MNCS Morning Navigator 09 October 2020

Global Market Highlight

DJIA dropped by +0.43% on Thursday (08/10) followed by S&P 500 (+0.80%) and Nasdaq (+0.50%). Dow Jones reached its highest level in a month, as stimulus talks continued. House of Representatives Speaker Nancy Pelosi said there would be no standalone deals for airlines without a larger aid package. The US weekly unemployment rate increased by 840,000 people and filed for benefits the first time, higher than the consensus expected. IBM shares jumped 6% after the company announced its plans to relinquish its IT infrastructure unit. Moreover, the market will look forward to several data releases today, such as: 1) US Wholesale Inventories; 2) China Caixin Composite PMI; 3) UK GDP.

Domestic Updates

Retail sales in Indonesia still decreased by 9.2% YoY in August 2020. Though it is recovering from 12.3% drop in July. This marked the ninth straight month of fall in retail trade, but the weakest pace since March, amid the prolonged impact caused by the Covid-19 crisis that made people to stay at home most of their time. Sales dropped less for most categories: clothing (-64.9%), cultural & recreational goods (-38.2%), fuel (-23.5%), automotive parts & accessories (-25.2%). In addition, sales of food, beverages & tobacco rebounded (2.7%). Meantime, sales fell faster for both home appliances (-24.5%) and information & communication equipment (-19.2%). On a monthly basis, retail sales increased by 1.3% MoM in August, after a 0.3% MoM rise in July.

Company News

1.       GMFI IJ record a 32% MoM growth in August 2020 on flight frequency driven by a gradual resumption from prior suspended operations. Meanwhile, block hours also grew by 29% MoM supported by the return of maintenance activities for foreign carriers. GMFI is also expanding their cargo aircraft and private jet due to the low demand from the commercial flight (Press Release). MNCS Comment: We believe that the expansion to the cargo business will be one of the pillars to support performance amid the aviation conditions that have not yet fully recovered. Aggressive market penetration is also conducted in the non-aviation sector such as the Industrial Gas Turbine Engine (IGTE). GMFI is currently traded at 1.44x PBV.
2.       INCO IJ has finalized their 20% acquisition to MIND ID. The acquisition amounted to IDR5.52 trillion and was taken over from Sumitomo Metal Mining (5.1%) and Vale Canada Limited (14.9%). The acquisition price is at IDR2,780/share, and currently the major shareholders are Vale Group 44.34%, MIND ID 20.00%, SMM 15.03%, Sumitomo Corporation 0.14%, and the public 20.49% (Market Bisnis). MNCS Comment: The takeover will surely strengthened Indonesia's mining business as Indonesia is one og the largest nickel producer in the world. This will also give an advantage given that Indonesia can now process our own nickel into batteries. INCO is currently traded at 22.89x/1.22x PE/PBV
3.       LPKR IJ recorded an staggering increase of 304% YoY in 3Q20 marketing sales amounting to IDR2.28 trillion from IDR303 billion in 3Q19. This exceeded overall marketing sales during 1H20, despite the weak macroeconomic conditions due to Covid-19. Affordable housing projects remained the driving force behind sales, representing 51% of total sales. The company is optimistic that it will be able to exceed the marketing sales target of IDR2.5 trillion by the end of the year which will be boosted in the 4Q20 (Investor Daily). MNCS Comment: LPKR's success in generating marketing sales deserves appreciation. Choosing a strategy in selling property at affordable prices is indeed quite appropriate in the midst of a fluctuating economy. LPKR is currently traded at 0.34x PBV.

IHSG Updates

JCI increased by +0.70% to 5,039.14 on Thursday (08/10) followed by net foreign buy reaching IDR49.94 billion. Stock prices remains strong though retail sales still record a drop in August, though on a monthly basis it shows signs of recovery. This is followed by a chaotic demonstration over Omnibus Law approval, but even this doesn't shook the market. Meanwhile, the Rupiah exchange rate was strengthening at IDR14,710. We estimate JCI will move in the range of 4,840 – 5,075 while waiting for Interest Rate Decision. Today's recommendation: AALI, BBRI, ADHI, MDKA.

Corporate Action

RUPS: ENVY

Disclaimer On

AALI, BBRI, ADHI, MDKA, GMFI, INCO, LPKR