Equity Strategy

2H25: Positioning for a Growth Rebound

• We expect 2H25 earnings growth to rebound, driven by improved liquidity and prospect of govt spending acceleration.
• We continue to like Telcos and are turning more constructive on banks (stable/ better NIM), while remaining ST cautious on Consumers.
• We raise our JCI target to 7,960, factoring in premium from anticipated flow into conglo-group stocks, despite our lower FY25 EPS growth f’cast.

Large-Cap Sectors Weakness Drove FY25 Growth Revision

Aggregate 2Q25 earnings came in soft (-6% yoy), dragging 1H25 earnings for our coverage universe to a similar -6% yoy contraction. While a majority of companies (36%) under our coverage delivered results in line with expectations, weak earnings and misses in large sectors (i.e., Banks 1H25: -2% yoy, Telco -9% yoy, and Consumers -8% yoy) prompted downward revisions to FY25 estimates. Our FY25F EPS growth forecast now stands at +2.6% yoy (down from +3.7% previously), broadly in line with consensus expectations of 1–2% growth.

2H25 Earnings Poised for Rebound on Low Base and Policy Tailwinds

With the soft 2Q25 earnings now behind us, our revised forecast reflects optimism for 2H25 core earnings growth (5-6% yoy), which appears reasonable given the low base in 2H24 (-0.6% yoy). The case for an earnings growth rebound is also supported by a more favorable macroeconomic backdrop in 2H25, driven by easing liquidity conditions, a potential acceleration in government spending (our macro team expects 2H25 to grow at +8.6% yoy), and the roll-out of key government programs (e.g., MBG). We see consistent policy execution as the primary catalyst, alongside timely fiscal disbursement and clear policy communication to sustain positive sentiment.

Sector Picks for 2H25: Telco, Banks, Metals.

We continue to like the Telco sector amid ongoing progress in price repair initiatives and more rational competition to pave way for healthier revenue growth and margin recovery in 2H25. We turn more constructive on the banking sector, underpinned by signs of bottoming liquidity conditions and attractive valuation (at 2x PBV), despite still slowing loan growth in 2H25. Conversely, we remain ST cautious on the consumer sector as subdued purchasing power in the lower-income segment may limit scope for further price pass-through and cap earnings recovery in the near term. We remain positive in the metals mining space amid company-specific catalysts to support asset monetization.

Upgrading JCI FY25-end Target; Positioning for 2H25 Growth Rebound

Despite muted earnings growth, JCI has delivered +6.4% YTD performance, largely driven by strong rallies in select conglomerate-group and illiquid stocks (e.g., DCII, DSSA, BRPT), while fundamentally driven names have mostly underperformed. We adjust our index target to include flow adjustment factor and arrive at FY25-end JCI target of 7,960, implying a 5% upside from current levels. We see room for near-term strength as we expect broader earnings recovery to drive valuations rerating supported by continuation of flow momentum. Our stock picks lean toward companies with earnings improvement and catalysts in 2H25 namely: ISAT (Buy, TP Rp2,600), TLKM (Buy, TP Rp3,500), BBCA (Buy, TP Rp11,900), CTRA (Buy, TP Rp1,600), BRMS (Buy, TP Rp480).

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