January Monthly Report Lustrous Outlook NHKS Monthly Report (English)

(1)

NH 해외주식–인도네시아

1 NH Korindo Research

Summary:

I. The U.S. Economy/2

II. Indonesia Economy/6

III. Indonesia Stock Market/10

Indonesia Market

–

Outlook 2H17

Lustrous Outlook

NH Korindo Research

(2)

1. The U.S. Economy

FOMC Meeting : Economy Is Primed for Gradual Rate Hike

Solid Job Market

(3)

3

FOMC Meeting : Economy Is Primed for Gradual Rate Hike

1. The U.S. Economy

• 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 (%)

Source: Bloomberg, NH Korindo Research

Fed Fund Rate Upper Bound (%)

(4)

4

Solid Job Market

1. The U.S. Economy

• 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.

US Unemployment Rate (%)

Non-Farm Payroll Addition (‘000)

(5)

5

Temporary Benign Inflation

1. The U.S. Economy

• 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.

Core PCE Inflation (%)

PCE Inflation (%)

(6)

2. Indonesia Economy

Bank Indonesia Seems to Hold Rates Steady in 2018

Rate Cut in 2018 Is Still Possible

(7)

7

Bank Indonesia Seems to Hold Rates Steady in 2018

2. Indonesia Economy

• 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-tionsectors. 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

(8)

8

Rate Cut in 2018 Is Still Possible

2. Indonesia Economy

• 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 inflationof 4%. BI gauges the core inflation to settle at 3.05% closing to a decade low.

Inflation (%)

Loan Growth y-y and NPL (%)

(9)

9

Indonesia’s Upgraded Rating by

Fitch to BBB

2. Indonesia Economy

Key Rating Driver:

• Indonesia’s resilience in overcoming global volatilitiesdue 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 growthof 5.1%

• Indonesia’s low general debt of 28.5% of 2017’s GDPbecause 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

(10)

3. Indonesia Stock Market

Stock Market Seeking Premium Valuation

(11)

11

Stock Market Seeking Premium Valuation

3. Indonesia Stock Market

• 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

(12)

12

Recommendation UNVR

–

TP 57,275

4. Indonesia Stock Market

• 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.

UNVR Share Price

(13)

13

Recommendation GGRM

–

TP 97,825

4. Indonesia Stock Market

• 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.

(14)

14

Recommendation AKRA

–

TP 8,025

4. Indonesia Stock Market

• 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.

(15)

Thank You

DISCLAIMER

This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a sell ing offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtai ned from reliable sources, it accuracy and completeness cannot be guaranteed. PT NH Korindo Sekuritas Indonesia, its affiliated companies, respective e mployees, and agents disclaim any responsibility and liability for claims, proceedings, action, losses, expenses, damages, or costs filed against or suffere d by any person as a result of acting pursuant to the contents hereof. Neither is PT NH Korindo Sekuritas Indonesia, its affiliated companies, employees, nor agents liable for errors, omissions, misstatements, negligence, inaccuracy arising herefrom.