Global Market Highlights
The DJIA weakened by -0.25% on Wednesday (18/09), followed by the S&P 500 (-0.29%) and the Nasdaq (-0.31%). Wall Street corrected as markets digested Fed’s decision to cut rates by 50 bps to 5%, exceeding expectations of a 25 bps cut. Additionally, markets responded to the new economic projections, where core inflation is revised to 2.6%/2.2% for 2024/2025 (vs 2.8%/2.3% previously), GDP is lowered to 2% for 2024 (vs 2.1% previously), and unemployment rate is now expected to rise to 4.4% for both 2024/2025 (vs 4%/4.2% previously). Investors are now pricing in for the next rate cut in Nov-2024. Today the market will be looking forward to several data releases such as: 1) GB BoE Interest Rate Decision; 2) US Current Account 2Q24; 3) US Initial Jobless Claims Sep/14.
Domestic Update
BI decided to cut interest rate by 25 bps to 6.0%, along with the Deposit Facility rate to 5.25% and Lending Facility rate to 6.75%. MNCS Comment: This decision was unexpected by the market, which had initially anticipated BI would maintain the interest rate at 6.25%. We believe this policy aligns with expectations of a Fed rate cut. It is also consistent with the stability of the IDR exchange rate and the softer inflation outlook for 2024 and 2025, which is targeted at 2.5%. We anticipate BI may cut rates by another 25 bps in Nov-2024, in line with the possibility of the Fed reducing rates three times this year. Additionally, we view this rate cut as positive for the property and automotive sectors, as well as for certain banks.
Company News
1. LPCK IJ reported a -3.0% YoY decline in net profit to IDR71.1 billion in 1H24 (vs IDR73.4 billion in 1H23). MNCS Comment: Despite a net revenue growth of +19.5% YoY to IDR676.5 billion (vs IDR566.1 billion in 1H23), cost of revenues significantly increased by +33.3% YoY to IDR412.8 billion in 1H24 (vs IDR309.8 billion in 1H23). Additionally, other expenses grew by -37.8% YoY and finance expenses surged by 42.2% YoY. As a result, margins declined, with OPM/NPM falling to 20.3%/10.5% in 1H24 (vs 21.9%/13.0% in 1H23). LPCK is currently trading at 14.69x/0.30x PER/PBV.
2. UNTR IJ has revised its Komatsu brand heavy equipment sales target to 4,500 units in FY24E, up from the previous target of 4,000 units. MNCS Comment: This revision is prompted by a positive outlook of heavy equipment sales in 2H24, driven by an increase in purchasing power and improved demand in the mining sector. As of Jul-2024, UNTR has sold 2,500 units of Komatsu brand heavy equipment, representing a -29.0% YoY decrease and amounting to 55.6% of the new target. Management hopes that the slowdown in FY24E heavy equipment sales from commodities will be balanced out by growth in the construction sector, with recovery expected in FY25. UNTR is currently trading at 5.23x/1.16x PER/PBV.
3. AALI IJ has absorbed capex worth IDR379 billion in 1H24, amounting to 29.2% of the target in FY24. MNCS Comment: This reflects a -21.9% YoY decrease from the capex obtained in 1H23 at IDR485 billion, which will be primarily used for replanting old oil palm trees and aims to initiate replanting to over 3000 hectares of land in FY24E. Additionally, the company will be using innovative seedlings for its replanting, which is expected to decrease fertilization costs by 25%. AALI is currently trading at 12.20x/0.55x PER/PBV.
IHSG Updates
The JCI closed flat at -0.03% to 7,831.78 on Wednesday (18/09), amid a net foreign buy of IDR1.42 trillion. Most sectors saw gains, led by the property and real estate sector (+2.00%), followed by the healthcare sector (+1.84%). On the other hand, the sectors that experienced declines were led by the technology sector (-2.59%) and followed by the consumer cyclical sector (-1.56%). The index moved relatively sideways, while Asian markets closed stronger. Investors are taking a wait-and-see ahead of the FOMC's decision in Sep-2024, which will determine the size of the FFR cut. Meanwhile, investors are also digesting Bank Indonesia's unexpected move to cut the BI Rate earlier than market expectations, reducing it by 25 bps to 6.0% in the RDG Sep-2024. The Rupiah closed lower at IDR15,340/USD. We estimate that the JCI will move in the price range of 7,802-7,900. Today's recommendations: ACES, AVIA, BBNI, MDKA.
Corporate Actions
EGMS: TCPI
Cum Dividend: BTON (IDR10/share)
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