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Research

  • Morning 1 November 2019

    FOCUS

    INVESTMENT FROM OUTSIDE JAVA ISLAND INCREASED IN 3Q19

    Indonesia Investment Coordinating Board (BKPM) confirmed the national infrastructure and construction projects, including by construction of factories, gardens, and property, have increased number of investments to Indonesia. Besides these sectors, same like 2Q19, investment in 3Q19 still came the following sectors: oil and gas, banking, nonbank financial institutions, insurance, leasing, industry household, as well as micro and small businesses.

    The investment value between January 2019 and September 2019 (Rp.601.3 trillion) reached 75% of the 2019 investment target and is higher than the same period in 2018 (Rp.535.4 trillion). The realization of investment in the 3Q19 amounting Rp205.7 trillion (18.4% yoy) or grew 2.6% (qoq). It was from Foreign Direct Investment (FDI) amounting Rp105 trillion (17.8% YoY) and Domestic Direct Investment (DDI) amounting 100.7 trillion (17.3% YoY). The FDI investment growth is only by 0.1% (qoq), however, the DDI in 3Q19 was dominated from other cities outside Java and reached 92% of the 2019 investment target. Meanwhile in 2Q19 the investment from outside java was only Rp108.8 trillion but increased 45,5%. In 3Q19.

    The government will encourage investment inflow from areas that are able to provide value-added (downstream sector) to answer the trade balance deficit problem and also another effort is to provide incentives for five Indonesian commodities in the future.

    JCI

    JCI on Thursday (31/10) shrink to 6,228 or down by 67.4 pts (-1.07%). Total transaction volume hit 22.6B shares with the total amount of Rp 11.67T. Foreign investors still recorded a net sell of Rp 599.6B shares shrinking the YTD net foreign buy to Rp 48.1T.

     

    Agriculture (+0.22%) was the only sector shone yesterday. The others plummeted, led by mining (-3.62%), followed by infrastructure (-3.16%), andbasic industry (-1.35%). MPRO (+24.6%), TPIA (+2.2%), and BBCA (+0.4%) were the top stocks lending support to JCI performance. Meanwhile, TLKM (-3.7%), SMMA (-19.8%), dan BYAN (-15.9%) were the top laggards inhibited the JCI.

     

    U.S. NEWS

    U.S. stocks ended lower after renewed worries about a U.S. - China trade deal, overshadowed strong earnings from Apple and Facebook. Cited from Bloomberg, Chinese government officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with the U.S. But Trump later said the two countries would soon announce a new site where a "Phase One" trade deal will be signed after Chile canceled a planned summit set for mid-November that was to be the venue for a signing. The DJIA closed down 0.52%, to 27,046.24, the S&P 500 lost 0.30%, to 3,037.58 and the Nasdaq Composite dropped 0.14% to 8,292.36.

     

    U.S. Treasury yields fell sharply after a report that Chinese officials were unsure if a longer-term comprehensive trade deal with the U.S. can be reached, only one day after Jerome Powell suggested no further immediate interest rate cuts may be needed given geopolitical risks had eased. The benchmark 10- year notes were 1-1/32 higher, yielding 1.68%. The two-year notes were 7/32 to yield 1.52%. The 30- year bonds rose 2-4/32 to yield 2.17%.

     

    Oil prices fell after data showed weak factory activity in China, the manufacturing PMI fell to an eight-month low of 49.3 in October from 49.8 in September. Brent crude fell by -0.66% to US$60.21/barrel and WTI crude down by -1.80% to US$54.07/barrel.

     

    INDUSTRY UPDATE

    GOVERNMENT REJECTED TO INDUSTRIAL GAS RISING PRICE

    Government through Minister of Energy and Mineral Resources (ESDM) Arifin Tasrin through letter number 482/12 / NEM.M / 2019 on October 30, confirmed that the selling price of gas for the industry will not go up. It is also in response to the plan of PT Perusahaan Gas Negara Tbk (PGAS) planning to increase prices for industrial commercial customers as of November 1, 2019 by 10-20%. The government took this step to reduce production costs from the domestic industry so that our domestic products have competitiveness against imported products.

     

    SOGGY HEAVY EQUIPMENT SALES

    Heavy equipment sales shrunk as of 9M19 at 4,688 units (-14.7%) vs 9M18 at 5,750 units due to the lethargy of the mining segment, as one of the reasons. This year construction contributed the largest towards the heavy equipment sales (40%), followed by mining (30%). Meanwhile, last year their contribution inverted. Indonesian Heavy Equipment Industry Association (Hinabi) viewed that this year's sales target at 6,000 units is questionable to be achieved; thus, they might revise the production target this year.

     

    COMPANY UPDATE

    AUTO PLANS TO SUPPLY HYUNDAI FACTORY NEEDS

    PT Astra Otoparts Tbk (AUTO), has participated in a tender to supply Hyundai's new factory in Indonesia. Furthermore, they hope to be able to supply the parts to Hyundai's new plant. As information, Hyundai invested around Rp 14T (US$ 1B) to develop a car factory in Indonesia to supply domestic needs as well as export. 

     

    WSKT IN 3Q19 RECORDED NEW CONTRACT OF 15.12 T

    PT Waskita Karya (Persero) Tbk (WSKT) in 3Q19 has recorded new contract achievement of Rp 15.12 Trillion, which originated from the Istiqlal Mosque Renovation in Jakarta (Rp 443 Billion, Revitalization of Ragunan Sports Facilities in Jakarta (Rp 419 Billion), Juanda Airport in Surabaya (Rp 685 Billion), Prabumulih-Muara Enim Toll Section 2 in Palembang (Rp 4.57 Trillion), Bekasi - Cawang Toll - Kampung Melayu Section A. Yani (Rp 772.93 Billion) and Manggarai Jatinegara Double Track in Jakarta (Rp 223.69 Billion).

     

    TECHNICAL OUTLOOK

    JCI is NEGATIVE with expected range of 6,130 - 6,280

    JCI sink to 6,228 breach its nearest support at 6,230. Therefore, the next Support lays at 5,988 while the Resistance hanging at 6,348/414. EMA 5&20 still forming golden cross pattern, but prone to make death cross pattern. Parabolic Stop and Reversal red dot already appears. MACD turn to negative, along with Stochastic still signaling down. RSI curled lower along with the candle stick leaning to the upper BB line. Hopefully, today Inflation data could be a positive catalyst, consensus predicted that Inflation in October 2019 remains at 3.45% (Y/Y).

     

    ACES   

    Support            1,650

    Resistance        1,850

    Target Price      1,900

     

    ADRO

    Support            1,250

    Resistance        1,475

    Target Price      1,450

     

    EXCL

    Support            3,250

    Resistance        3,600

    Target Price      3,555

               

    LINK    

    Support            3,800

    Resistance        4,250

    Target Price      4,500

     

    PWON

    Support            600

    Resistance        690

    Target Price      650

               

    TLKM  

    Support            4,200

    Resistance        4,450

    Target Price      4,500

     

    UNVR

    Support            42,600

    Resistance        48,000

    Target Price      45,500

     

    DISCLAIMER

    This research report is prepared by PT MINNA PADI INVESTAMA SEKURITAS Tbk. for information purposes only and is not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. The report has been prepared without regard to individual financial circumstance, need or objective of person to receive it. The securities discussed in this report may not be suitable for all investors. The appropriateness of any particular investment or strategy whether opined on or referred to in this report or otherwise will depend on an investor’s individual circumstance and objective and should be independently evaluated and confirmed by such investor, and, if appropriate, with his professional advisers independently before adoption or implementation (either as is or varied).

    Fri November 1Th, 2019
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  • ADHI - 3Q19 Result Update
    WORRIES ARE NOW SEEN
    ADHI registered revenues of Rp8.9T (-5.2% yoy), lower than Rp9.4T in the same period last year, which represents 51.4% of our full year forecast. Net profit was seen to grow (+4.7% yoy), reflecting 46.4% of our estimate. As of 3Q19, ADHI GPM/NPM stood at 15.6%/3.9% from 15.8%/3.6% last year.
     
    FALLING WELL BELOW TARGET
    As of 9M19, ADHI registered new contract of Rp7.6T, which was mostly originated from construction & energy business (81.7%), followed by property (17.9%), and others. However, such figure is still well below the Company’s full year target of Rp30T (25.3%, as of 9M19). Based on the result, the annual run rate would translate to Rp10.1T of value, but it is important to note that it is often the case contractors to receive a large chunk of its projects by the end of year, which may spur the aforementioned figure above.
     
    CASH INFLOWS ARE HIGHLY ANTICIPATED
    In October 2019, ADHI received the fourth LRT payment worth Rp1.4T (after tax) for progress between October 2018 – March 2019, translating to a total payment of Rp8.3T, which should reflect in 4Q19 result. The management expects additional payments to occur by the end of the year, which should boost ADHI’s cash level and DER, both recorded at Rp1.46T and 1.7x respectively, as of 3Q19.
     
    CONCERNS REMAIN
    Construction services dropped -9.3% (yoy) to Rp7.1T, while EPC also plunged by more than half from Rp707B to Rp351B. However, property sales and infrastructure investment supported ADHI’s top line with both posted Rp1T (+76% yoy) and Rp445B (+51% yoy), respectively. The financials though, were underpinned by positive other income if compared with negative income in the same period last month as well as lower tax expenses, leading ADHI to post a moderate +4.7% (yoy) of net profit growth to Rp351B. Going forward, we should brace for sluggish result in the 4Q19 quarter, despite the conclusion of the presidential election, if new project tender will be deferred to next year.
     
    VALUATION
    As we rollover our base year, we reiterate our BUY recommendation with lower 12-month target price of Rp1,425/share (previous TP: Rp1,780/share), given sluggish new contract achievement. The implied target price is based on average historical 5-year P/E multiple target of 5.1x at -2SD. 12-month target price reflects forward P/B of 0.7x. Key risks include: soft new contract achievement due to possibility of tender deferral, late LRT disbursement, and squeezing interest expenses.
    Thu October 31Th, 2019
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  • SMRA - 3Q19 Result Update
    HAPPY MOMENTS
    SMRA recorded revenues of Rp4.4T (+9.6% yoy) as of 3Q19, on the back of robust housing sales (+40.2% yoy) and commercial building. However, apartment sales plummeted to Rp343B. GPM slightly slipped to 46.5%, but NPM went up to 7.1% from previously 5.1%, as a result of lower minority interest contribution to the parent company. Top line result represents 70.8% of our FY19 estimate (Rp6.23T) and bottom line result reflects 73.6% of our Rp428B of FY19 target. 
     
    CREEPING HIGHER
    As of 8M19, marketing sales figure reached Rp3T, which covers 76% of the company’s FY19 target. Karawang (107%), Makassar (96%), Serpong (80%), and Bekasi (78%) spurred the good result. Seen from July – August period, SMRA was able to add ~Rp400B of marketing sales per month, in our view, should continue until the end of the year, given benign environment following post-presidential election, coupled with dovish interest rate outlook.
     
    IT MAY EXCEED OUR EXPECTATION
    Revenues was seen to hit Rp4.4T (+9.6% yoy), as the company successfully added Rp1.7T (+7.2% qoq, +27.8% yoy) in 3Q19. Housing sales (+40.2% yoy) and commercial building pushed top line higher, while on the other hand, apartment sales dragged down the revenues. Operating expenses were up by +10.7% (yoy), but seen quarterly, it actually declined by -9.7% (yoy). Bottom line, net profit jumped +54.7% (yoy) to Rp315B vs. Rp203B, resulting a net profit margin improvement from 5.1% to 7.1%. According to the annualized run rate, SMRA net profit will be slightly below our initial estimate of Rp428B. However, 3Q19 result gave us hint that demand is now picking up, which we believe, if the Company continues its robust 3Q result in the 4Q19, then SMRA may indeed be able to exceed our expectation.  
     
    VALUATION
    As we rollover our base year, we upgraded our HOLD to BUY recommendation. We arrive at 12-month target price of Rp1,330/share (previous TP: Rp1,280/share, 2-year -2SD at 65% discount to RNAV, WACC: 11.1%, LTG: 3.0%). The target price increase is fueled by optimism regarding strong marketing sales achievement, coupled with Indonesia cabinet establishment and dovish interest rate outlook. The implied target price reflects 12-month forward P/E of 33x and P/B of 1.9x. Key risk to our forecasts includes: soft 4Q19 demand that would result in SMRA’s top line falling below our expectation.
    Thu October 31Th, 2019
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  • TLKM - 3Q19 Result Update
    NO WORRIES
    TLKM revenues were up by +3.5% (yoy) to Rp102.6T (72.8% of our FY19 forecast). Interest expense rose by +23% (yoy); however, the Company’s bottom line remains strong at Rp16.5T (+15.6% yoy), in line with our estimate (75.5%).
     
    FY19 RESULT: IN LINE WITH FULL YEAR ESTIMATE
    As seen only from 3Q19, data and internet as the biggest source of TLKM’s revenues, slipped by -1.0% (qoq) to Rp20.1T. Legacy business, given lesser customers dependency going forward, dropped by -2.8% (qoq), coupled with interconnection (-13.0% qoq) and network & others (-20.6% qoq). In addition, interest expense went up by +10.9% (qoq), but lower operational and costs has resulted in hefty growth of net profit (+10.9% yoy). EBITDA also grew by +8.4% (qoq, +2.0% yoy). Top line is slightly below our estimate (72.8%) of Rp141T, but bottom line is in line with our estimate of Rp16.5T for FY2019. EBITDA was registered at Rp50T (74.1% of our estimate at Rp67.4T).
     
    BALANCE SHEET REMAINS HEALTHY
    We see TLKM consolidated balance sheet remains healthy, suggested by the fact that DER is still below 1.0x at 0.44x, as of 3Q19 vs. 0.38x in FY18. It is important to note that TLKM interest-bearing debt position stood at Rp50.8T vs. Rp44.1T, an additional ~Rp6.8T of debt. In terms of profitability margin, as 3Q19, EBITDA margin had a turnaround at 48.7%, after posting downtrend result at 50.3% and 47.8% in 1Q19 and 2Q19, respectively. Net profit margin remains solid at 16.0%, unchanged from 16.0% in 2Q19.
     
    GETTING MORE RESOURCEFUL
    As of 15 Oct., Mitratel, as a subsidiary of TLKM, agreed to purchase 2,100 towers from ISAT with a transaction value of Rp4.4T, implying purchase price of Rp2.1B each. The transaction would also add its already-abundant assets to more than 15,800 units. In turn, ISAT would like to lease back its towers to continue its expansion. For TLKM, we think the tower acquisition will surely benefit the Company, given relatively high tenancy ratio, as well as widen network coverage to support 5G technologies when it has been ready to implement in Indonesia, the Company said. 
     
    VALUATION
    As we rollover our base year, we upgraded our HOLD to BUY recommendation with 12-month target price of Rp4,600/share (previous TP: Rp4,300/share). We arrive at the TP by utilizing both DCF (WACC: 12.2%, LTG: 3.5%) and EV/EBITDA (+1.5SD at 7.3x) multiple approaches. 12-month target price reflects forward P/E and P/B of 18.9x and 3.6x, respectively. Key risks include: slower synergy realization from tower acquisition and narrowing legacy business that has acted as buffer.
    Thu October 31Th, 2019
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