January Monthly Report Lustrous Outlook NHKS Monthly Report (English)

• – 인도네시아

  January, 2018

  NH Korindo Research Indonesia Market

• – Outlook 2H17

  Lustrous Outlook Summary:

  I. The U.S. Economy/2

  II. Indonesia Economy/6

  III. Indonesia Stock Market/10

1. The U.S. Economy

  

FOMC Meeting : Economy Is Primed for Gradual Rate Hike

Solid Job Market

Temporary Benign Inflation

1. The U.S. Economy

• – 인도네시아

  FOMC Meeting : Economy Is Primed for Gradual Rate Hike

• FOMC decided to hike the target range for the federal funds rate by 0.25% into 1.25% -1.50%. This decision of 0.25% FF rate hike is based on FOMC’s assessment that

  a gradual monetary tightening will be capable of sustaining a solid job market and a return of inflation to 2% aligning with the maximum employment and the price stability objectives.

• FOMC expects that the ongoing modest economic growth will warrant gradual hikes in the federal fund rate. The expectation of warrant gradual hikes in the federal fund rate is underlined by FOMC’s view that the FF rate now remains lower than its neutral level that is neither tightening nor accommodative and maintains the economy to operate with no sudden changes.
• The economy growth was buttressed by a moderate rise in household spending, buoyant business investment, and robust economic conditions supporting exports.

  Thus, FOMC projected that the economy will accelerate in a modest pace in coming years. The U.S. tax reformation will pick the economic activity up in years ahead, yet its impact on the macroeconomic remain uncertain.

  US GDP Growth y-y (%) Fed Fund Rate Upper Bound (%)

1. The U.S. Economy

• – 인도네시아

  Solid Job Market • Surviving from the job fluctuations caused by hurricane disaster, from September to November the job increases were in the average of 170,000 per month.

  The three months job increases topped the estimated pace for absorbing the new entrants to the job market.

• The unemployment level slid in recent months and in November hit 4.1 percent, lower than FOMC’s estimate of the longer-run unemployment in normal level.
• The U.S. job market utilization continues to strengthen as the number of participants in the job force decreases due the aging population.
• FOMC expects the job market to remain solid buttressed by heightened job creation, adequate opportunities for workers, and increment in salaries.

  It foresees the job market to kick into highest pace within months ahead. It anticipates the highest pace in the job market to lower into a modest pace as it

  

gradually tightens its monetary policy. It gauges that the heightened job market leads to the risk of an abrupt monetary policy tightening endangering the economic

growth.

• Meanwhile, the median projection for the unemployment level settles at 4.1% in the 4Q17 and slightly close to 4% in the next three years.

  Non- US Unemployment Rate (%) Farm Payroll Addition (‘000)

1. The U.S. Economy

• – 인도네시아

  Temporary Benign Inflation

• The inflation paces lower than 2% albeit the solid economic growth and a more robust labor market. The benign inflation are evidenced by the price index for personal consumption expenditures (pce) settling at 1.6% in October and core inflation —which excludes food and energy---settling at 1,4% in October.
• FOMC considers that the 2017’s benign inflation continues for only short time and does not have substantial impact on economic conditions.
• Finally, the median inflation projection is 1.7% in 2017, 1.9% in 2018, and 2% in 2019 and 2020.

  PCE Inflation (%) Core PCE Inflation (%)

2. Indonesia Economy

  

Bank Indonesia Seems to Hold Rates Steady in 2018

Rate Cut in 2018 Is Still Possible

Indonesia’s Upgraded Rating by Fitch to BBB

2. Indonesia Economy

• – 인도네시아

  Bank Indonesia Seems to Hold Rates Steady in 2018 • BI is satisfied that its decision to hold its reserve requirement loose impacting on 2H2018 bolsters the economic growth.

• It holds its rates steady on December 14 after it stated that monetary loosing is adequate to help recovery in domestic demand. Yet, if there are hurdle threating the growth in credit, it will possibly decide another rate cut in 2018.
• BI holds its seven-day reverse repo rate steady at 4.25% as it notes that rupiah successively dives due to the contrast between the heightened recovery in global

  

growth and the imbalanced recovery in the domestic growth. This backdrop is evidenced by lagging growth in the investment other than commodity and consump-

  tion sectors. Thus, it gauges 2018’s economic growth of 5.1%-5.5% with the inflation in target range of 2.5%-4.5%.

  Reference Rate (%)

USD/IDR

2. Indonesia Economy

• – 인도네시아

  Rate Cut in 2018 Is Still Possible

• Bank lending hiked to 8.2% y-y in October from 7.9% in September. The 3Q rate cuts were successfully followed by lower deposit rate and lending rate, yet the 3Q rate cuts did not optimally boost credit growth. This was underlined by the sluggish demand for new loans and careful loan distribution caused by the heightened NPL. BI expects that the prior monetary and macro prudential loosing have impacted on picking up the growth of 10%-12% in 2018 credit from the growth of 8% in 2017 credit.
• The heightened non-performing loan (NPL) is setback for the growth in credit. The current NPL is 3% of the total assets higher than the 4Q13 NPL settling at 1.69%.

  However, BI gauges that the NPL will remain at its stable range of 3% improving bank’s capability to give lending, bolstering the growth in 2018 credit, and supporting BI to maintain its policy rate steady.

• The November inflation lagged by 3.3% y-y bringing the ytd inflation average to settle at 3.8%. Both inflations are lower than BI target midpoint inflation of 4%.

  BI gauges the core inflation to settle at 3.05% closing to a decade low.

  Loan Growth y-y and NPL (%) Inflation (%)

2. Indonesia Economy

• – 인도네시아

  Indonesia’s Upgraded Rating by Fitch to BBB

  Key Rating Driver:

• Indonesia’s resilience in overcoming global volatilities due to its macroeconomic polices upholding stability, and flexible exchange-rate policy with foreign reserve of USD126 billion reaching 7 months of current account payments.
• Structural reforms in Indonesia improving its business environment.
• Indonesia’s 5-year robust average GDP growth of 5.1%
• Indonesia’s low general debt of 28.5% of 2017’s GDP because of its compliance with the budget-deficit ceiling of 3% of GDP, leading to investors’ confidence for investing in Indonesia during period of market instability.
• Indonesia’s limited banking-sector risks due to its low private credit of 37% of GDP and its banking sector’s capital sufficiency ratio robustly settling at 23.2% in October 2017.

  Forex Reserve (USD bn) 10-year Government Bond Yield

3. Indonesia Stock Market

  

Stock Market Seeking Premium Valuation

Recommendation : UNVR, GGRM, AKRA

3. Indonesia Stock Market

• – 인도네시아

  Stock Market Seeking Premium Valuation

• The recovery signal of company listed on the Indonesia Stock Exchange persists in 2017. The trend of negative sales growth occurred in 2015 and 2016 is estimated to end after the sales growth in 1H17 hit 9%. On the other side, the efficiency proven by the hike in profit of 2016 (in spite of the negative sales growth) will augment the margin particularly when the sales experiences a significant growth.
• After market shares experienced the premium valuation spurred by the positive sentiment of the presidential election in 2014, the JCI valuation likely moves flat at around forward P/E of 15.4x. We estimate that in 2018, the premium valuation settles at 16.4x (1SD higher than the 4-year average) resulting JCI target of 7,025.

  Listed Companies Performance Forward P/E | Last 4 years

4. Indonesia Stock Market

• – 인도네시아

  Recommendation UNVR

• – TP 57,275
• UNVR’s Turnaround Sales UNVR finally succeeded to post the positive growth of 6.3% in sales from IDR9.35 trillion in 3Q16 into IDR9.95 trillion in 3Q17 compared to the decline of 3.2% y-y in the 2Q17’s sales. The Home and Personal Care (HPC) division as the greatest contributor (68% to the total sales) posted the growth of 5% in sales from IDR6.58 trillion in 3Q16 into IDR6.9 trillion in 3Q17. The HPC division consistently posted the solid performance with the gross profit margin consistently stable at around 55%. We analyze this backdrop as the sign that UNVR suffers no pressure on the selling price due to competition.
• Efficiency in Ads Cost UNVR’s ads and promotion cost is one of the most substantial costs. The ads cost contributes around 10% to the sales. However, we analyze that the downbeat trend of UNVR’s ads and promotion costs gradually prevails. One of factors backed the efficiency is the prevailing ads technology with segmented target. This technology allows the efficiency in ads usage so that a more maximum result can be obtained by a lower cost.

  Financial Summary (IDR bn) UNVR Share Price

FY2016 FY2017 FY2018E FY2019E

  Sales 40,054 42,163 44,651 47,344 Sales growth 9.8% 5.3% 5.9% 6.0%

  EBITDA 9,249 10,268 10,778 11,493 Net profit 6,391 7,068 7,509 7,940

EPS (IDR) 838 926 984 1,041

  EPS growth 9.2% 10.6% 6.3% 5.7% BVPS (IDR) 617 705 763 820 NPM 16.0% 16.8% 16.8% 16.8% ROE 134.1% 140.2% 134.0% 131.5% ROA 39.4% 40.4% 39.7% 39.2% P/E 46.3x 52.9x 49.8x 47.1x P/BV 32.2x 36.5x 34.8x 32.7x EV/EBITDA 32.2x 36.5x 34.8x 32.7x Dividend yield 2.1% 1.7% 1.9% 2.0%

4. Indonesia Stock Market

• – 인도네시아

  Recommendation GGRM

• – TP 97,825
• Sustainable Growth In 3Q17, GGRM posted the stellar performance by the increment of 11% in sales from IDR19.2 trillion in 3Q16 into IDR21.2 trillion in 3Q17.The rebound in the

  3Q17’s sales convinced that GGRM ended the lagging sales endured since 3Q15. The SKM division, the biggest contributor to sales, posted the hike of 11% in sales from

  IDR17.3 trillion in 3Q16 into IDR19.1 trillion in 3Q17. The SKT division also posted the growth of 9% in sales from IDR1.64 trillion in 3Q16 into IDR1.79 trillion in 3Q17.

• Upbeat Cigarette Excise Having No-Significant Impact Hike The excise imposed on the type I SKM for 2018 is IDR590 per cigarette or increases by 11.3% compared to the prior year’s excise. We estimate that the upbeat cigarette excises has no significant impact on GGRM as the lowest tobacco’s Retail Selling Price (Harga Jual Eceran, “HJE”) for SKM type undergoes no change.

  Financial Summary (IDR bn) GGRM Share Price

FY2016 FY2017 FY2018E FY2019E

  Sales 76,274 82,954 90,589 98,980 Sales growth 8.4% 8.8% 9.2% 9.3%

  EBITDA 12,113 12,700 14,073 15,369 Net profit 6,677 7,590 8,344 9,381

EPS (IDR) 3,470 3,945 4,383 4,876

  EPS growth 3.8% 13.7% 11.1% 11.2% BVPS (IDR) 20,563 21,868 23,651 25,927 NPM 8.8% 9.1% 9.3% 9.5% ROE 17.2% 18.6% 19.3% 19.7% ROA 10.6% 12.1% 13.3% 14.5% P/E 18.4x 20.4x 18.3x 16.5x P/BV 3.1x 3.7x 3.4x 3.1x EV/EBITDA 11.7x 13.3x 11.8x 10.6x Dividend yield 4.1% 3.2% 3.2% 3.2%

4. Indonesia Stock Market

• – 인도네시아

  Recommendation AKRA

• – TP 8,025
• Divestment Buttressing Leap in Profit In 3Q17, AKRA posted the leap of 108.6% y-y in profit from IDR208 billion into IDR433 billion. The leap in profit was contributed by the profit of IDR297 billion from the sale of its port in China. It is estimated that in 2018, it will re-achieve profit from the sale of its sorbitol manufacture in China. Now, its sorbitol manufacture contributes only 2% to its sales; accordingly, the selling of its business units is a precise strategy.
• Upward Selling Price as Petroleum Business Booster In

  3Q17, AKRA’s petroleum sales volume slid by 1.8% into 482,000 kiloliters. However, the revenue stemming from the sale of petroleum hiked by 10.2% into IDR2.8 trillion buttressed by the hike in the selling price. The average selling price (ASP) of petroleum picked up by 12.2% from IDR5,177 per liter into IDR5.810 per liter.

  Financial Summary (IDR bn) AKRA Share Price

FY2016 FY2017 FY2018E FY2019E

  Sales 15,213 18,126 19,975 20,645 Sales growth -23.0% 19.2% 10.2% 3.4%

  EBITDA 1,490 1,510 1,816 1,935 Net profit 1,011 1,312 1,695 1,792

EPS (IDR) 253 329 425 449

  EPS growth -2.2% 29.8% 29.2% 5.7% BVPS (IDR) 2,024 2,241 2,532 2,824 NPM 9.8% 8.3% 9.1% 9.4% ROE 13.2% 15.4% 17.8% 16.8% ROA 6.5% 8.0% 9.6% 9.4% P/E 23.7x 18.7x 14.5x 13.7x P/BV 3.0x 2.7x 2.4x 2.2x EV/EBITDA 18.7x 18.4x 15.2x 13.3x Dividend yield 1.5% 2.4% 2.3% 2.5%

  

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