RHB Indonesia Morning Cuppa - 26 March 2018 (US and China Trade Tariffs, Other People's Wars and Value Chains, Today's News)

Indonesia Morning Cuppa

Top Story

Regional Thematic

Impact on Equities From Tariffs

US And China Trade Tariffs

On Friday we issued a note “Other People’s Wars And Value Chains” on the announcement by the US administration that it will impose significant tariffs on Chinese products being exported to the US;

Now we discuss the effects on equities in our footprint.

¨ The intellectual property protection and the technology transfer through JVs are among the major themes in this trade war. While the panic sentiment has just kicked off, we believe the negative impact is divergent across sectors. The sectors most likely hit are electronics, electrical machinery (including computers) and industrials;

¨ In general, c.11% of Malaysia's exports are in the value chain – mainly electronic and electrical (see table to the right “Exposure to the value chain”). For Indonesia it’s also c.11%, but less concentrated in any one area. For Thailand it's c.7% and c.5% for Singapore;

¨ So far, China’s response has been more limited and symbolic, as it announced plans for reciprocal tariffs on c.USD3bn of imports from the US, an amount which represents c.0.2% of the US’ total exports.

Analyst:

Arup Raha (arup.raha@rhbgroup.com),

Toni Ho CFA, (toni.ho@rhbgroup.com),

Andrey Wijaya (Andrey.wijaya@rhbgroup.com).

Alexander Chia (alexander.chia@rhbgroup.com),

Shekhar Jaiswal (Shekhar.jaiswal@rhbgroup.com),

Kasamapon Hamnilrat (Kasamapon.Hamnilrat@rhbgroup.com)

Link to report: Regional Thematic - Impact On Equities From Tariffs: US And China Trade Tariffs

Morning Cuppa Full Report: Indonesia Morning Cuppa 260318

Other Stories

Regional Thematic

Other People’s Wars and Value Chains

The US administration has announced that it will impose significant tariffs on Chinese products being exported to the US. The tariffs would be imposed under Section 301 of a 1974 US trade law that allows for unilateral action against unfair trade practices.

The details of the measures are still not available. There is even some confusion about the amount – the US administration had announced that the tariffs would total USD50bn annually, but President Donald Trump indicated that the tariffs would be USD60bn. The actual incidence of the tariffs is not yet known. We know this will be tricky, as the number of US firms producing in China for exports to the rest of the world (including back to the US) is in the hundreds. Some of them are pretty big names.[1]

The markets reacted poorly. Stocks fell nearly everywhere and the DJIA fell over 700 points, or close to 3%. The US dollar rose and US Treasury yields fell.

Analyst: Arup Raha (arup.raha@rhbgroup.com)

Link to report: Other People’s Wars And Value Chains

Morning Cuppa Full Report: Indonesia Morning Cuppa 260318

Today’s News

Bank Indonesia to maintain Rupiah level at IDR13,700/USD

Indocement Tunggal Prakarsa to raise prices in FY18

Automotive channel checks for Indonesia market

Logistics toll roads’ tariff to decrease by the end of March 2018

Summarecon targets selling lands to automotive companies

Waskita and Jasa Marga looks to offer mutual funds for toll roads

BTN disburses IDR605bn dividend for FY17

Indofood targets 6% YoY growth in flour business

Indo Tambangraya allocates USD107.1m in capital expenditure for FY18 and to distribute dividend in April 2018

Top BUYs
		TP	Upside	Catalysts
		(IDR)	(%)	Catalysts
Astra International		9,500	13	Given the robust of the All New Toyota Rush and Daihatsu Terios sales orders, Astra has raised its monthly sales target. Its lowering of Daihatsu Terios’ selling price while positioning Toyota Rush at a higher class are seen as a good strategy to reclaim market share. We also see the company’s coal mining unit benefiting from higher coal prices. We raise its earnings estimates, and SOP-based TP to IDR9,500 (from IDR9,200, 13% upside), implying 16-15x FY18F-19F P/Es. Key risk is the intense competition in the auto industry. SAIC-GM Wuling just launched its 1.8-litre MPV – Wuling Cortez – with an attractive selling price. Maintain BUY.
BSD City		2,650	44	Expectations of higher marketing sales due to lower interest rates, which ought to incentivise mortgage users. BSD City has the largest proportion of mortgage users vis-à-vis other developers. There is also better monetisation from its large landbank.
Bukit Asam		4,100	20	Bukit Asam is the cheapest coal counter in our coal universe. We think earnings growth should be the catalyst for its share price. We believe investors’ concerns about a potential cost-plus margins formula in determining coal selling prices to domestic power plants should fade. This is based on our checks with several competent sources. The formula is only valid for coal sales to new mine mouth power plants. It is not for existing/under construction mine mouth power facilities.
Indofood Sukses Makmur		10,300	28	We expect higher domestic consumer spending in 2018. This would be thanks to the Government stimulus initiatives for low-end consumers. Indofood Sukses Makmur, as one of the largest food & beverage (F&B) players, should benefit from this situation. F&B accounted for around 62% of its total 9M17 EBIT. Higher flour prices may also boost Bogasari Flour Mills’ earnings, which accounted for around 14% of the company’s EBIT.
	Ramayana Lestari	1,550	34	Consumer spending recovery – especially from the lower income segment in 2018 – is likely to benefit Ramayana Lestari after a flat performance in 2017. This is due to increased subsidies by the Government that have been allocated in the 2018 budget via the Ministry of Social Affairs. In addition, President Joko Widodo’s (Jokowi) work-for-cash programme is likely to help raise consumer spending.