FROM EQUITY RESEARCH DES

IDEA OF THE DAY

Telco: Navigating the 3Q24 Soft Season Challenges and Capitalizing on 4Q24 Opportunities (OVERWEIGHT) TSEL moderates its TSEL Lite promotions and 30-day 6GB packs to avoid downtrading amid soft outlook, and in turn, soften the competition.   We continue to see pathways for ARPU upsides for IOH through online/ offline channels and for XL through its recent price increases. We believe telcos are equipped to meet our FY24 and FY25-26 est. We maintain OW rating with top picks ISAT and TLKM. To see the full version of this report, please click here   To see the full version of this snapshoot, please click here   MARKET NEWS

RESEARCH COMMENTARY

ANTM is exploring a new mine area in E. Luwu

• Along with BUMD PT Sulsel Citra Indonesia (Perseroda) (SCI) and PT Luwu Timur Gemilang (Perseroda) (LTG), ANTM will be exploring Pongkeru block in E. Luwu under a new mining license.
• Exploration usually takes 2-3 years before production starts, implying new ore supply incoming in 2027 at the earliest.
• Other known miners in the area include INCO, which has been operating in E. Luwu for more than 50 years.
• We view this news positively as more exploration leads to higher resources and reserves, which could extend its life of mine. Furthermore, the supply addition in E. Luwu would be strategic for its FeNi smelter in Pomalaa, as the mine in Pomalaa is facing declining ore grade, while other sources of ore are costlier as they are further away in N. Maluku. (Timothy Wijaya – BRIDS)

 

BANK Aug24 Results

8M24 Insight:

• Net Loss: BANK reported a net loss of Rp71.0bn in 8M24, marking a 45% improvement from the Rp128.3bn net loss recorded in 8M23. This was driven by a 41% yoy decline in PPOP losses and a provision reversal of Rp1.3bn.
• CIR: CIR stood at 128.2% in 8M24, significantly lower than the 182.9% reported in 8M23. This was primarily supported by a 29% and 445% yoy increase in NII and other operating income, respectively. The growth in other operating income was largely attributed to a 357.9% yoy increase in fee income to Rp68.3bn.
• NIM and LDR: NIM fell to 5.3% (-218bps yoy) in 8M24, despite a 10bps yoy decline in CoF to 6.5% and a 16bps yoy increase in EA yield to 11.0%. The decrease in NIM was primarily due to a sharp drop in LDR, which declined to 87.4% in 8M24 from 149.5% in 8M23, as customer deposits surged 228% yoy, outpacing loan growth of 92% yoy. Nonetheless, NII still rose 29% yoy.

 

Aug24 Insight:

• Net Loss: BANK saw its net loss drop by 50% mom and 70% yoy to Rp4.5bn in Aug24, supported by strong NII growth (+36% mom, +61% yoy).
• NIM: NIM reached 6.9% (+170bps mom, -107bps yoy) in Aug24 as CoF fell to 6.6% (-83bps mom, -162bps yoy) and EA yield rose to 12.6% (+97bps mom, +65bps yoy). The yoy NIM decline was due to a decline in LDR.
• CIR: CIR improved to 104.5% (-928bps mom, +5,659bps yoy) in Aug24. On a monthly basis, NII grew 36% mom, offsetting a 35% decline in other operating income. Yearly, CIR improvement was driven by a 65% yoy rise in NII and a 234% yoy growth in other operating income, mainly from a 202.9% yoy increase in fee income.
• CoC: CoC remained low at 0.7% (-30bps mom, +27bps yoy) in Aug24.

 

Summary:

• Overall Performance: In our view, BANK has shown consistent improvement in profitability, reflected in the ongoing reduction in net losses due to its significantly lower CIR. (Victor Stefano & Naura Reyhan Muchlis - BRIDS)

BBCA Aug24 Bank Only Results

8M24 Insight:

• Net Profit: BBCA posted a net profit of Rp36.0tr in 8M24, growing 14% yoy, achieving 68% of our FY24 estimate and 67% of the consensus forecast, in line with expectations.
• NII and PPOP: The bank recorded positive growth in NII (+9%) and PPOP (+12%), driven by a resilient NIM and an improved CIR.
• NIM and CIR: NIM held steady at 6.1% (flat yoy), with higher LDR offsetting a lower EA yield. CIR improved to 30.7% (-269bps yoy) as opex remained efficient with -1% yoy growth.
• Provision Expenses: Asset quality stayed strong, with CoC remaining low at 0.2% (vs 0.4% in 8M23).

 

Aug24 Insight:

• Net Profit: In Aug24, BBCA’s net profit reached Rp4.6tr, down 6% mom but up 22% yoy. PPOP stood at Rp5.9tr, down 3% mom but up 23% yoy.
• NIM: NIM slightly dropped to 6.2% in Aug24 (-7bps from Jul24) due to a marginally lower EA yield and slightly higher CoF, despite the increase in LDR.
• CoC: CoC remained low and steady at 0.2% in Aug24 (+4bps mom, -5bps yoy).

 

Balance Sheet:

• Loans and customer deposits: Loan growth accelerated to Rp843tr (+1% mom, +16% yoy), up from +15% yoy in 7M24. Customer deposits maintained steady growth at 4% yoy, raising LDR to 76.5% from 75.6% in 7M24.
• CASA: CASA ratio remained robust at 82% (-14bps mom, +142bps yoy).

 

Summary:

• Overall Performance: Aug24 results were solid, with a relatively stable NIM supported by strong loan growth and robust asset quality. (Victor Stefano & Naura Reyhan Muchlis - BRIDS)

KTA Call with Director of TLKM

1. Government Incentives Still on the Horizon: While the government hasn't rolled out incentives yet, the potential for future support remains a topic of interest.
2. High Demand Growth: Indonesia's digital economy is thriving! With enterprise utilization rates at 75% and Neucentrix nearing 80%, there's a clear upward trajectory in demand.
3. Hyperscalers Eyeing Indonesia: Major players are setting their sights on Indonesia, with 18 MW of data center capacity in the pipeline for Q4, signaling a burgeoning market.
4. Tech Giants in Cikarang and Batam: The region boasts a remarkable 30% CAGR over five years, drawing the attention of influential tech companies looking for collocation opportunities.
5. Sustainable Power Solutions: With initiatives like Medco’s solar panels, the focus is on renewable energy to meet growing electricity demands, ensuring a greener future.
6. Seeking Strategic Partners: Ambitious plans to build 500 MW by 2030 highlight the search for investors who can bring expertise and resources to the table.
7. Revenue Growth on the Horizon: Targeting 42 MW of capacity in FY24 with a solid 30% EBITDA margin, the revenue from data center services is set to soar.
8. Competitive Edge in the Market: Indonesia's rich resources and government backing provide a unique advantage over neighboring countries, despite stiff competition.
9. Smart Investment Strategies: Anticipated capex of $9-12 million per MW and an impressive IRR of 14-15% make this a promising investment landscape.
10. Stable Long-Term Contracts: With average lease agreements of 10 years, partnerships with tech giants ensure a steady revenue stream, paving the way for sustainable growth. (Niko Margaronis & Deqsha Novendra – BRIDS)

 

Ministry of Agriculture Seeks to Stabilize Livebird Prices

The Ministry of Agriculture has taken decisive strategic action by partnering with the Indonesian National Police’s Food Task Force (Satgas Pangan Polri) to ensure the stability of Livebird (LB) prices and protect local farmers from market volatility. Starting September 10, 2024, LB prices in the market ought to be stabilized with the full support of poultry associations and integrated companies throughout Indonesia. This policy involves the police in overseeing the process, aiming to make the stabilization efforts more effective and targeted.

 

Key agreements from the Ministry’s evaluation meeting on September 9, 2024, include:

• A minimum price for LB of 1.6-2.0 kg set at Rp20,000/kg, effective simultaneously in Java, Sumatra, Kalimantan, and Sulawesi.
• Optimization of LB absorption and processing at Poultry Slaughterhouses (RPHU) by integrated companies, which are required to process over 30% of their internal production at the slaughterhouse.
• The price benchmark for DOC FS is set at 25% of the price of live birds weighing 1.6–2.0 kg. DOC FS distribution will be split, with a maximum of 50% allocated for internal use and a minimum of 50% for external use to provide opportunities for independent farmers.

 

The Director General of Livestock and Animal Health warned that non-compliance with these commitments will result in sanctions, including a review of recommendations for Grand Parent Stock (GPS) and feed raw material imports.

 

Our view

• The government's current actions are a continuation of previous efforts to stabilize prices, with new developments including the involvement of the Police’s Food Task Force and setting a target price for live birds (LB) at Rp20k/kg and DOC at an implied Rp5k/chick (previously only stated above the cost).
• In our view, this policy indicates that the government is prioritizing the stabilization of farm gate chicken prices, which is a positive move for the poultry sector. However, without clear, actionable steps from the government to fully support this policy, translating it into effective price stability for broilers (LB) and DOC remains difficult. Currently, despite the policy’s implementation, LB prices remain slightly below the set minimum price. (Victor Stefano & Wilastita Sofi – BRIDS)

WIFI’s Internet Expansion Initiatives

WIFI, through its subsidiary PT Integrasi Jaringan Ekosistem (Weave), is collaborating with 50 local Internet Service Providers (ISPs) to enhance internet access across Java. This initiative aims to provide robust telecommunications services, including backbone provisioning, network capacity, and colocation services, to underserved communities. (Investor Daily)

 

WIFI Call KTA:

• Cost-effective Infrastructure: WIFI’s capex is 30% cheaper than major Indonesian competitors, benefiting from a simplified licensing process and efficient deployment.
• Strategic Population Focus: Over 80% of Java’s population resides near railway tracks, with extensive fiber optic infrastructure enabling better connectivity.
• Diverse Service Offerings: WIFI offers leased core and leased line services, with current capacity at 5.6 Tbps and potential for expansion to 30 Tbps.
• Partnerships for Broader Access: A potential collaboration with Telkom aims to provide internet access to 17 million households with existing fiber.
• Market Challenges: Despite a large unconnected population (63 million households), pricing issues affect market growth, particularly in the lower segments.
• Solid Financial Outlook: WIFI reports a churn rate of 9.2% and a payback period of just 2 years, with projected revenues of Rp600bn for FY24.
• Right Issue Approval: The company is undergoing a right issue process approved by RUPS to repay third-party payables.
• Focus on Advertising Revenue: Strategies are being developed to enhance revenue through advertising channels, with optimism for exceeding financial projections.
• Future Strategies: WIFI plans to leverage existing infrastructure and partnerships to increase internet access, targeting middle and low-income households. (Niko Margaronis & Deqsha Novendra – BRIDS)

 

MACROECONOMY

China's Economy Continued to Weaken based on a String of Data for Aug24

China's economy continued to weaken based on a string of data for Aug24. Retail sales growth fell to 2.1% yoy from 2.7% in Jul24, missing consensus of 2.5%. Industrial Production, the economy's driver as China relies on export to offset the weak consumption, slowed to 4.5% yoy from 5.1%. To exacerbate the situation, newly built home price declined by 5.3% yoy, marking the 14th consecutive month of decline and the steepest since May15. Loan growth also fell to 8.5% yoy, the lowest since 1998. (Bloomberg, Trading Economics)

 

US Consumer Sentiment rose for the 2nd consecutive month to 69 in Sep24

US Consumer Sentiment rose for the 2nd consecutive month to 69 in Sep-24, the highest since May24, according to a report by University of Michigan. "The gain was led by an improvement in buying conditions for durables, driven by more favorable prices as perceived by consumers. Year-ahead expectations for personal finances and the economy both improved as well, despite a modest weakening in views of labor markets", according to Surveys of Consumers Director Joanne Hsu. (Trading Economics)

 

SECTOR

Ministry of ESDM Secures Approval for Utilizing Reservoirs for Floating Solar Power Plants

The Ministry of Energy and Mineral Resources (ESDM) has received approval from the Ministry of Public Works and Public Housing (PUPR), which manages the reservoirs, for increasing the capacity of floating solar power plants (PLTS) in several reservoirs. The percentage of the reservoir surface area that can be utilized has been increased from 5% to 25%. There is a potential of 14.7 GW across 257 reservoirs in various regions such as Java-Bali, Sumatra, Kalimantan, Sulawesi, Maluku, and Nusa Tenggara. According to data from the Ministry of ESDM, the potential for floating solar power installations on the reservoir surfaces managed by the Ministry of PUPR is up to 89.37 GW, spread across 293 locations. Of this number, 257 locations with a potential of 14.7 GW are properties owned by the Ministry of PUPR. (Kontan)

 

CORPORATE

ADHI Secures New Contracts Worth Rp13.6tr by Aug24

ADHI has secured new contracts valued at Rp13.6tr by Aug24. The company stated that in Aug24, the new contracts were derived from building projects (43%), water resources (31%), and the remaining 26% came from roads & bridges, property, manufacturing, and EPC. In terms of funding sources, 56% came from the government, 7% from loans, 19% from state-owned enterprises (BUMN/BUMD), and 18% from private sources. By Aug24, ADHI has secured several major contracts, including the EPCC Jetty & Propylene Storage Tank and the IKN Toll Road Package 1B Segment Sepinggan Airport-Balsam Toll. (Bisnis)

 

HRUM to Seek Approval for Buyback

HRUM will seek approval for a buyback at an Extraordinary General Meeting of Shareholders (EGMS) on Tuesday, September 17, 2024. HRUM plans to execute a buyback of up to approximately 849,000,000 shares of the company’s issued and fully paid-up capital. The company has allocated around Rp1tr for this corporate action. The buyback period is expected to run from September 18, 2024, to September 17, 2025. (Bisnis)

 

JSMR Recorded 405,000 Vehicles Leaving Jabotabek During the Long Weekend

JSMR recorded a total of 405,009 vehicles leaving the Jabotabek area on September 13-14, 2024. This figure represents the cumulative traffic flow from four major Toll Gates (GT): GT Cikupa (toward Merak), GT Ciawi (toward Puncak), GT Cikampek Utama (toward Trans Java), and GT Kalihurip Utama (toward Bandung). The traffic distribution for vehicles leaving Jabotabek was as follows: the majority, 201,974 vehicles (49.87%), headed east (Trans Java and Bandung); 110,557 vehicles (27.30%) went west (Merak); and 92,478 vehicles (22.83%) traveled south (Puncak). (Kontan)

 

KLBF Introduces Innovative Cell Therapy for Cancer

KLBF, through its subsidiary PT Bifarma Adiluhung, which oversees the Regenic brand, has formalized a technology transfer and licensing partnership with GC Cell, a global biotechnology company based in South Korea that specializes in cell therapy for cancer. The scope of the collaboration includes exclusive rights for Regenic to develop, produce, and commercialize the Immuncell-LC technology. This collaboration between Regenic and GC Cell for innovative treatment of solid tumors, particularly liver cancer (Hepatocellular Carcinoma/HCC), is the first of its kind in Indonesia. (Kontan)

 

MEDC Secures Cost Recovery Oil and Gas Contract for Amanah Block

MEDC has secured a cost recovery contract for the Amanah Block in South Sumatra. MEDC, together with two of its partners, submitted a joint study to the Ministry of Energy and Mineral Resources (ESDM) to evaluate the resource potential and economic feasibility of the area. PT Medco Energi Linggau, along with the consortium, is following up on the results of this joint study as a proposal for a new oil and gas block. MedcoEnergi has also partnered with PT Sele Raya and KUFPEC Regional Ventures (Indonesia), each holding a 30% participation interest. The cooperation contract is a cost recovery type, with a split of 60:40 for oil and 55:45 for gas. (Bisnis)

 

PTPP and WIKA Collaborate on Ministry of Health Project Worth Rp863bn

PTPP and WIKA are teaming up in a consortium, PP-WIKA, to undertake a Ministry of Health project valued at Rp863bn. The project involves the construction of the Harapan Kita – Tokushukai Hospital. The scope of work for the PP-WIKA consortium in this project includes preparation of the main structure, implementation of health, safety, and environmental (HSE) standards, as well as architectural, MEP & ITC, infrastructure, and landscape work. The hospital, which will consist of 20 floors and 3 basements, is set to become an integrated health service center. (Bisnis)

 

TINS Targets a 50% Production Growth in 2024

TINS is optimistic about increasing its tin ore production by up to 50% compared to last year. The company’s production for the 1H24 reached 10,250 tons (+32% yoy). For Onshore, TINS produced 4,918 tons (+85% yoy), while for Offshore, the company achieved a production of 5,332 tons (+5% yoy). Metal production grew to 9,675 tons (+19% yoy).