More on consumption
Three data points to support upbeat outlook on Indonesia consumption
These data points are: better-than-expected unemployment data including Q109; increased M&A activity in Indonesian domestic companies; and continued growth in corporate capex spending in Q109. We selected three main consumption plays: Astra International (Astra), Bakrieland, and Media Nusantara Citra.
Astra International
Astra is our top pick. Its valuation looks attractive for domestic consumption exposure at 10x 2010E PE. The UBS 2010 forecast is 13% above consensus on better sales growth in the auto business. The company should also be the main beneficiary of a declining JIBOR rate, which could translate into a lower consumer lending rate.
Bakrieland
We pick Bakrieland for four reasons: 1) lower governance risk with an independent private equity firm as a majority shareholder; 2) lower mortgage rates which will likely boost its residential sales; 3) the completion of its toll road project; and 4) potential deregulation allowing foreigners to buy strata-title apartments post elections. Its balance sheet is strong with gearing of only 4%.
Media Nusantara Citra
Our last consumption selection is Media Nusantara Citra because of: 1) attractive low penetration of ad spend; 2) the ability of the company to regain the number one position in market share in 2009; and 3) valuation of 7x 2010E PE for a company that controls 30% of the TV ad spend share in Indonesia. A significant shareholder has also increased its stake in the company in recent years.
Tampilkan postingan dengan label Indonesia Market Strategy. Tampilkan semua postingan
Tampilkan postingan dengan label Indonesia Market Strategy. Tampilkan semua postingan
Selasa, 30 Juni 2009
Minggu, 24 Mei 2009
JP Morgan - Indonesia Market Strategy
Indonesia: Election momentum
Issues over the last 12 months
The combination of the reversal in commodity prices and strong imports during 2HFY08 moved the current account into a deficit, bringing unwelcome memories of the crisis, by pressuring the currency and bringing macroeconomic stability under the scanner. Bank Indonesia has cut the policy rate by 225bps since November, and rates in the economy are still declining. Based on a healthy recovery in the Balance of Payments
position, the currency has recovered significantly over the last 2 months. The April 9th parliamentary election went off smoothly, with quick counts pointing to a lead position for president SBY’s Partai Democrat, strengthening his bid for re-election in July.
Outlook
The reassurance of increasing foreign reserves and a surprise return to a current account surplus in 1QFY09 should offset any renewed pressures from global risk aversion on the Rupiah. While growth is still a concern, Indonesia’s large domestic demand base, and its lack of reliance on external capital flows mean that the economy is slated to grow in FY09 (J.P. Morgan estimate: 3.5%). In April, upwards revisions to earnings have matched downgrades for the first time since October, suggesting expectations have declined adequately. 1Q results were largely healthy – with strong performance from some large caps opening up the possibility of upward revisions to earnings in coming weeks, which should be supportive of further upside to equities. We see lending rates in the economy still remaining somewhat sticky, and funding costs are likely to decline further over the next couple of quarters. We believe that markets are now discounting the likelihood of the presidential election being completed in a single round (i.e. a simple majority) and if the elections were to go to a second round run-off - it may prompt a corrective move.
Recommendations
Our preferred stock among banks has been Bank Rakyat, BRI’s 1Q results stood out among the banks, addressing several recent concerns, as we see it as the one of the main channels for stimulus initiatives later in the year. We believe that Astra International is well positioned for investors looking to play an eventual recovery, and possibly offers the possibility of PE expansion during a recovery. We recommend Indofood as a potential beneficiary from consumer purchasing power and prospects could receive a boost from the recovery underway in palm oil prices. We have recently downgraded Unilever Indonesia to an underweight, believing that its strengths are well captured in the price and as defensives rotate out of fashion, it is likely to underperform.
Issues over the last 12 months
The combination of the reversal in commodity prices and strong imports during 2HFY08 moved the current account into a deficit, bringing unwelcome memories of the crisis, by pressuring the currency and bringing macroeconomic stability under the scanner. Bank Indonesia has cut the policy rate by 225bps since November, and rates in the economy are still declining. Based on a healthy recovery in the Balance of Payments
position, the currency has recovered significantly over the last 2 months. The April 9th parliamentary election went off smoothly, with quick counts pointing to a lead position for president SBY’s Partai Democrat, strengthening his bid for re-election in July.
Outlook
The reassurance of increasing foreign reserves and a surprise return to a current account surplus in 1QFY09 should offset any renewed pressures from global risk aversion on the Rupiah. While growth is still a concern, Indonesia’s large domestic demand base, and its lack of reliance on external capital flows mean that the economy is slated to grow in FY09 (J.P. Morgan estimate: 3.5%). In April, upwards revisions to earnings have matched downgrades for the first time since October, suggesting expectations have declined adequately. 1Q results were largely healthy – with strong performance from some large caps opening up the possibility of upward revisions to earnings in coming weeks, which should be supportive of further upside to equities. We see lending rates in the economy still remaining somewhat sticky, and funding costs are likely to decline further over the next couple of quarters. We believe that markets are now discounting the likelihood of the presidential election being completed in a single round (i.e. a simple majority) and if the elections were to go to a second round run-off - it may prompt a corrective move.
Recommendations
Our preferred stock among banks has been Bank Rakyat, BRI’s 1Q results stood out among the banks, addressing several recent concerns, as we see it as the one of the main channels for stimulus initiatives later in the year. We believe that Astra International is well positioned for investors looking to play an eventual recovery, and possibly offers the possibility of PE expansion during a recovery. We recommend Indofood as a potential beneficiary from consumer purchasing power and prospects could receive a boost from the recovery underway in palm oil prices. We have recently downgraded Unilever Indonesia to an underweight, believing that its strengths are well captured in the price and as defensives rotate out of fashion, it is likely to underperform.
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