NH Korindo Research Indonesia Market Outlook Weekly 2H17 Brief (July 30 August 03) Summary: JCI closed higher by 1.98% last week underpinned by the rupiah appreciation until this week s last trading session. Thanks to BI s intervention in the forex market and the re-introduction of central bank certificates (SBI), and global market s positive sentiments such as the subdued tensions of the U.S.-EU and China s authority to enact the expansive fiscal policy. This week investors eye on the plan of the termination of domestic market obligation (DMO) coal supply to the state-owned electricity firm (PLN). The plan is considering the possibility of the DMO cancellation capable of boosting coal export value beefing up forex reserves and reducing trade balance deficit. We recommend ACES s stocks in light of its upward performance underpinned by its expansive strategy in launching new s tores. Of note, until the mid of 2018, it has launched 10 new stores with a view to boosting sales. Another to ACES, HMSP is also a top pic stock amid the upward prevalent number of smokers in Indonesia. JCI - one month JCI - one year 1
Last Week s Recap Jakarta Composite Index (JCI) : 5,989.14 (+1,98%) Forex Investors : net buy of IDR1,716 billion (vs. last week s net sell of IDR785 billion) USDIDR : 14,417 (-0.54%) The government bond yield with 10-year tenor : 7.748% (-13.1 bps) Rupiah Retouching All-Time High Since October 2015 BI s last week stance of holding its benchmark rates unchanged impacted on the depreciated rupiah tumbling to 14,564, the all-time high since October 2015. Although it touched the all-time high on July 24 th, rupiah was re-appreciated until this week s last trading session. The rupiah appreciation was underlined by BI s intervention in forex market, reintroducing central bank certificates (SBI), and global market s positive sentiments such as the subdued tension of the U.S. EU and China s authority to enact the expansive fiscal policy. Banking Credit to Grow by 10.75% in June Based on the Financial Service Authority (OJK), in June 2018, the banking credit surged by 10.75% y-y higher than May s growth of 10.26% y-y. The growth evidenced the well managed performance of the financial intermediaries sector amid the volatile global economic backdrop suppressing the domestic financial market. Global Equity Market Sector Index 2
This Week s Outlook Plan to Revoke DMO to PLN The minister of Coordinating Maritime Affairs Luhut Binsar Pandjaitan plans to revoke domestic market obligation (DMO) and discuss it on the meeting dated July 31, 20 18. The plan considers the DMO cancellation likely boosts the coal export prices, beefs up forex reserves, and reduce trade balance deficit. If the plan is approved, funds allocated for energy reserve subsidizing state-electricity firm (PLN). The funds does not derive from the state budget, but it derives from the Indonesia Oil Palm Estate Fund (BPDP). July s Inflation The Central Statistics Agency (BPS) releases July s inflation data on Wednesday, 08/01/2018. June s inflation was at 3.12% lower than May s inflation of 3.2%. The inflation figures were still at the range of BI s inflation target of 2.5%-4.5%. The controlled inflation allows BI to focus more on stabilizing rupiah s exchange rate amid the pres -sure deriving from the volatile global economy. We estimate JCI to be rally with the range of 5975-6100. The positive sentiment derives from the well-controlled inflation and the government s concerted efforts to reduce trade balance deficit by revoking DMO to PLN. Australia Newcastle Port Thermal Coal 6000kcal/kg FOB Spot Price Indonesia Inflation Rate YoY (%) 3
Ace Hardware Indonesia (ACES Home Improvement Retailer) Dec 2018 TP 1,575 Consensus Price 1,533 TP to Consensus Price +2.7% vs. Last Price +18.4% Last Price (IDR) 1,330 Price date as of Jul 26, 2018 52wk range (Hi/Lo) 1,410 / 1,030 Free Float (%) 40.0 Outstanding sh. (mn) 17,150 Market Cap (IDR bn) 23,238 Market Cap (USD mn) 1,608 Avg. Trd Vol 3M (mn) 6.1 Avg. Trd Val 3M (bn) 7.7 Foreign Ownership 26.9% Revenue Breakdown: Home Improvement Products 54.4% Lifestyle Products 41.2% Others 4.4% IDR bn FY2016 FY2017 FY2018E FY2019E Net sales 4,936 5,939 6,760 7,409 y-y 4.1% 20.3% 13.8% 9.6% EBITDA 952 1,044 1,231 1,348 Net profit 711 778 911 1,006 EPS (IDR) 41 45 53 59 y-y 20.8% 9.4% 17.2% 10.4% NPM 14.4% 13.1% 13.5% 13.6% ROE 25.0% 23.7% 24.1% 23.3% P/E 20.2x 25.5x 22.2x 20.1x P/BV 4.7x 5.6x 5.0x 4.4x Further Rosier Performance ACES succeeded to post the 1H18 s fantastic growth performance by posting the sales of IDR3.27 trillion (+19.8% y-y). The growth was underpinned by the expansive strategies of launching new stores. Of note, until the mid of 2018, it has launched 10 new stores in order to bolster its sales higher. Its outperformance was also attributable to the monthly new and different marketing programs. Not-Yet Impacted by Depreciated Rupiah The depreciated rupiah against USD as of early-2018 inevitably has significant impacts on ACES because most of its inventories are imported goods. However, it makes most use of the hedging facility to minimize the impact of depreciated rupiah. In the early of July, its management stated that ACES is less likely to increase selling prices, but it eyes on rupiah movement. Besides, in light of its performance of 2015 when rupiah was depreciated further, its gross margin performance is still likely maintainable. Share Price Performance Quarterly Net Sales 4
Hanjaya Mandala Sampoerna (HMSP- Cigarette) Dec 2018 TP 4,575 Consensus Price 4,311 TP to Consensus Price +6.1% vs. Last Price +19.1% Last Price (IDR) 3,840 Price date as of Jul 26, 2018 52wk range (Hi/Lo) 5,500/3,280 Free Float (%) 7.5 Outstanding sh. (mn) 116,318 Market Cap (IDR bn) 447,825 Market Cap (USD mn) 30,987 Avg. Trd Vol 3M (mn) 23.63 Avg. Trd Val 3M (bn) 86.12 Foreign Ownership 99.3% Revenue Breakdown: SKM 69% SKT 20% SPM 11% IDR bn FY2016 FY2017 FY2018E FY2019E Revenue 95,467 99,091 106,283 113,216 y-y 7.2% 3.8% 7.3% 6.5% EBITDA 16,745 16,696 16,992 18,064 Net profit 12,762 12,671 12,911 13,718 EPS (IDR) 110 109 111 118 y-y 23.1% -0.7% 1.9% 6.2% NPM 13.4% 12.8% 12.1% 12.1% ROE 37.3% 37.1% 37.3% 38.5% P/E 34.9x 43.4x 34.7x 32.6x P/BV 13.0x 16.1x 12.9x 12.6x Steep Growth of Indonesia-Based Cigarette Market Share The number of smokers in Indonesia beefed up 1.4% from 34.9% in 2016 to 36.6% in 2017. The phenomenon was in reverse of the whittling away number of smokers in other countries. The Indonesia-based cigarette market share dominates around 5.6% of the total smokers in Indonesia. Indonesia is the world s second most cigarette consumptive after China. Indonesia as the world s fourth most populous nation with big market share is a lucrative market for the cigarette industry. Increment of HMSP s Market Share HMSP is a persistently top pick stocks because of its success in beefing up its market share from 33.0% in 1Q17 to 33.2% in 1Q18. The increment in its market share was underpinned by the sale outperformance of Marlboro Filter Black and Dji Sam Soe Magnum Mild the pioneers of light flavor machine-rolled cigarette (SKM) launched in May 2017. 1Q18 s Suppressed Profit Margin HMSP posted the growth of 2.5% in sales from IDR22.5 trillion in the 1Q17 sales into IDR23.1 trillion in the 1Q18 sales. However, its net profit edged down by 8% from IDR 3.29 trillion in 1Q17 into IDR3.03 trillion in 1Q18. The hike of 11% in excise duties imposed on cigarette was the logical takeaway for the decline in profit growth because the soaring excise duties resulted in the soaring portion of excise duties to sales from 45% in 1Q17 into 51% in 1Q18. Share Price Performance HMSP Market Share 5
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