Asia Pacific Equity Research 08 March 2013
Indonesia Equity Strategy On the ground in Indonesia: distilling conversations with corporates, business people and investors After a series of meetings with corporates, business people and investors, we report what we read as the single key from each set – and how these impinge on our outlook for Indonesian equities. We see upside from EPS revisions, such as for Astra, and think small cap performance will perk up. Corporates: Everyone was confident of 20% growth: With the exception of Astra and miners, all Indonesian corporates sounded confident that they would be able to grow revenues by 20% y/y, and take wage inflation in their stride. Current MSCI Indonesia FY13E EPS growth (ex-Energy) stands at 13%. This suggests that if managements are right, the bias of revisions will be upward. At the same time, given the optimism of guidance, we wonder whether any company that fails to grow >15% might be at risk of a de-rating.
Indonesia Strategy Aditya Srinath, CFA
AC
(62-21) 5291-8573 aditya.s.srinath@jpmorgan.com PT J.P. Morgan Securities Indonesia
Adrian Mowat (852) 2800-8599 adrian.mowat@jpmorgan.com J.P. Morgan Securities (Asia Pacific) Limited
Business people: Are high property prices becoming a barrier to entry? Most people we spoke to are active in the property sector. We noted the opinion that the price of commercial space in Jakarta is starting to be a deterrent to the economics of certain businesses, including specialized retailers such as new auto dealerships. In combination with the shortage and price of industrial land around Jakarta, this could prove to be an entry barrier to competition, particularly in the auto space. We see this as a long-term positive for Astra, but it also makes us wonder whether the rate of price increases developers anticipate is sustainable. Investors: When will the rally spread to small caps? The question we heard from most investors was how to play the Indonesian market beyond banks. We like Astra. More specifically, investors wanted to know when small caps were likely to reverse their underperformance relative to large caps. Charts 1-3 on page 2 suggest they have just started to participate in the rally and that this trade has further headroom. Stocks we like include SMRA, ERAA, APLN, and MSKY. Table 1: MSCI Indonesia: EPS growth matrix (% y/y)
Consumer Discretionary Consumer Staples Energy Financials Health Care Industrials Materials Telecommunication Services Utilities Indonesia
MSCI 6668.0 710.0 235.1 1794.7 182.9 1069.8 361.0 787.5 1687.5 5865.7
Weight 17.1 11.8 5.6 34.4 2.6 4.0 7.8 11.8 4.9 100.0
2012E 10.3 8.3 -51.8 14.8 13.6 -4.9 27.2 15.2 5.1 4.9
J.P. Morgan 2013E 9.8 11.2 27.4 18.3 17.4 -10.7 16.5 6.7 20.8 13.9
2014E 14.3 10.0 54.3 11.6 18.0 36.3 18.6 7.6 1.1 15.0
2012E 11.6 9.1 -60.7 18.0 13.6 -2.7 23.9 17.3 52.7 8.0
Consensus 2013E 13.7 15.1 58.4 9.5 17.4 -2.4 18.7 10.9 -10.2 11.8
2014E 15.8 11.8 39.0 15.8 18.0 20.8 14.4 10.3 8.8 15.9
Source: MSCI, Factset, J.P. Morgan estimates
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