Still waiting for fog to clear
FY16 earnings wrap-up: mostly within expectations
17 companies out of 73 companies under our coverage universe have released their FY16 results by end of February. 36% of companies beat estimates, 24% fell short and the rest 40% were in line (counted as companies reporting net income within +/-5% of our estimates). We saw some of the major non-operational items affected the accuracy of our forecast that were mainly attributable to the: (i) big tax benefit by SMGR, ii) the absence of impairment loss by UNTR, iii) higher tax rate of 63% by INCO and iv) a significant turnaround into forex gain by AALI and JPFA. Excluding this, companies with results that were in line with expectations increased to 72%. We made 11 changes to our earnings forecast with 7 upgrades and 4 downgrades. Moreover, target price changes involved 8 upward with some companies upgraded on better outlook basing on 4Q16 earnings momentum despite in-line FY16 earnings, against 3 downward adjustments. Auto, cement, metals, CPO and coal were the sectors which recorded earnings above expectations while some contractor (WSKT and PTPP) and poultry companies’ (JFPA) earnings missed.
Economic and political updates
In February, Indonesia saw annual inflation rate of 3.83%, triggered by an increase in prices for processed and raw foods as well as healthcare. On a monthly basis, CPI rose 0.23%, after gaining 0.97% in January. We see inflation rate trending up from 3.48% in January to 3.83% in Feb, which is on track to meet our full-year forecast of 4.2% this year (see exhibit 1). Meanwhile, Indonesia's exports grew 27.71% YoY to USD13.38 bn, the fastest pace of export value growth since September 2011, and this was particularly attributed to higher prices of coal and CPO. This brings a USD 1.40 bn trade surplus, which is the country's 13th consecutive surplus and the largest since 2014. On political front, in-line with our expectations, the incumbent Governor of Jakarta (Ahok), proceeded to the second round election on 19 April, head to head with former education minister Anies Baswedan. We think that supporters of Agus Yudhoyono (no longer competing in the second run) will mostly vote for Anies as Agus and Anies have a shared vision, which is to bring new leadership in Jakarta.
Our top picks up 2.65% in February, stronger than the JCI that rose 1.85%
Our top picks was up 2.65% in February, looking good as it outperformed the benchmark JCI return of 1.85%. Our stock pick in banking BBNI gained 9.6% as the bank release strong FY16 results. AISA saw a technical rebound posting 27% return in after its share price plunged 19% on the final trading on-close order on 31-Jan. These two stocks along with INDF (2.5% gain) have helped lift our stock pick return. On the negative side, our consumer recommendation LPPF tumbled 7.6% after the company reported in-line earnings but operating profit missed our estimate. Moreover, our analyst thinks it will be rather difficult for LPPF to regain its former glory in generating a continuous series of high growth rates going forward. However, LPPF is still the largest player in Indonesian department stores market with strong balance sheet and an attractive dividend play. Other worst performer was PTPP (lost 2.7%) as the company reported earnings that lower than our forecast. We believe this also was affected by the Rp1.5 tn rights issue plan at its property subsidiary PPRO in March. Investors could think PTPP would inject more than its rights subscription entitlement (65%) if public shareholding would not wish take up the new shares. Both LPPF and PTPP have capped our stock picks return. Our stock picks gained 1.72% and still outperform the JCI return of 1.39% on Ytd basis. (see exhibit 2)
Market upside to remain limited in the near-term
We reviewed our top picks and removed BEST and ADRO from the list and replaced them with PWON and UNTR. We removed BEST following its strong 20% return Ytd (see exhibit 3). We also replaced ADRO on the stock’s flat return Ytd while we expect UNTR to outperform in the coming months on its strong operational data released recently. We also recommend buying BRPT, KBLI and GJTL as non-coverage tactical call on their single digit FY16 PER based on annualized 9M16 earnings. We are still positive to the market as i) the overall FY16 results met our expectation , ii) we still expect improving macro environment (such as higher GDP) and iii) stronger corporate earnings performance this year (12% market EPS growth). Therefore, we reiterate our YE-2017 JCI target at 5,900 points. However, we envisage the possibility of the Fed rate hike in March and political overhang going into Jakarta second round of voting on 19 April could hinder market performance in the near-term.
