RHB Indonesia - The loss of incumbent in the final Jakarta Governor election based on quick count (Arwana Citramulia, Bank Rakyat Indonesia, Bank Unknown Kamis, 20 April 2017




Good morning,

The loss of incumbent in the final Jakarta Governor election based on quick count
The final round of Jakarta election was concluded in a peaceful and orderly fashion, which we view as one of the key significant factors, aside from the winner of the election itself. The voting process went peacefully without any significant disturbances. There were initial concerns that there would be a mass mobilization to disturb the voting process, but the National Police Chief Tito Karnavian assured that no such thing were took place.The Jakarta election has drawn most of the focus, as it is believed to have strong influential factor to set the direction of political landscape going forward, especially leading to the 2019 presidential election. With the official results will only be released in the nexttwo weeks, based on various quick counts results, Jakarta will have new governor as the incumbent Jakarta Governor Basuki Purnama (Ahok) and his deputy Djarot Saiful Hidayat lost by a wide margin. Anies Baswedan and Sandiaga Uno secured an average of 58%,compare to the the incumbent's 42% votes. The level of Ahok's vote was relatively similar with the first round result, which signify that the voters of Agus Yudhoyono in the first round simply switch their supportto Anies Baswedan & Sandiaga Uno pair. The ongoing trial on Ahok's blasphemy caseis believed as one of the deciding factors for his stalled popularity, as many religious groups echoing that religion is the paramount criteria in choosing a leader. Despite high satisfaction level of 73.5% on his achievement as a government in one poll, Basuki Purnama is unable to continue to a second term. Basuki and Djarot pair have conceded defeat and congratulated Anies and Sandiaga pair on their victory.


While political balance is perceived as the precondition for democratic environment, especially on the delicate connection between the government and opposition, the lossof incumbent in Jakarta election could be perceived as debilitating factorof the current reform-minded government. However, we believe there will be no change on the effectiveness of the current government to execute its policies,especially on the infrastructure which would help to underpin economic acceleration. We also believe the impact to the market would only be transient in nature.

The reconciliation period post the intense polarization during the election process will ultimately provide more stability,with both macro and micro progress will once again become the main focus.We believe theIndonesia remains to offer value proposition on LT basis, driven by lower interest rate environment and reform-oriented government stimulus policies, which would set stronger economic platform. We continue to expect more pronounce demand recovery in the 2H (Helmy Kristanto)
Link to Daily report: Indonesia Morning Cuppa 200417



Results Review:

Arwana Citramulia (ARNA IJ, BUY, TP: IDR550), Better Sales Mix And Efficiency To Boost Earnings
Arwana may continue improving its sales mix and operating efficiency to boost earnings. In June, it is set to switch production lines at its East Java plant to UNO tiles in order to improve its capacity. The contribution of UNO ceramic tile sales to total sales increased to 40% in 1Q17 (4Q16: 36%). Lower production costs would be driven by lower fixed costs per unit and a lower incidence of defective products. From March, its Palembang plant records cheaper costs due to a lower gas tariff. Maintain BUY, with a DCF-based TP of IDR550 (12% upside, 25x FY17F P/E).

¨ Better sales mix. The contribution of UNO ceramic tile sales to Arwana Citramulia’s (Arwana) total sales rose to 40% in 1Q17 (4Q16: 36%). In our calculation, production capacity for UNO tiles is now near full utilisation levels. Arwana could also lift its capacity to make UNO tiles by switching two production lines at its East Java plant to UNO tiles from Regular tiles. UNO tiles offer a better GPM of 28% (Regular tiles: 23%, Best Buy tiles: 18%).
¨ Lower costs to boost earnings. Arwana’s higher sales volume – estimated to increase in 2H17 – should lower its fixed costs per unit; also there is still room to decrease the rate of defective products. Moreover, from March onwards, its Palembang plant (which accounts for 14% of total capacity) could record lower costs since its gas tariff declined by 8%. Gas accounts for around 40% of its COGS.
¨ BUY. Our DCF-based TP of IDR550 reflects 25x FY17F P/E. A key downside risk to our call is a weakening IDR, as about 60% of its COGS is denominated in IDR terms.
¨ Robust 1Q17 earnings were in line. Arwana’s 1Q17 earnings rose to IDR39.4bn (+33.1% QoQ, +71% YoY), driven by a wider EBIT margin of 13.1% (4Q16: 11.5%, 1Q16: 8%). This was due to a lower rate of defective products manufactured, as well as lower gas consumption per unit. (Andrey Wijaya)



Astra International (ASII IJ, BUY, TP: 9,100), Robust 1Q17 Earnings, In Line
Astra International's 1Q17 earning jumped to IDR5.1trn (+63% YoY), in line with our and consensus expectation, achieving 26% of our and consensus full year estimates.

1Q17 earning growth was driven by:
i) higher 4W vehicles wholesale,
ii) higher heavy equipment sales and mining volume (thanks to strong recovery on coal price),
iii) higher CPO price and sales volume.

Our DCF-based TP is IDR9,100, implying 19x/16x FY17/18F P/Es, 9% upside potential. (Andrey Wijaya)


Astra Agro Lestari (AALI IJ, Sell, TP:IDR12,800): Strong 1Q17 earnings on the back of high ASP

Astra Agro booked strong 1Q17 earnings of IDR801bn (+91%YoY, -7.0%QoQ), which exceed our and consensus expectations (43% of our FY17F and 42% of consensus FY17F).

The main driver of strong 1Q17 earnings is high ASP in 1Q17 of IDR8,953/kg (vs our FY17 average CPO price of IDR7,250/kg). We think high CPO price in 1Q17 should not sustainable as CPO price keep declining. Average CPO price in 1Q17 is MYR2,828/tonne (vs current price of MYR2,641/tonne) (Hariyanto Wijaya, CFA, CPA)


Bank Rakyat Indonesia (BBRI IJ, Buy, TP IDR14,500), More Sustainable Growth Ahead
BRI released its 1Q17’s result. BRI will have its analyst meeting presentation today at 10AM Jakarta time.

Key highlights:

1Q17 performance:
¨ Net interest income represents 24.3%/24.6% of our/consensus forecast on the back of 13.3% YoY loans growth.
¨ Reported net interest margin (NIM) was fairly flat at 8.1% compared to the same period at the previous year.
¨ Cost to income ratio (CIR) improved to 39.9% from 44.1% in 1Q16 due to strong support from 17.6% YoY non-interest income growth.
¨ Gross non-performing loans (NPL) ratio stable at 2.2% (Mar-16: 2.1%).
¨ Credit cost uptick to 317bps from 256bps in 1Q16.
¨ Net profit of IDR6.6bn accounted for 24.4%/23.6% of our/consensus forecast.

What to expect:
¨ Loan growth would still coming from micro lending given that government already set the People’s Business Credit (KUR) of total c.IDR110trn for this year. We expect moderate loan growth figure at 12.8%.
¨ Asset quality would uptick in our view to 2.3% by end of year with 255bps credit cost (2016: 2.1% gross NPL and 223bps credit cost).
¨ Asset yield would be stable at 11.3% in FY17 (FY16: 11.4%) due to substantial portion of micro lending in loan portfolio. We assume 15.4% YoY growth in micro lending resulting to 33.6% contribution to total loan book (end-16: 32.9% of loan book).
¨ NIM would fall to 7.9% for FY17 (FY16: 8.2%) in our forecast as we expect higher blended CoF of 3.7% (FY16: 3.5%).
¨ Funding should remain manageable aside from customer deposits. BRI just issued IDR5.1trn bonds as part of its shelf-registered bonds total IDR20trn. (Eka Savitri)


Bank Tabungan Negara (BBTN IJ, BUY, TP: IDR2,600), To Stay Housing-Centric

We expect BTN to maintain its focus on the mortgage segment going forward – particularly, the low income mortgage segment. Subsidised mortgages should continue to support its loan book expansion, at a projected 21% YoY growth for this year. With substantial mortgage exposure, BTN’s 2017 credit cost should be stable at 48bps, based on our model. We maintain our BUY and GGM-derived TP of IDR2,600 (15% upside).

¨ To maintain its focus on the housing-related segment. Looking ahead, we expect Bank Tabungan Negara (BTN) to continue growing its business through the housing-related segment. The low income mortgage segment is likely to remain BTN’s main growth engine, on the back of the c.11.3m housing unit backlog in Indonesia. We thus assume subsidised mortgages would grow by 21% this year, due to the Government’s allocation of c.IDR15trn for the same in the state budget. With such support, subsidised mortgages would likely contribute a higher 35.7% of BTN’s total loan book by the end of the year (end-2016: 34.6%).
¨ Ample room to grow its CASA deposits. We think BTN still has room to expand its CASA deposits, despite the Financial Services Authority’s (OJK) recent ban on opening new accounts at the cash outlets level. This is seen in the 29.6% YoY growth in its current account deposits in March. As such, we expect 51.5% of BTN’s customer deposits portion would be made up of CASA deposits by end-2017 (end-2016: 50.4%).
¨ We maintain our BUY call and IDR2,600 TP. Our TP is based on a GGM-derived, 1.27x 2017F P/BV multiple.
¨ Risks. Short-term risks to our forecasts include a delay in the 2017 housing finance liquidity facility (FLPP) scheme, limited supply of subsidised housing, and a higher-than-expected blended CoF. (Eka Savitri)

Company Update:

Kino Indonesia (KINO IJ, NR), Management Meeting Key Highlights
Key highlights from our visit to Kino management:

¨ 1Q17 earning is likely to be lower than 4Q16 earning which was driven by lower sales and higher operational costs.

¨ 1Q17 weak sales were affected by:
i) longer rainy season which lowered remedy drink Cap Kaki Tiga sales (accounted for 26% of sales),
ii) weakened consumer spending which lowered hair vitamin Ellips sales (accounted for 11% of sales).

¨ Higher advertising and promotion (A&P) costs was the main driver of higher operational costs. Kino increased A&P costs to 17%-18% of total sales in 2017 (from 14%-15% of total sales in 2016).

¨ Despite this lower sales, Kino is still optimist that sales volume to increase by 5% YoY in 2017.

¨ The company is trading at 20x FY17F consensus estimates, which we see this is not attractive valuation regarding to weak 1Q17 earning indication. (Andrey Wijaya)

Media Highlights:

Economics

Govenment capital spending up by 15.6%

Corporate

Wika Beton eyes 25% of total new contracts from energy sector projects
Sampoerna Agro aims 20%-30% increase in CPO production this year
Jasa Marga targets asset securitisation to be completed by June
Government to revise tax allowance and tax holiday rules

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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT. RHB Securities Indonesia

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