MNCS Morning Navigator 15 July 2020

Global Market Highlight

DJIA climbed +2.13% on Tuesday (14/07) followed by S&P 500 (+1.34%) and Nasdaq (+0.94%). Stock market rises as Caterpillar leads (+4%) and sentiment also got a boost after Florida reported a daily Covid-19 case increase that was below a seven-day average. Meanwhile, earnings season kicked off in Tuesday with the latest quarterly results from big banks: JPMorgan Chase's and Citigroup's earnings beat analysts' estimates, but the firms' results highlighted the extraordinary economic uncertainty ahead and a worrisome outlook on the health of their corporate and consumer clients. We note that the strengthening was also driven by the statement of Fed Governor who kept interest rates in the range of 0%-0.25% until inflation returned to the target of 2%.  More monetary and fiscal support from the Fed will continue to be done to encourage the economy to face the Covid-19 pandemic. Moreover, the market will look forward to several data releases today, such as: 1) US Industrial Production per June-2020; 2) China FDI per June-2020; 3) Japan BOJ Interest Rate Decision.

Domestic Updates

According to the Business Activity Survey (SKDU), business activity will potentially declined in the 2Q20. This can be seen from the weighted net balance (WNB) of -35.75% in 2Q20, which was deeper compared to the -5.56% decrease in 1Q20. Disruptions from Covid-19 further decreased business activity in all economic sectors, especially the manufacturing industry, trade, hotel, restaurant, and services sector. Consequently, all of the production capacity, use of labor, liquidity, and profitability showed a decline in the second quarter, making access to bank credit more difficult. Fortunately, respondents predicted that business activities will increase in 3Q20, with WNB of 0.52%. The mining sector is predicted to recover the most due to demand increase and favorable weather.

Company News

1. KIJA IJ recorded 1Q20 marketing sales of IDR111 billion and total sales of IDR473.3 billion, a 19% YoY decrease. Moreover, it suffered an IDR669.1 billion loss due to the effect of the exchange rate, totaling a net loss of IDR759.8 billion. To maintain investors’ interest amidst the pandemic, they planned the expansion of selling online and the implementation of discounts. While property sales have been negatively affected, the management assured that there are still many inquiries from prospective buyers (Market Bisnis). MNCS Comment: The weakening performance was due to the Covid-19 pandemics which impacted the property sector. KIJA is currently traded at 0.66x PBV.
2. STTP IJ will give out dividends amounting to IDR100 billion from net income in FY19. This is equivalent to IDR76.34 per share, a 0.8% yield. Meanwhile, the dividend payout ratio is 20.72% of the total net profit, which is IDR482.59 billion. Cum dividend date will be on 20 July 2020. Overall, the company recorded a brilliant performance for FY19 net profit, gaining an 89.12% YoY increase (Market Bisnis). MNCS Comment: Amidst the pandemic, STTP’s performance remains solid and still distribute dividends. STTP is currently traded at 15.86x/4.86x PE/PBV.
3. BEEF IJ recorded sales at IDR347.19 billion at the end of 1Q20, a 34.47% YoY increase. Its largest revenue share came from biological assets at IDR196.75 billion, then meat and beef products at IDR80.76 billion. Unfortunately, they also recorded a net loss of IDR32.67 billion. This is due to its drastic increase in expenses, such as the 60.36% increase in COGS (IDN Financials). MNCS Comment: Despite the increase in revenue, BEEF cannot maintain cost efficiency resulting in a net loss. BEEF is currently traded at 1.18x PBV.

IHSG Updates

JCI increased by +0.29% to 5,079.12 on Tuesday (14/07), although followed by net foreign sell reaching IDR160 billion. The increase occurred amid the weakening on Regional Asia indices while the US indices rose yesterday. Furthermore, the market is expecting the release of Trade Balance data today, as the consensus estimates to be in a surplus. And then the market is looking forward for the announcement of BI 7DRR which is expected to be cut by 25 bps. Meanwhile, the Rupiah exchange rate against the USD was weakening at IDR14,450. We estimate JCI will move in the range of 5,009-5,111. Today's recommendation: AALI, AKRA, GGRM, BBCA.

Corporate Action

Cum Dividend: ROTI, SRIL

RUPS: ICBP, INDF

Disclaimer On

AALI, AKRA, GGRM, BBCA, STTP, KIJA, BEEF