FROM EQUITY RESEARCH DESK

IDEA OF THE DAY

Macro Strategy: An Opportune Time to Initiate the Easing Cycle

• An opportune time for BI to begin its easing cycle, considering the IDR appreciation trend and the need to signal growth support.
• While rate cut in this week FOMC appears certain, the revision on Dot Plot and SEP would provide insight into Fed’s next step.
• On the first debate of Trump – Harris, we note Harris’ proposal appears to support greater clarity on rate cut and yield stability.

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MARKET NEWS

BBHI Aug24 Results

8M24 Insight:

·         Net Profit: BBHI reported a net profit of Rp262bn (-12% yoy) in 8M24 as opex and provisions rose by 36% and 159% yoy, respectively.

·         CIR: CIR rose to 53.9% (+849bps yoy) in 8M24 due to a 36% yoy increase in opex, as other expenses and promotion expenses surged by 60% and 21% yoy, respectively.

·         NIM: NIM was relatively flat yoy at 9.2% in 8M24, as the improvement in EA yield to 12.1% (+24bps yoy) offset the rise in CoF to 7.0% (+94bps yoy).

·         Loans and Deposits: Loans and customer deposits grew by 12% and 9% yoy, respectively, leading to a higher LDR of 167.1% (+577bps yoy).

·         CoC: CoC increased to 1.0% in 8M24 from 0.4% in 8M23.

Aug24 Insight:

·         Net Profit: BBHI’s net profit reached Rp31.2bn (+3% mom, -24% yoy) in Aug24, as opex surged by 92% yoy.

·         NIM: NIM reached 9.2% (+11bps mom, -53bps yoy) in Aug24 due to a significant increase in CoF to 8.6% in Aug24 from 6.0% in Aug23, despite the increase in EA yield to 12.6% (+21bps mom, +28bps yoy). We believe that the increase in CoF was due to heightened competition in the digital banking space.

·         CIR:  CIR increased significantly to 60.4% (+328bps mom, +1,896bps yoy) in Aug24, as opex rose by 14% mom and 92% yoy. The yoy rise in opex was mainly due to a notable increase in other expenses (+33% mom, +159% yoy) and a 77% yoy (-10% mom) increase in promotion expenses.

·         Loans and Deposits: Customer deposits grew by 6% mom, while loan growth was flat mom. CASA ratio was recorded at 14.5% (-29bps mom, +433bps yoy) in Aug24.

·         CoC: CoC was reported at 1.3% (-19bps mom, +96bps yoy) in Aug24.

GOTO IJ: A massive catalyst for share price and its tech operations

The News:

• Alibaba shareholder commits to being a long-term investor in GoTo. Additionally, Alibaba Cloud will provide cloud-related services, including AI capabilities.
• Key Potential Outcomes:

• Alignment of interests between the key anchor shareholder and GOTO management. Alibaba, which holds a 7.4% stake, has committed not to sell its shares for at least the next five years. We remind that Alibaba, along with SoftBank, last sold shares in February 2024 at a price range of Rp80-90.
• Reduced Uncertainty and Confidence Boost for the minority: This move reduces uncertainty and signals confidence to other GOTO minority shareholders.
• Finding a long-term partner for Cloud and AI Integration: In its 2023 earnings call, Alibaba mentioned the word "AI" over 100x as part of its future strategy. As a result, GOTO is well-positioned to benefit from AI advancements and cloud technology through Alibaba Cloud and its applications.
• GOTO Cost Leverage: ICT costs accounted for 7% of GOTO’s gross revenue in 2Q24. We expect GOTO to unlock further cost efficiencies, especially through its driver network and potential partnerships with platforms like TikTok and other third parties.

BRIDS Valuation Update

A couple of weeks ago, we released a GOTO report with a new DCF-based SOTP TP of Rp90. We identified the 3Q and 4Q pathways to achieving FY24 EBITDA positive for the year. Gopay continues to show steady downloads and active user growth, to make good use of the cloud synergies with Alibaba. https://link.brights.id/brids/storage/34131/20240826-GOTO.pdf (Niko Margaronis –BRIDS)

KTA AUTO Concall

• Manufacturing business is recovering amid stronger run rate on 4W in Jul/Aug24, on which AUTO expects the 4W monthly run rate would remain similar for Sep-Nov-24. Meanwhile, the trading business continues its solid performance since 1Q24.
• AUTO increased the price for its battery in 1H24 (~5%), which would effectively translate to its financial performance in 2H24. Such increase was followed by competitors, as AUTO holds ~50% market share. Its next competitor, Yuasa, holds ~30% market share. AUTO was able to capture better sales, as some smaller battery players are struggling due to USD appreciation (rising cost, but could not pass through).
• Currently, they do not have difficulty in their export market, aside from slight pressure on margin due to rising USD in 2Q24. Their main export products are battery (GS Astra) and Denso. Main market for trading business export: Malaysia (battery products) and Middle East (as their gate for expanding Africa market).
• AUTO expects some margin pressure due to volatile aluminium and battery material prices, and the rising USD impact on 2Q24. However, on NP level, it should be offset by the impact of a high USD cash balance. JPY movement has relatively small impact on AUTO earnings.
• In the retail business, currently, AUTO has 568 stores across Indonesia, including 16 Astra Otoservices. They plan to roll additional 10-15 more Astra Otoservices in FY24. They are not aiming for aggressive expansion on the retail business, despite it bringing lucrative margin.
• In medical devices manufacturing, it expects contribution to remain at ~Rp 100b for FY24 and backloaded in 4Q due to government contracts. They are currently exploring higher tech level of medical devices for supplying the private sector, with no specific revenue target in the near term.
• FY24 target: flattish total revenue with flattish or slightly declining manufacturing revenue; equity income and NP +5%; capex Rp500-600b.
• AUTO is currently traded at forward PER of 5.9x, at -1 std dev of its 5-year mean. (Richard Jerry, CFA & Christian Sitorus – BRIDS)

Poultry – 2nd week of Sept24 Price Update

• Livebird (LB) prices slightly increased to Rp18.9k/kg currently. The average price in the second week of Sep24 is Rp18.4k/kg, representing a 2.2% wow increase.
• There is no new data on DOC, but our source indicated that DOC remained soft at Rp4-5k/chick.
• The local corn price has recently been relatively stable at Rp4.9k/kg, bringing its weekly average to Rp4.9k/kg in the second week of Sep24. This represents a 3% wow decrease from Rp5.1k/kg the previous week.
• The average soybean meal (SBM) price remained relatively stable and low at around US$315/t in the second week of Sep24. The average price in Sep24 was US$317/t (-2% mom, -20% yoy)
• Lower feed costs and an increase in LB prices are expected to be positive catalysts, and we anticipate that the overall margin will remain positive. (Victor Stefano & Wilastita Sofi - BRIDS)

MACROECONOMY

We Anticipate Bank Indonesia to Cut Rates by 25bps Due to Several Economic Factors

BI Rate will be announced by Bank Indonesia today at 2pm. We expect Bank Indonesia to cut rate by 25bps due to the following factors: (1) BI has a history of using rate cuts to counter global economic slowdowns, which are increasingly prevalent and becoming more frequent; (2) The need to signal growth support as domestic drivers weaken, with four months of deflation, sub-50 PMI for two consecutive months, household consumption growth under 5%, moderating middle class spending, and weaker government revenues affecting fiscal spending.; and (3) SRBI issuance remains modest despite strong incoming bids in the latest auction, signaling BI stance to reduce its contractionary policy. The 6-month SRBI yield has dropped below 7%, last seen before the recent rate hike. (BRIDS Economics Research)

Trade Balance Surplus Widened to US$2.9bn in Aug24

The trade balance surplus widened to US$2.9bn in Aug24, extending the surplus streak to 52 months. Cumulatively, the trade surplus reached US$18.8bn for 8M24 (vs. 8M23: US$24.3bn). Exports surged to US$23.6bn in Aug24, the highest since Dec22, with an annual growth of 7.1% yoy (6.0% mom). The surge came from non-O&G exports, which also reached their highest value since Dec22, with growth of 8.1% yoy and 7.4% mom. O&G exports declined by 8.7% yoy and 15.4% mom. Imports decreased to US$20.7bn in Aug24, or -4.9% mom, although still growing annually at 9.5%. The monthly decrease was seen in O&G and non-O&G imports (-25.6% and -0.9% mom, respectively). Annually, O&G imports were relatively unchanged, while non-O&G imports jumped by 11.1% due to 127% yoy growth in Ores, Slag, and Ash (HS 26). (BPS)

US Retail Sales Edged Up 0.1% Mom in Aug24

US retail sales edged up 0.1% mom in Aug24, following an upwardly revised 1.1% surge in July, and beating forecasts of a 0.2% decline, signaling that consumer spending remains relatively strong. Annually, retail sales grew 2.1% yoy.  (Trading Economics)

SECTOR

Government to Phase Out Gasoline Cars by 2045, Offers Discounts on Electric Vehicles

The government plans to phase out the sale of gasoline-powered cars by 2045 to promote electric vehicle (EV) adoption. In preparation, the government is developing policies to support this transition. As EVs become more affordable, automakers are offering substantial discounts, with price cuts ranging from Rp15mn to Rp60mn on various models, including the Wuling Air EV, Omoda E5, and Hyundai Ioniq 5. The Wuling Air EV, for example, now has a Rp56mn discount. These efforts align with the government’s roadmap for advancing Indonesia’s automotive sector. (Kontan)

CORPORATE

PGAS Considers LNG Imports to Offset Corridor Block Gas Deficit

PGAS is exploring the option to import liquefied natural gas (LNG) to address a potential gas pipeline deficit from the Corridor Block, operated by Medco E&P Grissik Ltd. (MEPG). The gas allocation from the block is expected to drop to 129 BBtud by 2028, significantly lower than the amended Gas Sales and Purchase Agreement (PJBG) for the 2024-2028 period, which allocates around 410 BBtud. PGAS is also working on extending current pipeline contracts and securing new ones, while exploring oil and gas blocks in East Java in line with the Cisem Phase II transmission pipeline project. (Bisnis)

PTBA Subsidiaries Synergize in Carbon Trading

PTBA subsidiaries, PT Huadian Bukit Asam Power (HBAP) and PT Bukit Pembangkit Innovative (BPI), have agreed to a Memorandum of Understanding (MoU) on a Priority Commitment in Carbon Trading. This agreement is a strategic step that reflects PTBA's commitment to supporting the goals of MIND ID and the Ministry of State-Owned Enterprises (BUMN), while fostering synergy among PTBA's subsidiaries and affiliates. (Bisnis)

TOWR to Conduct Rights Issue Worth Rp9tr

TOWR plans to conduct a rights issue targeting to raise Rp9tr. According to TOWR, this rights issue will be implemented after the company obtains approval from its shareholders and TOWR will hold an Extraordinary General Meeting of Shareholders (EGMS) on October 25, 2024. Funds from this corporate action will be used to strengthen the working capital of TOWR and its subsidiary, PT Profesional Telekomunikasi Indonesia (Protelindo). After deducting emission costs, part of the funds will also be used to pay off the company’s loans. (Stockwatch)