Indonesia Market Outlook Weekly 2H17 Brief (August 06 10)

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1 NH Korindo Research NH 해외주식 인도네시아 Indonesia Market Outlook Weekly 2H17 Brief (August 06 10) Summary: Last week JCI ended flat. After tumbling on Tuesday, 07/31/18, JCI succeeded to rally at around 6,000 backed by July s controlled inflation. On the other side, the upward core inflation indicates the recovery in domestic consumption. Investors also eyed on the Indonesian government holding firmly the domestic market obligation (DMO) policy of coal industry. The Indonesian government curbs imports to limit the widened current account. This week investors likely eye on the release of Indonesia s 2Q18 GDP growth. Bank Indonesia (BI) estimates GDP to grow at the range of 5.2%-5.3% higher than the 1Q18 s growth of 5.06%. Another to the release of GDP, investors likely digest the release of July s consumer confidence index (CCI). In June 2018, CCI soared to its all-time high of The release of these two macroeconomic data indicates that the recovery in domestic consumption is ongoing. We recommend two stocks correlated with domestic consumption, namely INDF which is an integrated food and beverages producer, and SCMA which is a TV operator with the major revenues deriving from the ads. service of food and beverages. JCI - one month JCI - one year 1

2 Last Week s Recap Jakarta Composite Index (JCI) : 6, (+0.31%) Foreign Investor : net buy of IDR1.1 trillion (Vs previous week s net buy of IDR1.7 trillion) USDIDR : 14,498 (+0.56%) 10-year Government Bond Yield : 7.825% (+7.7 bps) July s Lagging Inflation Last week s the Central Statistics Agency released July s inflation of 0.28% m-m lagging compared to June s inflation of 5.9% m-m. July s yearly inflation was at 3.18% flatter than June s yearly inflation of 3.12%. It shows that the Indonesian s government succeeded to control a stable inflation. In contrast, the core inflation reached 2.87% all-time high since the early of Such backdrop indicates the recovery in the domestic consumption. To Remain Firm on DMO President Joko Widodo held a meeting with 17 state officers in Bogor Palace. The agenda for the meeting was the plan to revoke domestic market obligation (DMO); the meeting resulted in remaining firm on implementation of DMO policy. The decision was taken after a careful consideration of expense state-owned electricity company (PLN) would have borne if the DMO had been revoked. Thus, the Indonesian s government likely focuses on curbing import than revoking DMO with a view to minimized the risks of widening current account deficit. Global Equity Market Sector Index Source: Bloomberg, NH Korindo Research Source: Bloomberg, NH Korindo Research 2

3 This Week s Outlook 2Q18 s GDP Growth The Central Statistics Agency will release the GDP growth on Monday, 08/06/2018. The 1Q18 GDP grew by 5.06% y-y higher than the 1Q17 GDP of 5.01%. Bank Indonesia (BI) estimates that the 2Q18 s GDP growth is at the range of 5.2% - 5.3% higher than the prior quarters GDP. The upbeat GDP growth is likely backed by the growth of 5% in consumption after the 1Q18 s growth only hit 4.95%. The growth in the 2Q18 s consumption was backed by the trend of hiking consumption in fasting month and Idul Fitri as well as a stable inflation. On the other side the 2Q18 s GDP growth is likely bolstered by the consistent growth of higher than 7% in investment as of mid Consumer Confidence Index July s consumer confidence index (CCI) will be released on Monday, 08/06/2018. June s CCI was at 128.1, the all-time high. In February 2018, CCI declined to 121.6, yet it hiked further level to the recovery in domestic backdrop. We oversee that CCI is likely upbeat further in July 2018 amid the government s concerted commitment to maintaining goods prices. We estimate JCI to rally with the range of The positive sentiment of the 2Q18 s GDP growth and consumer confidence index likely boost investors confidence of JCI s prospect. Indonesia GDP Growth (y-y) Indonesia Consumer Confidence Index Source: Bloomberg, Indonesia Statistics, NH Korindo Research Source: Bank Indonesia, NH Korindo Research 3

4 Indofood Sukses Makmur (INDF Consumer Staple) Dec 2018 TP 8,175 Consensus Price 8,482 TP to Consensus Price -3.6% vs. Last Price 28.2% Last Price (IDR) 6,375 Price date as of Aug 03, wk range (Hi/Lo) 8,750 / 6,075 Free Float (%) 49.9 Outstanding sh. (mn) 8,780 Market Cap (IDR bn) 55,975 Market Cap (USD mn) 3,856 Avg. Trd Vol 3M (mn) 7.80 Avg. Trd Val 3M (bn) Foreign Ownership 98.7% Revenue Breakdown: Consumer Branded Products 54.4% Flour Division 41.2% Agribusiness 4.4% IDR bn FY2016 FY2017 FY2018E FY2019E Sales 66,750 70,187 74,313 80,492 y-y 4.2% 5.1% 5.9% 8.3% EBITDA 10,614 10,436 11,615 13,231 Net profit 4,145 4,139 4,593 5,269 EPS (IDR) y-y 39.6% -0.1% 11.0% 14.7% NPM 6.2% 5.9% 6.2% 6.5% ROE 9.5% 9.1% 9.6% 10.4% P/E 16.8x 16.2x 12.2x 10.6x P/BV 1.6x 1.4x 1.1x 1.1x Inclining Sales-Yet-Declining Profit INDF s sales inclined by 3.1% y-y from IDR17.81 trillion in 2Q17 to IDR18.36 trillion in 2Q18, yet its net profit declined by 30.5% y-y from IDR124 billion in 2Q17 to IDR86 billion in 2Q18. It was attributable to the operating margin of 4.9% in 2Q17 to 3.0% in 2Q18 suppressing the agribusiness division. CPO s prices declining by 30% from IDR11.250/kg in January 2017 to IDR8,700/kg in August 2018 was the logical takeaway for the constrained margin of the agribusiness division. Meanwhile, the Consumer Branded Product (CBP) division providing the biggest contribution of 52% to the total sales succeeded to maintain the operating margin at around 13.1%-13.6%. Recovery in Operating Profit We estimate INDF s operating profit to recovery in 2H18 as the CBP division produces premium products with higher margin. The CBP division dominates 70% instant noodle market share in Indonesia; therefore, controlling selling price and targeting middle to high-income class are easy to perform. Besides, we estimate that CPO prices will be rebound due to B20 mandatory use. Now, the CPO prices are at 10% low er than 8-year average prices. Higher-than-Estimated-Consensus Growth The consensus estimated that INDF s net profit likely edges up 7.6% in 2018 and surges high 8.5% in We estimate that INDF s growth likely tops the estimated consensus as the demand for domestic retail is high and CPO s prices keep the potential for rebound. Share Price Performance Operating Profit Growth y-y 4

5 Surya Citra Media (SCMA TV Media) Dec 2018 TP 2,700 Consensus Price 2,694 TP to Consensus Price +0.2% vs. Last Price +33.7% Last Price (IDR) 2,020 Price date as of Aug 03, wk range (Hi/Lo) 2,980 / 1,935 Free Float (%) 39.1 Outstanding sh. (mn) 14,622 Market Cap (IDR bn) 29,536 Market Cap (USD mn) 2,035 Avg. Trd Vol 3M (mn) Avg. Trd Val 3M (bn) Foreign Ownership 20.2% Revenue Breakdown: Revenue from Advertising 97.5% Other Revenues 2.5% Re-Affirm its Position as All-Time Segment Leader SCMA with its two free-to-air (FTA) TV stations, namely SCTV and IVM succeeded to become the market leader of the all-time segment, after leaving behind MNCN since December Compared to its 1H17 s performance, its 1H18 s all-time audience share performance edged up 17.7%. The rosier audience share was backed by its 3 popular local-soap operas such as Orang Ketiga, Anak Langit, serta Siapa Takut Jatuh Cinta, produced by its subsidiary: Sinemart. The Number of Holidays Suppressing Revenues SCMA s posted the decline of 6.3% y-y to IDR1.32 trillion in the 2Q18 s net revenues. Idul Fitri festive occurred in the middle of June causing the prolonged holidays in June 2018 compared to the holidays in June 2017 was a factor to such decline. However, on the quarter basis, the 2Q18 s net revenues edged up by 14.3% compared to the 1Q18 s net revenues. Besides, the hike of 26.6% y-y in the 1H18 s airing program expense of Indosiar Visual Mandiri (IVM) suppressed margin. To Reap from Asian Games Momentum However, we project that its 3Q18 performance likely hikes significantly compared to its 3Q17 performance. The outperformance was backed by the momentum of Asian Games to be held on August 18th to September 2nd and SCMA s upbeat audience share ahead of 3Q18. Additionally, the ads. revenue was also boosted by the ads. postponement due to the long holidays prior to Idul Fitri. IDR bn FY2016 FY2017 FY2018E FY2019E Share Price Performance All Time Audience Share by Group Jan 17 - Jul 18 Revenue 4,524 4,454 4,987 5,412 y-y 6.7% -1.6% 12.0% 8.5% EBITDA 2,140 1,969 2,173 2,391 Net profit 1,503 1,331 1,582 1,721 EPS (IDR) y-y -1.6% -11.4% 8.0% 8.8% NPM 33.2% 29.9% 31.7% 31.8% ROE 42.2% 32.8% 34.0% 33.4% P/E 27.2x 27.2x 21.7x 20.2x P/BV 11.0x 8.2x 6.7x 6.1x 5

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