RHB Indonesia - RHB Investor Gathering - Economic and Political Outlook Towards 2019 Election (Investor Gathering, Cement, Plantation) Unknown Rabu, 11 Oktober 2017




Good morning,

RHB Investor Gathering – Economic and Political Outlook Towards 2019 Election

Yesterday, we held an Investor Gathering with keynote speaker Mr. Faisal Basri, discussing Indonesia’s economic and political outlook towards 2019 election.

Mr. Basri sees a solid macroeconomic situation for Indonesia. There is risk in the fiscal deficit due to limited government revenue, but it is still manageable by lowering capital spending. Slower growth in households consumption is likely to be driven by shifting to saving from spending by consumers. Political condition is conducive with a high electability for President Joko Widodo. Overall, Indonesia’s democracy situation is more stable than its neighbouring countries.


Below are keys takeaways:

¨ Solid macroeconomics. Indonesia’s macroeconomic condition is solid which is indicated by low inflation (3.7% in Sep), lower Central Bank 7-day repo rate (4.25% in Sep), stable IDR/USD exchange rate (IDR13,500/USD), and high foreign reserves (USD129.4bn in Sep).
¨ There is risk in fiscal deficit, but it is manageable. From the fiscal side, limited government revenue affects the economy. Ambitious 2017 tax revenue target (+16% vs 2016 realisation) is unlikely to be achieved, thus will likely cause fiscal deficit to be higher than its target (above 2.9%). Mr. Basri suggested slower capital spending, such as rescheduling infrastructure projects and reducing state capital injection. Otherwise, macroeconomic stability may be disturbed.
¨ Slower consumption growth, but not purchasing power. In middle-to-high income households, there is indication of shifting to saving from consumption. Households saving-to-income ratio increased to 20.8% in 2Q17 (from 18.6% in 2Q16).
For low-income consumers – e.g. farmers, construction workers, and other informal workers – their purchasing power generally have declined for quite some time. Moreover, the delay of social assistance disbursement to this group worsened the situation. Nevertheless, this group has a small contribution of 17% of the national private consumption.
¨ President Joko Widodo’s electability is high. Despite slower growth in consumer spending – especially in low-end segment – President Joko Widodo’s electability is high, increasing to 41.6% in Apr-17 (from 36.3% in Apr-16), according to a Kompas survey. In addition, satisfaction rate on Joko Widodo administration is high, stable at around 65%. Overall, Indonesia’s democracy situation is more stable than its neighbouring countries. (Andrey Wijaya, Rizki Fajar)

Link to daily report: Indonesia Morning Cuppa 111017

Sector Update:

Building Materials –Lower MoM September Cement Sales
September domestic cement sales slightly declined to 6.3m tonnes (-3% MoM, +12.8% YoY). In 9M17, domestic cement sales came in 47.4m tonnes (+6.6% YoY), in line with our expectation.

Semen Indonesia’s (SMGR IJ, Neutral, TP: IDR9,800) domestic cement sales came in at 2.5m tonnes (-6% MoM, +4% YoY). Its market shares declined to 39.9% in September 2017 (versus 41.1% in August). Semen Indonesia maintained its domestic ASP at IDR730,000/tonne (-0.1% MoM). In 9M17, Semen Indonesia’s domestic sales increased to 19.4m tonnes (+4% YoY). Its cement bag sales – which accounted for 73% of total sales – was flat (-0.7% YoY), while bulk cement sakes increased 19.1% YoY. We maintain Neutral on Semen Indonesia with DCF-based IDR9,800 TP (9% downside) implying a 14x FY18F P/E. (Andrey Wijaya)


Plantation – Inventory Crosses 2m Tonnes
CPO output in Malaysia is still up by 12.2% YTD, but September saw a slight MoM decline, coming from weakness experienced in pockets of Malaysia, namely East Malaysia (-3% MoM) and Perak (-9% MoM). While we expect production to end the year with a 10-12% increase, festive demand could start kicking in shortly, meaning inventory levels may remain around the 2m tonnes mark for the rest of the year. The risk of La Nina occurring in 4Q17 has increased to 54%, which bears monitoring. No change to our UNDERWEIGHT; our top BUY call is SOP and top SELL is Lonsum.

¨ Malaysia’s CPO production rose by 12.2% YoY in YTD-September, although the output in September was down by 1.7% MoM from August. The production weakness was mainly seen in Perak (-9% MoM) and East Malaysia (-3% MoM). Most other states recorded a normal MoM increases. For the whole of 2017, we expect Malaysia’s CPO output growth to moderate to 10-12% YoY.
¨ Exports rose by 1.8% MoM in September, bringing YTD exports to a 2.3% increase YoY. In YTD-September, exports saw a rise to Pakistan (+18% YoY), China (+2.5%) and the Philippines (+10%). This growth was offset by a decline in exports to India (-29% YoY), the US (- 17%) and the EU (-5%).
¨ Inventory rose by 4% MoM to 2.02m tonnes in September. Annualised stock/usage ratio for September is at 10.6% (up from 10.3% in August), above the 15-year historical average of 9.5%. We expect the festive demand to pick up, which could see inventory remaining flattish for the rest of the year.
¨ Latest developments:
i. Despite the slightly slower harvesting activities (10% versus average of 12%) in the US, expectations for soybean crop are still abundant, as it is too early to tell if yields would disappoint. The weather continues to be excessively wet in Argentina, which could affect planting intentions. However, as planting typically starts towards the later part of 4Q, the verdict is still out. The probability of La Nina has increased to 54% for 4Q17F, with most climate models suggesting that La Nina thresholds would be reached by Dec 2017. However, most do not expect the values to last long enough to be classified as a La Nina event. Should La Nina emerge, the impact on CPO output would be negative, but only for a period of less than a month.
ii. In the US, the Environmental Protection Agency (EPA) said it is considering cutting down biofuel mandates by up to 15% in 2018F and 2019F, based on a potential spike in biodiesel prices. This is still up for comment and would only be decided upon by year-end;
iii. Demand for palm oil is moderating for China (YTD-August +7.5% from +16.9% in YTD-June) due to the abundant soybeans in the market, while demand in India is unchanged at +15.5% in YTD-August.
¨ UNDERWEIGHT maintained, on the back of weak demand dynamics. Catalysts include a positive change to global demand and any extreme weather occurrences that would have an impact on global vegetable oil output. Our top BUY is Sarawak Oil Palms (SOP) (SOP MK, TP: MYR4.20) while our top SELL is London Sumatra (Lonsum) (LSIP IJ, TP: IDR1,200). (Hoe Lee Leng)

Link to report: Inventory Crosses 2m Tonnes
Media Highlights:

Corporate

Bank Indonesia: business expansion continues in 3Q17
Foreign selloff reach 29 consecutive days
Garuda Maintenance Facility aims for USD200mn in strategic stake sale
Kapuas Prima Coal Seeks to raise IDR77bn from IPO
Our Recent Publication:
Company Update: Ciputra Development – Toning Down Our Forecasts
Corporate News Flash: Summarecon Agung – 9M17 Marketing Sales Are In Line With Estimates
Regional Thematic: Halal – An Earnings Boost Strategy
Economics Update: September Inflation Remains Moderate
Company Update: Nippon Indosari Corpindo – Details On Rights Issuance
Sector Update: Coal Mining - Energy Minister Does Not Agree With Cost-Plus Margin
Company update: Tower Bersama Infrastructure – Not Our Preferred Exposure In The Sector
Corporate News Flash: United Tractors – Mining Equipment Sales To Stay Robust
Economics Update: BI Cuts Key Policy Rate Further In September
Economics Outlook: Stronger Growth in 2018 But Capped By Spending Constraint


Best regards,

Andrey Wijaya
Senior Vice President
Research Analyst – Auto, Consumer, Cement
PT RHB Sekuritas 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.
Tags:
Labels:
Related