MNCS Morning Navigator 21 July 2020

Global Market Highlight

DJIA was flat by 0.03% on Monday (20/07) while Nasdaq jumped (+2.51%) followed by S&P 500 (+0.84%). Stock rose supported by a rally in tech stocks and continued optimism about the prospects of a Covid-19 vaccine being ready for production later this year. Market are also hoping on more fiscal stimulus. Furthermore, investors are weighing another heavy calendar of earnings reports this week, including from Coca-Cola Co., Lockheed Martin Corp., and United Airlines Holdings Inc. which S&P 500 companies are projected to report a 44% drop in earnings for the 2Q20. Moreover, the market will look forward to several data releases today, such as: 1) US Chicago Fed National Activity Index per June-2020; 2) Japan Inflation Rate per June-2020; 3) Eurozone ECB Guindos Speech.

Domestic Updates

BI stated that interest rate will potentially has another decline due to the ongoing global economic contraction and Indonesia’s economic growth in 2Q20. The decision was made to keep inflation low, maintain external stability, and further encourage economic recovery. Meanwhile, national economic growth in 2Q20 is expected to experience a contraction, with the lowest level in May 2020. However, the latest developments in June 2020 show that the economy has begun to improve along with the relaxation of PSBB, although it has not yet returned to pre-pandemic levels. Bank Indonesia strengthens interest rate policy with 4 policy steps, as the following: 1) BI will continue to stabilize the Rupiah exchange rate according to the fundamental values and market mechanisms; 2) BI will strengthen the synergy of monetary expansion by accelerating the government’s fiscal stimulus; 3) BI will improve coordination of policy steps with the government and KSSK to maintain macroeconomic stability and financial systems; 4) BI will accelerate the digitization of the payment system to implement a digital economy and finance as part of the economic recovery efforts.

Company News

1. MEDC IJ stated that it will cut 2020 capital expenditure allocation from USD340 million to only USD240 million. It will also cut its production target, which was originally 110 thousand barrels of oil per day to be in the range of 100-105 thousand due to the fluctuation of oil prices and the decrease in demand. Nonetheless, it announced that the Meliwis Field, located in Madura, East Java, had started production on July 13, 2020.  Management said that despite the logistic and operational issues due to Covid-19, the company is able to finish the development (Market Bisnis). MNCS Comment: We consider MEDC plan is quite realistic during Covid-19. Oil price was sluggish to level USD40/barrel while cost production increased. MEDC is currently traded at 0.50x PBV.
2. POWR IJ stated that it has prepared up to IDR146.32 billion for a buyback that will be carried out in stages within 18 months. Meanwhile, POWR is also distributing dividends amounting to USD72.65 million, which is 64% of the company’s FY19 net profit of USD113.53 million. Almost USD28 million were distributed already on December 27, 2019, thus only the remaining USD44.68 million will be distributed. Dividend per share stood at IDR41 per share with 6.83% yield. Cum dividend date is July 29, 2020 (Market Bisnis). MNCS Comment: We believe POWR still provide an attractive dividend yield at 6.83%, higher compare to previous year at 4.15%. POWR is currently traded at 0.89x PBV.
3. BALI IJ recorded a revenue increase of 26.19% YoY to IDR371.78 billion. Revenue grew thanks to the acquisition of business lines in the tower sector that garnered IDR251.76 billion. Meanwhile, the company scored a net profit of IDR31.18 billion, which is a 27.42% YoY increase. In terms of assets, BALI recorded a 6.53% QoQ increase to IDR 4.41 trillion (Market Bisnis). MNCS Comment: BALI is still managed a good performing in operational side amid the current economic condition. Overall, we are Overweight on Telco and Tower sector as they might have enjoyed a short term benefit of rising demand. BALI is currently traded at 1.64x PBV.

IHSG Updates

JCI decreased by -0.56% to 5,051.11 on Monday (20/07)although followed by net foreign buy reaching IDR243.71 billion. These weakening occurred amid various movements of the global and regional Asia indices. This is followed by the weakening of the foreign exchange which is a result from the global sentiments and pressure on the emerging markets. So investors seem to steer clear of instruments or markets that they consider to be high risk. Meanwhile, the Rupiah exchange rate against the USD was weakening at IDR14,785. We estimate JCI will move in the range of 5,022-5,111 while waiting for Loan Growth data release. Today's recommendation: KLBF, BSDE, BBTN, INDF.

Corporate Action

Cum Dividend: KEJU

Ex Dividend: DUTI, STTP

Disclaimer On

KLBF, BSDE, BBTN, INDF, BALI, MEDC, POWR