incomplete, or contain viruses. The sender therefore does not accept liability for any errors or omissions in the contents of this publication, which may arise as a result of electronic transmission. If verification is required, please request a hard-copy version. Additional information is available upon request. Images may depict objects or elements which are protected by third party copyright, trademarks and other intellectual properties. Sinarmas Sekuritas(2018). All rights reserved.