Equity Strategy
Potential Winners from BI’s Surprise Rate Cut
- The period of policy rate cut was historically positive for JCI, which delivered 21% return during FY16-18 125bps rate cut.
- Banks and the perceived interest-rate sensitive sectors were clear winners during the past rate cut period.
- Despite limited scope for further cuts, we see BI’s move as positive to support growth; we retain our FY25-end JCI target of 7,850.
Rate cut was historically positive for JCI
Despite the surprise timing, BI’s policy rate cut is in-line with our expectation (of 50bps reduction in FY25) and thus, shall support our FY25 EPS growth forecast (of 6.5%). On share price, JCI has historically demonstrated a clear inverse relationship with the policy rate, with +21% return during the last FY16-18 125bps rate cut.
Winners: big cap, Banks, JSMR, ASII
During the FY16-18 rate cut period, return for big cap (LQ45: +32%) outpaced small cap (SMC Index: +21%). In terms of sectors, banks have demonstrated the highest inverse relationship during FY16-18 cut (+74-108% return), followed by JSMR (+25%), ASII (+18%). In the property sector, our analyst observed that policy rate cuts have historically not immediately translated to above-expected marketing sales, but the sector on average has seen lower discount to RNAV during the periods of rate cuts (please see Ismail Fakhri’s property outlook).
Banks with higher portion of TD are potential winners
Our Banks analyst Victor Stefano sees that rate cut will benefit banks with a higher portion of TD more, such as BBTN (52%), BRIS (38%), and BBRI (36%). This could also alleviate pressure on BMRI and BBNI which have c. 40% of their CA deposit in the special rate category. In terms of loan yield, BBCA and BBRI have the upper hand with their fixed/floating rate of 50/12% and 60/7% of total loans, respectively, as of Sep24. The banks are confident about managing the rate of managed-rate loans steady amid lower benchmark rate. Furthermore, if the lower benchmark rate translates to lower bond/SRBI yield (unlike in the Sep24 rate cut), this may ease liquidity pressure in the banking system.
Support for FY25 EPS growth; key risk on IDR weakness
Despite a limited scope for further cuts (25bps in 2H25, based on our economist forecast), we see the surprise rate cut as positive support for growth outlook. We thus retain our FY25-end JCI target of 7,850, based on our EPS growth of 6.5% and 13x forward PE. Key risk to our view is possible IDR weakness.
… Read More 20250116 Equity Strategy
