MNCS Morning Navigator 17 July 2020

Global Market Highlight

DJIA slipped by -0.50% on Thursday (16/07)followed by S&P 500 (-0.34%) and Nasdaq (-0.73%). The worsening of the labor force data has weakened the global stock exchange. US new jobless claims data increased by 1.3 million (exceeding 1.25 million expectations). Although continuing jobless claims fell at 17.3 million (previously 18 million) and retail sales data increased to 7.5%, this has not been able to significantly boost the stock exchange rate. Moreover, the market will look forward to several data releases today, such as: 1) US Consumer Sentiment; 2) UK Consumer Confidence; 3) Eurozone Core Inflation Rate.

Domestic Updates

BI has decided to reduce the BI 7-Day Reverse Repo Rate by 25 bps to 4%, the Deposit Facility Interest rate by 25 bps to 3.35%, and Lending Facility interest rate by 25 bps to 4.75%. This decision is to support the economic recovery in the Covid-19 pandemic while maintaining the inflation rate low and exchange rate stable. BI will also put more emphasis on monetary expansion by accelerating the government’s fiscal stimulus. BI will also commit to assist the government in expediting the recovery of corporations and SMEs.

Company News

1. ADHI IJ booked nearly IDR4 trillion of the contract value in the 1H20. Previously, the company was aiming for new contracts amounting to IDR35 trillion, with revenues and profits targeted to reach IDR22.7 trillion and IDR704 billion, respectively. Adjusting to the impact of Covid-19, the company is trying to revise new targets. Nonetheless, the company had already cut capital expenditure allocation from IDR5.5 trillion to IDR1.4 trillion (Market Bisnis). MNCS Comment: We consider the plan to revise the targets in FY20E quite realistic, due to the lack of infrastructure growth at this time. ADHI is currently traded at 0.41x PBV.
2. ASII IJ began to see its rise in sales in June 2020, recording a significant growth of sales of 340% MoM. The company sold 4,856 units in June, in comparison to 1,102 units in May. In contrast, it sold above 40,000 units per month in 1Q20. Management hopes that this recovery will continue. The domestic 4W vehicle market as a whole saw a drop in sales in May when only a total of 3,551 units were sold in the market (Market Bisnis). MNCS Comment: ASII is benefited from the economic recovery as people’s purchasing power seem to rise with the increase of car sales. ASII is currently traded at 11.05x/1.38x PE/PBV.
3. ARNA IJ recorded a decrease in revenue by 4.88% YoY to IDR995.68 billion in 1Q20. Nonetheless, they still recorded a brilliant performance of 1H20 net income amounting to IDR120.64 billion, which is an 18.16% YoY growth, despite the presence of Covid-19. Management said the increase in net income is due to the rise of the average selling price and a decrease in COGS, even though the volume of sales has decreased. Management is still confident that it can maintain its projected net profit of IDR264 billion by the end of the year (Market Bisnis). MNCS Comment: We believe ARNA will maintain the good performance of the company by preserving its ceramic tiles quality, while continue to grow and extend its domestic expansion on high-end tiles. Any government-mandated gas price reduction would be a further boost for ARNA, as gas accounts for ~32% of costs. ARNA is currently traded at 12.73x/2.82x PE/PBV.

IHSG Updates

JCI increased by +0.44% to 5,098.37 on Thursday (16/07), followed by net foreign buy reaching IDR123.86 billion. The increase occurred amid the weakening on the global and regional Asia indices while the domestic market responds to the 25bps rate cut by BI to 4%. In addition, BI has also added bank liquidity of IDR633 trillion to date to stimulate a sluggish economy. Furthermore, the large scale social restriction will be extended as of yesterday. Meanwhile, the Rupiah exchange rate against the USD was weakening at IDR14,625. We estimate JCI will move in the range of 5,022-5,111 while waiting for motorbike sales data release. Today's recommendation: WEGE, UNTR, MEDC, HMSP.

Corporate Action

Cum Dividend: SMCB, TCPI

Ex Dividend: ELSA

Disclaimer On

WEGE, UNTR, MEDC, HMSP, ADHI, ASII, ARNA