Indonesia: Premier Insight - SMGR Forecast That The Oversupply Condition Will Persist Until 2023

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1. Premier Insight 10 April 2018 News & Analysis Corporates 12,000 6,500 10,000 6,400 6,000 Rp bn JCI Index 8,000 6,300 6,200 4,000 6,100 2,000 6,000 9-Apr 6-Apr 5-Apr 4-Apr 3-Apr 2-Apr 29-Mar 28-Mar 27-Mar 26-Mar 23-Mar 22-Mar 21-Mar 20-Mar 19-Mar 16-Mar 15-Mar 14-Mar 9-Mar 13-Mar 8-Mar - 12-Mar 5,900 5% - 0% 11-Jan 6-May 0 (0) -5% (0) -10% (0) -15% (0) -20% % net buy/market turnover Foreign net buy (sell) Net buy (sell) in Rp bn Equity | Indonesia | Research Daily JCI Index 6,600 JCI LQ45 DJI Closing 6,246 1 day 1 year YTD 1.2% 10.7% -1.7% 1,022 1.4% 9.4% -5.3% 23,979 0.2% 16.1% -3.0% -0.1% SET 1,751 0.7% 10.8% HSI 30,230 1.3% 24.6% 1.0% NKY 21,678 0.5% 15.3% -5.1% FTSE 7,195 0.2% -2.1% -6.4% FSSTI 3,450 0.2% 8.4% 1.4% 27 1.4% 3.1% -5.2% EIDO Commodity price Commodities Last price Ret 1 day Ret 1 year (in USD) Oil/barrel (WTI) 63.4 2.2% CPO/tonne 637.7 -1.6% -7.4% Soy/bushel 10.2 1.1% 10.5% Rubber/kg 21.4% 1.7 0.0% -43.7% Nickel/tonne 13,390 1.3% 32.3% Tins/tonne 21,220 0.6% 4.7% Copper/tonne 6,790 0.9% 17.1% Gold/try.oz (Spot) 1,336 0.2% 6.5% 94.2 0.3% 6.8% Coal/tonne Corn/bushel Wheat/bushel (USd) WSBP: Waskita Beton Precast (WSBP IJ; Rp440; Buy) is currently in due diligence for the acquisition of iron and steel manufacturing company. The acquisition would ensure the availability of raw materials as well as providing production efficiency by decreasing operating expense by 5%. WSBP would use the fund from MTN issuance of Rp2-3tn in 2H18 to fund the acquisition. (Investor Daily). Comment: We believe the acquisition would positively impact WSBP, as the acquisition is expected to decrease opex by 5%. In addition, the MTN issuance would not negatively impact WSBP, as the company’s DER is still low at 0.68x. Markets & Sector Key Indexes Index SMGR: Semen Indonesia (SMGR IJ; Rp10,325; Hold) forecast that the oversupply condition will persist until 2023. Their assumption was based on the installed capacity stood at level 100mn ton/annum and domestic demand consumption growth of some 6%/annum. Also, the company cancel its plan to acquire Madina Cement Industries (cement player from Bangladesh) due to negative sentiment on the sector still looming. (Kontan). 3.7 0.6% 7.7% 489.3 -0.3% 14.1% Automotive sector: According to Indonesian Motorcycles Association (AISI), domestic motorcycle sales in 1Q18 increase 4% yoy to 1.45Mn units, this is due to the increasing commodity prices thus making an economy recovery. Motorcycles sales itself in March is increase 23% from previously 478K units to 588K units. Scooter still dominates, grab 81% of the total, this followed by Sport for 9.98%, and Cub for 8.75%. Honda remains the dominant player grab 73.3% of the total sales in 1Q18. Although last year motorcycle sales are not improving, this year, the association expects the motorcycle sales by 1%. (Investor Daily). Infrastructure sector: Government is currently reviewing its Tax Holiday policy, which will likely involve companies that develop economic infrastructure, as well as for projects with government-private partnership (KPBU) schemes. According to head of fiscal policy agency (BKF), Rofianto Kurniawan, there also possibilities for toll road investors to gain tax holiday, by considering several factors such as economic impact, project location, and the attractiveness of the project. (Investor Daily). Comment: We are still neutral on the news as the policy remains unclear and being reviewed. However, the implementation of tax holiday to toll road investors would bring a positive catalyst for SOE contractors which have toll roads investment. Source : Bloomberg Oil and gas sector: The government will regulate the selling price of nonsubsidized fuel in the near future. The government stated that this intervention is aimed to control inflation and to improve purchasing power. Further, the government will revise the floor and ceiling margin for fuel price where previously it is stated that the floor and ceiling margin is around 5 & 10% from base price. Going forward, the government will remove the floor margin but will alter the ceiling margin. (Investor Daily) Comment: This is potentially a bad news for AKR Corporindo (AKRA IJ; Rp5,525; Not Rated) (72% of AKRA’s revenue contributed by petroleum distribution) as there is possibilty that government will revise down the ceiling margin. Refer to Important disclosures in the last page of this report
2. PremierInsight Retail sector : Indonesian Retailer Association (Aprindo) sees a higher sales target growth of 25%-30% (2017: 15%-20%) on Ramadan and Eid Al-Fitr this year. This optimism is driven by three catalysts. First, the momentum come from regional election (Pilkada) on June 2018 that usually boosts retail transaction, especially several consumption and apparel goods. Second, the recovery of several commodity goods (coal and CPO) enhances productivity and consumption should ensue. Third, the disbursement of village fund (dana desa) and increasing infrastructure project are hoped to kick off some positive effects on several consumption goods. Meanwhile, several retailers have loaded stocks to anticipate the peak of Ramadan and Eid Al-Fitr that is expected to happen on D-14 and D+7. Meanwhile, Aprindo also guides modern retail transaction growth of 7%7.5% (2017: 3.65%) this year to Rp225tn. (Bisnis Indonesia). Economic Fuel price: The government will soon launch a regulation that shall revise (or change) existing regulation on the supply, distribution, and retail pricing of fuel. The new regulation would allow the government to decide on whether retailers may or may not change any fuel price. It is expected that by doing so, inflation would be contained. (Jakarta Globe, Detik). Comment: We believe this news has created both positive and negative impacts. On the negative front, this would limit Pertamina’s flexibility to adjust nonsubsidised fuel prices, including Pertalite (whose margin is, by regulation, capped at 5-10%), which has lately become the concern of energy and mineral resources Ignasius Jonan. This would be negative as well for the market and international audience, as the current subsidy scheme was said to incentivise Pertamina to diversify its products and selling strategy. The positive side, however, is for the consumer inflation to be contained. Inflation in Mar18 was 0.2% mom (3.4% yoy), half of which was contributed by transportation and food, which suffers the impact of higher distribution cost after fuel price rose. Refer to Important disclosures in the last page of this report 2
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