MNCS Morning Navigator 19 August 2020

Global Market Highlight

DJIA fell 66.84 points or 0.24% on Tuesday (18/08) while the Nasdaq Composite gained +0.73% followed by S&P 500 (+0.23%). Stocks got an early boost after the Government said that housing starts jumped 22.6% in July (above consensus expectations). The S&P 500 closed at its highest level, capping a remarkable rebound fueled by unprecedented government stimulus and optimism among investors about the world's ability to manage the Covid-19 pandemic. The slight weakening on Dow Jones was still due to investor concerns over political rivals of the Democratic and Republican Parties. The USD10 billion stimulus program has yet to find a bright spot. This condition indicates that the global stock market has entered an upward trend.  Meanwhile, market players are also waiting for the outcome of the Fed meeting regarding the interest rate policy which will be announced tomorrow.  Market consensus predicts The Fed Rate will remain at the level of 0-0.25% given the US economy continues to show gradual recovery. Moreover, the market will look forward to several data releases today, such as: 1) US MBA Mortgage Application; 2) UK Core Inflation Rate; 3) Eurozone Core Inflation Rate.

Domestic Updates

1. Indonesia posted a trade surplus of USD3.26 billion in July 2020, the largest since August 2011. This month’s surplus is a USD0.28 billion increase from the same month last year and beats market consensus by USD0.68 billion. While exports dropped, imports dropped even more. Exports fell by -9.90% YoY to USD13.73 billion, due to lower sales of both non-oil (-5.87%) and oil and gas products (-46.69%). The biggest decrease came from mining products (-52.12%), including crude oil (-37.56%). Meanwhile, imports tumbled by -32.55% to USD10.47 billion as purchases of both oil and gas (-45.19%) and non-oil and gas (-30.95%) plunged.
2. The Indonesian Balance of Payments (BOP) recorded a sizable surplus of USD9.2 billion in the 2Q20, showing Indonesia’s external resilience, after experience a deficit of USD8.5 billion in 1Q20. The improvement in BOP is supported by a decrease in the current account deficit and a large surplus in the capital and financial account. The current account deficit decreased from USD3.7 billion or 1.4% of GDP in 1Q20 to USD2.9 billion or 1.2% of GDP. Meanwhile, capital and the financial account were recorded at a surplus of USD10.5 billion, mainly from net inflows of portfolio investment and direct investment. Thus, foreign exchange reserves at the end of June 2020 increased to USD131.7 billion, which is equivalent to 8.1 months of financing imports and government external debt.

Company News

1. WIKA IJ recorded a decrease in 1H20 revenue by -37.23% YoY to IDR7.13 trillion. As a result, net profit decreased by a whopping -71.89% YoY to IDR250.41 billion from IDR890.88 billion in 1H19. However, WIKA has succeeded in reducing its long-term liabilities form IDR12.54 trillion from last semester, to IDR5.14 trillion. Nonetheless, total liabilities as a whole stood similar from IDR42.89 trillion in last semester to IDR43.87 trillion this semester. Furthermore, WIKA posted a decrease in CAPEX from IDR 4.92 trillion in 1H19 to IDR0.76 trillion in 1H20 (Market Bisnis). MNCS Comment: WIKA's revenue achieved only 28.01% of the MNCS target in FY20E, while the net profit is still quite inline at the level of 57.12% of the MNCS target. This is due to the decrease in debt, also a decrease in the cost of funds, so that the net profit is still quite in line with the MNCS target. WIKA is currently traded at 29.20x/0.81x PE/PBV.
2. WEGE IJ posted 1H20 revenue of IDR1.71 trillion, a -20.46% YoY downfall from IDR2.15 trillion. Consequently, net profit declined by -46.8% to IDR96.61 billion. Although it succeeded in reducing the amount of liabilities from IDR3.73 trillion to IDR3.54 trillion, WEGE also recorded a new debt of short-term liabilities, increasing short-term bank loans from third parties by IDR300 billion and short-term payables by IDR120 billion. Meanwhile, CAPEX increased dramatically from IDR65.3 billion in 1H19 to IDR167.93 billion in 1H20 (Market Bisnis). MNCS Comment: Debt increase in the short run is to maintain cash flow, this is because WEGE is still waiting for payments that are likely to be received in 3Q20E/4Q20E. WEGE is currently traded at 5.74x/0.85x PE/PBV.
3. WTON IJ recorded a decline of -29.22% YoY of revenue in 1H20 to IDR1.86 trillion. Thus, operating profit decreased by -75.55% YoY to IDR64.42 billion and net profit plunged by -78% YoY to IDR36.64%. The decline in revenue was caused by the decline in sales of rotary products from IDR1.48 trillion in 1H19 to IDR0.69 trillion in 1H20. However, the construction sector actually experienced growth from IDR291.37 billion in 1H19 to IDR321.36 billion in 1H20. Meanwhile, CAPEX also decreased from IDR160.58 billion to IDR108.08 billion this semester (Market Bisnis).  MNCS Comment: WTON's steps to hold their capex are quite wise whereas there is a disruption in cash flow at the time, so we consider it will be reasonable if there is a decrease on capex in 1H20. WTON is currently traded at 35x/0.75x PE/PBV.

IHSG Updates

JCI rose by +0.90% to 5,295.17 on Tuesday (18/08) followed by net foreign buy reaching IDR128.76 billion. JCI stock rose on the first day of trade this week supported by positive catalyst from the surpluses recorded in Balance of Payment followed by Balance of Trade, while the deficit in the Current Account narrowed to USD2.9 billion after being estimated to widened to USD10.5 billion. This has uplift the market as foreign investors return. Furthermore, the market will be expecting the interest rate (BI 7DRR) decision which is estimated to remain at 4%, while this will be a breather for the banking sector. Meanwhile, the Rupiah exchange rate was weakening at IDR14,845.We estimate JCI will move in the range of 5,220-5,330. Today's recommendation: MDKA, BBRI, SMRA, GGRM.

Corporate Action

RUPS: TRIN, BOGA, BIRD

Disclaimer On

MDKA, BBRI, SMRA, GGRM, WIKA, WEGE, WTON