Strategy
Stocks Immune To a Trade War
US And China Trade Tariffs
· While there is no
actual trade war as yet, the rhetoric is waxing and waning and the markets are
following in step;
· The end outcome will
depend on what each side really wants. If it is just about deficits and/or
opening up market access, the end outcome should be achievable. However, if the
battle is actually about who gets to dominate the technology, this could be a long-drawn-out
and potentially difficult battle;
· In
this report we highlight such stocks that we cover, which have already
over-corrected and unjustifiably so, as they display visible earnings growth,
decent cash flows, and most importantly are immune to, or are even
beneficiaries of, a trade war.
Indonesia
We highlight three
Indonesian stocks that are likely to benefit during a trade war - Indofood,
Gudang Garam and Bumi Serpong Damai.
Indofood CBP (ICBP IJ,
BUY, TP: IDR9,500)
Indofood with its
instant noodles brand Indomie is the market leader in Indonesia’s food
& beverage (F&B) market. Its revenue comes mostly from the domestic
market, with exposure to the export market making up a mere 8% of total FY17
revenue. Revenue from overseas mainly comes from Saudi Arabia, Nigeria, Australia,
Papua New Guinea, and Malaysia, while revenue from China is very small. Hence,
we anticipate that Indofood CBP shoud be immune to the impact of a trade war
between the US and China.
Gudang Garam (GGRM IJ,
BUY, TP: IDR91,100)
Gudang Garam is a
leading producer of kretek cigarettes, the clove cigarette synonymous
with Indonesia. Most of its revenue comes from the domestic market. Its
exposure to the export market is very limited, ie around 3% of its total
revenue. Therefore, we think Gudang Garam should be immune from the impact of a
trade war. In addition, during an election year, it is common for cigarette
sales volume to increase. There are two large elections ahead: the 2018
regional election and the 2019 national election. Hence, Gudang Garam would
likely benefit from these events, in our opinion.
Bumi Serpong Damai
(BSDE IJ, BUY, TP: IDR2,210)
The Indonesian
property sector mostly relies on domestic demand, with little influence from
foreign buyers. This is due to the Indonesian regulation that limits foreign
ownership based on Government Decree No. 103 Year 2015 (PP). The regulation
mandates that foreigners are only allowed to hold properties (landed houses or
apartments) under right-to-use land titles.
Morning Cuppa Full Report: Indonesia Morning Cuppa 130418
