RHB Indonesia Morning Cuppa - 7 November 2016- (Strategy)

Good morning,

Escalation in political tension; Macro improvement remains intact

While demonstration arguably has became part of life in Jakarta, last Friday’s demonstration would be one of the largest, reported to gather c. 50,000 people. The action were joined by many Moslem organisations from several regions to protest against Basuki T. Purnama (Ahok) on the allegation of religious defamation. The demonstration was mostly running in peace and calm order, but suddenly escalate into chaos at c.6 pm, the cut off time limit given by police. Couple of police trucks were burned with several casualty was reported on both side. The chaos only occurred in two specific locations, outside the Presidential Palace and one location in North Jakarta, with one Indomaret convenience store was looted. On Sunday, the police mentioned that the perpetrators of chaos in North Jakarta were unrelated to the one in Presidential Palace, and appears to be purely criminal act.

3 key messages from President Jokowi

We were encouraged by the way of the police and army to act quickly to restore the stability with tear gas, water cannon and truncheons, with strict order that rubber bullet was not allowed to be used. The situation was mostly under control past midnight.

Presiden Jokowi held press conference on early Saturday, with 3 key messages: 1. He condemned the chaos and violent demonstration;2. The legal process of Jakarta governor alleged transgressions would be concluded quickly and transparently and 3. Political actors are believed to ride on yesterday's chaos. In our view, the third points would signify escalation of political tension, which would led the government to make stronger intelligence effort and beef up security to prevent the whole situation to heighten. President Jokowi has also delayed his trip to Australia (scheduled: 6-8 Nov) to focus in restoring domestic stability.

Negative pressure is expected but macro improvement is still on tract

JCI has priced in a peaceful rally on Friday, with index closed up +0.6% ( +1.1% from Friday's low). Selling pressure is expected to happen on Monday, especially on the potential higher volatility of IDR.

There is also growing concern in relation to the prospect of asset repatriation under the current tax amnesty scheme. While the repatriation has been reported to the tax office, the physical transfer of that assets are still underway, with deadline by end of December. As such, it is imperative for the government to act quickly to restore confidence.

Despite Friday’s chaos, we see no change on Indonesia fundamental investment story, underpin by macro improvement and government-led infrastructure investment. Our top pick in the market are: BBNI, CTRA, BSDE, TLKM, INDF and WSKT. (Helmy Kristanto)

Link to Daily report: Indonesia Morning Cuppa - 071116

Media Highlights:

Corporates

Wijaya Karya sets right issue price at IDR2,180

Wijaya Karya (WIKA IJ, BUY, TP: IDR3,370) has set its right issue price at IDR2,180 per shares. The company will issue 2.82bn new shares with total proceeds target of IDR6.15trn. The current shareholders who do not exercise the right will be diluted by max 31.45%. The cum rights in the regular market is set at November 10, with recording date at November 16. Wika will open the trading period within November 17-November 23. Wijaya Karya will use 70.8% of the proceeds for its government priority projects’ capex in the form of special purpose vehicles.

Comment: We have a positive view on this right issuance as we see that Wika will have a healthier balance sheet and stronger earnings growth post right issue. (Dony Gunawan)

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Ciputra Surya realized IDR300bn capex in October

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United Trators aims another three power plant projects

Waskita targets IDR2.7trn net profit in 2017

Elnusa t enter flare gas business

Jasa Marga secures IDR1.4trn loan for Pandaan-Malang toll road

Semen Baturaja eyes 9% YoY sales growth in 2017

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