RHB Indonesia Morning Cuppa - 16 August 2016 - (Astra, Pembangunan Perumahan, Trade Balance)

Good morning,

Astra International: More Upbeat On Imminent Launch Of New Models

Ground checks at the Gaikindo Indonesia International Auto Show (GIIAS) have led us to believe auto makers are now more upbeat on a sales recovery. Auto makers like Toyota, Mitsubishi and a new player, Wuling, are set to launch new models in 2017. Competition in the MPV segment is likely to tighten. However, Astra as the first mover has an advantage and is likely to be a winner, thanks to its well-known brands and strong after-sales services. Maintain BUY, with a SOP-based TP of IDR9,000 (15% upside) implying 18x FY17F P/E.

♦ More new models in 2017. Being more upbeat on Indonesia’s car market, auto makers like Toyota, Mitsubishi and new player SAIC-General Motors-Wuling (Wuling) are set to launch new models next year. After launching the Toyota Calya, Daihatsu Sigra and Toyota Sienta, Astra is likely to launch a new crossover car model, the Toyota C-HR, in 2017. Mitsubishi will also launch a small crossover MPV, the Mitsubishi MX which is targeted towards buyers who like models like Honda’s B-RV. In addition, Wuling is expected to launch a 7-seater MPV which is likely to compete head-to-head with Astra’s Toyota Avanza and/or the Toyota Calya. However, Astra (a first-mover) has an advantage and is likely to emerge a winner, thanks to its robust brands as well as strong after-sales services.

♦ Mitsubishi to boost car sales. Mitsubishi will locally produce passenger cars and a small crossover MPV model at its new manufacturing plant in Bekasi, West Java, which are expected to commence operations in Apr 2017. Mitsubishi plans to launch the small crossover MPV, Mitsubishi MX (for details, see Mitsubishi MX Stand) in Oct 2017. The plant’s production capacity is 160,000 units pa, of which half will be allocated to assemble the Mitsubishi MX, while the remainder will be to assemble the Pajero Sport and Colt Diesel L300.

♦ Wuling introducing a 7-seater MPV. Wuling will introduced 7-seater MPVs with two types of engines, ie for 1.5l and 1.8l (link to Wuling Indonesia). It is still uncertain whether Wuling cars will compete in the low-cost green car (LCGC) or low-MPV categories. Its new cars are likely to be introduced in 2H17, after the completion of its new plant (scheduled for Jul 2017) in Kota Deltamas, Bekasi which will have a production capacity of 150,000 units pa. It plans to have over 50 dealerships, spare parts and maintenance service centers across Indonesia over the next two years, with the majority located in the Greater Jakarta area.

♦ Toyota Calya is the darling. Astra's new 7-seater LCGC MPVs, the Toyota Calya and Daihatsu Sigra were big favourites at (link to Toyota Calya stand) at the GIIAS (Indonesia’s largest auto show, link to 2016 GIIAS crowds) this year. Priced below IDR150m/unit, the Calya offers an attractive exterior, good quality spacious interior and a 1.2l engine. It is no doubt that it will be another Astra sales growth driver. An Astra salesman said that demand for the Calya is very strong. This model is targeted towards first car buyers. (Andrey Wijaya)

Link to report: Astra International : More Upbeat On Imminent Launch Of New Models

Link to Daily report: RHB Indonesia Morning Cuppa - 160816

Company Update:

Pembangunan Perumahan (PTPP IJ, BUY, TP: IDR5,400), A Heavenly Outlook

We continue to like PP and expect a better outlook in FY17, boosted by its rights issue and subsidiaries’ corporate actions that will encourage higher growth next year. A recovery in property demand will likely trigger a higher number of available projects for the company, and we expect it to grow at a 30% CAGR in FY15-18. We raise our TP to IDR5,400 (from IDR4,200, 26% upside) as we roll over our valuation to 2017 based on an unchanged P/E target of 22x.

¨ Rights issue and subsidiaries’ corporate actions. Pembangunan Perumahan (PP) plans to raise IDR4.4trn from a rights issue in 4Q16, which includes an IDR2.25trn government fund injection. The company is also pushing three subsidiaries – ie PT PP Peralatan, PT PP Precast and PT PP Energy – to undertake IPOs in FY17, where it targets up to IDR6.25trn from the listing exercises. With property subsidiary PP Properti Tbk PT (PPRO IJ, NR) set to raise another IDR1trn from a rights issue, PP is poised to capture much stronger growth and have a cleaner balance sheet in FY17.

¨ Property demand recovery in FY17. We see a dazzling property outlook in FY17. Bank Indonesia (BI) has cut its policy rate by 100bps to 6.5% so far in 2016 and is set to change to the 7-day repo rate as a new benchmark. This currently stands at 5.25%. BI also plans to relax its loan-to-value (LTV) policy in FY17. Hence, as a well-known building contractor with a property subsidiary, we see PP being able to take advantage from spill-over projects in the property and high-rise building development segments.

¨ 30% CAGR in FY15-18. We expect the company to grow at a CAGR of 30% in FY15-18, spurred by property and infrastructure projects such as toll roads, power plants and seaports. PP is aiming to obtain power plant projects up to 1,200 megawatts (MW) next year worth USD6bn. Moreover, Phase 2 of the new Tanjung Priok seaport tender process will be accelerated, as a new Transportation Minister (Mr Budi Karya Sumadi) has been appointed and, as the contractor of Phase 1, PP has the advantage.

¨ 1H16’s results indication. Based on our conversation with management, PP said its 1H16 earnings grew almost 2x. This is as all its subsidiaries have started to generate profits for the company. At 33% to our FY16 estimates (ie above its 4-year historical average performance of 23%), this was stronger than our previous estimate of 25% YoY growth for this period. We now opine that PP will continue its strong performance, supported by several on-going and upcoming infrastructure projects.

¨ Valuation. We maintain our BUY call with an upgraded IDR5,400 TP (from IDR4,200, 26% upside). Our TP is based on 22x FY17F PE, supported by a DCF valuation of IDR5,406 (RF: 7.5%, TG: 3%). Delays in infrastructure projects and prolonged soft demand in the property sector are key risks to our recommendation. (Dony Gunawan)

Link to report: Pembangunan Perumahan Persero : A Heavenly Outlook

Economic Highlights:

Sluggish Exports Return while Imports Remain Weak in July

¨ Indonesia’s exports contracted by a larger magnitude of 17.0% y-o-y in July, from -4.0% in June. This was driven by larger declines in both oil & gas and non-oil & gas exports, due to holiday season from Eid Fitr festivities.

¨ Imports, likewise, contracted by a larger magnitude of 11.6% y-o-y in July, from -6.8% in June. The sharper contraction in imports was due to a deeper drop in the non-oil & gas, oil product and gas imports. These were, however, partly offset by a smaller contraction in crude oil imports.

¨ In July, the trade account continued to record a surplus of USD0.6bn, albeit lower than the previous month. This points to a lower trade surplus in 3Q 2016, suggesting the country’s current account deficit (CAD) in the balance of payments could deteriorate during the quarter.

¨ Moving forward, the global economy still faced with many downside risks and it is in its seventh year of growth in the current cycle in 2016 where the late stage of an economic growth cycle tends to be associated with higher downside risk. This suggests that Indonesia’s exports will likely remain challenging and we expect the country’s real exports to grow marginally by 0.9% in 2016, compared with -2.0% in 2015. (Rizki Fajar)

Link to report: Sluggish Exports Return while Imports Remain Weak Amid Festive Celebration

Media Highlights:

Economics

Indonesia president honorably discharge Archandra as Energy Minister

Corporates

Lower July cement sales, in line

The Indonesian Cement Association reported July domestic cement sales declined 29% MoM (to 3,615k tonnes), while export sales jumped 37% MoM (to 203k tonnes). In our view, lower July sales were mainly driven by seasonality which saw temporary weakness during the Lebaran (this year came in Jul) due to shorter working days. On YoY basis, 7M16 domestic sales volume increased by 3% YoY. A surge in export sales – which offers lower EBIT margin – indicated that national overcapacity situation is still occured.

Semen Indonesia (SMGR IJ, Neutral, TP: IDR9,000)’s domestic market shares down to 41.5% in 7M16 (from 41.9% in 7M15), while Indocement (INTP IJ, Neutral, TP: IDR17,900) declined to 26.4% (from 27.9%) in the same period. Semen Indonesia continues to lower its domestic average selling price (ASP) to IDR792,000/tonne (-0.8% MoM) in July. On YTD basis, its selling price has already declined by 5%. We maintain Neutral on Indonesia Cement sector. (Andrey Wijaya)

Jokowi signed Presidential Decree for LRT Greater Jakarta

As expected, President Jokowi has signed a new Presidential Decree regarding LRT Jakarta. Based on the Decree, Minister of Transportation and Adhi Karya (ADHI IJ, BUY, TP: IDR4,400) have to signed LRT Greater Jakarta within 30 days after this decree issued. The details of LRT design and specification will be managed by Ministry of Transportation. The company expects to book IDR15trn – IDR17trn for the 1st phase of LRT Greater Jakarta by the end of this month or early next month. Adhi has to complete 1st phase of LRT greater Jakarta in 2018 to support Asian games 2018. (Dony Gunawan)

Japfa realised IDR291bn capex

Surya Semesta to issue IDR1trn bonds

Indomobil Group to raise funds of IDR1.4trn

Solusi Tunas Pratama to add new tower and optic cable

Government recommended several industrial sectors to receive gas price cut

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