Strategy:
Finally Investment Grade Status
Finally Investment Grade Status
Underpinned
by a stronger budget posture on an improved revenue collection, which could
lead to a manageable fiscal deficit of below 3%, S&P upgraded Indonesia’s
long-term sovereign credit rating to an investment grade of BBB- (from BB+)
with a stable outlook. As a result, we upgrade our index target to 6,150 (from
5,850) on inflow-driven re-rating coupled with higher earnings growth
expectations. Companies with a big market capitalization would probably lead
the initial wave of performance increase and we expect broader positive performance
across sectors. We are positive on banking, consumer, telecom, infrastructure,
coal, retail and property sectors and are negative on plantation and poultry
sectors.
¨
The
investment grade from Standard & Poor’s (S&P) finally came, complementing the
status received from both Moody’s and Fitch. A reduced fiscal risk was the
headline of the upgrade, an effort which has been spearheaded by the Government
through its reform policies. A stronger government revenue and an increased control
spending were perceived as the final elements to seal the investment grade. In
our view, the Government’s move to boost infrastructure spending by making
major cuts on energy subsidy has changed the economic structure and paved the
way for a more productive asset spending. The recent tax amnesty programme to
improve tax collection was also a move into the right direction, which should
lay a stronger foundation for the government budget.
¨
Positive
impact.
The S&P upgrade may boost the appeal of Indonesian assets among investors
and help to attract more foreign inflows. In our view, the first impact of
these inflows will likely be seen in supporting the value of the IDR amidst
pressure on rising global rates. Recently, the IDR faced selling pressures,
similarly with weakening currencies toward the USD in other Asian countries.
Post the announcement of the S&P upgrade, IDR has gained back its stable to
strong position. Going forward, we believe the IDR will remain stable, while
Bank of Indonesia will likely maintain its benchmark rate at 4.75% due to
rising inflation. The S&P has given a relatively stable outlook for the IDR
exchange rate; a stable exchange rate is one of the key factors for higher
investments which could translate into a sustainable economic growth in the
future. Indonesia’s 10-year bond spread to US Treasure will likely narrow.
¨ Upgrade our index target to 6,150. The S&P upgrade can also be seen as a further testimony to an improving overall macro situation. It is also timely and it provides a new catalyst in a market which has been impacted by the heightened political situation. A macro improvement, in our view, would carry a greater value for investors in determining the risk appetite and long term investment merits. We upgrade our index target to 6,150 (from 5,850), which translates in a 17x P/E valuation, on an inflow-driven re-rating which is coupled with higher earnings growth expectations. Therefore, Indonesia remains to offer a long term value proposition. We expect companies with big market capitalization to initially lead the outperformance given their liquidity, with ASII, TLKM and INDF as our Top Picks. With the festive season nearing, consumer and retailer sectors are expected to enjoy a stronger seasonal demand. We continue to expect a more definite demand recovery in the second half of the year.
Kindly click the following link for the full report: Finally Investment Grade Status
Best regards,
¨ Upgrade our index target to 6,150. The S&P upgrade can also be seen as a further testimony to an improving overall macro situation. It is also timely and it provides a new catalyst in a market which has been impacted by the heightened political situation. A macro improvement, in our view, would carry a greater value for investors in determining the risk appetite and long term investment merits. We upgrade our index target to 6,150 (from 5,850), which translates in a 17x P/E valuation, on an inflow-driven re-rating which is coupled with higher earnings growth expectations. Therefore, Indonesia remains to offer a long term value proposition. We expect companies with big market capitalization to initially lead the outperformance given their liquidity, with ASII, TLKM and INDF as our Top Picks. With the festive season nearing, consumer and retailer sectors are expected to enjoy a stronger seasonal demand. We continue to expect a more definite demand recovery in the second half of the year.
Kindly click the following link for the full report: Finally Investment Grade Status
Best regards,
Helmy Kristanto
Director
Head of Indonesia
Research
PT. RHB Securities
Indonesia
Disclaimer: This message is intended only for the use of the individual or entity to whom it is addressed and may contain information that is confidential and privileged. If you, the reader of this message, are not the intended recipient, you should not disseminate, distribute or copy this communication. If you have received this communication by mistake, please notify us immediately by return email and delete the original message. This message is transmitted on the condition that the recipient accepts the inherent risks in electronic data transmission and agrees to release RHB group and RHB Securities from any claim which the recipient may have as a result of any unauthorized duplication, reading or interference with the contents herein. The contents herein are made in the personal capacity of the above-named author and nothing herein shall be construed as professional advice or opinion rendered by RHB group and RHB Securities or on its behalf.
