The JCI August 18, 2020

𝐀𝐮𝐠𝐮𝐬𝐭 𝟏𝟖, 𝟐𝟎𝟐𝟎

* 𝐓𝐡𝐞 𝐉𝐂𝐈 𝐭𝐫𝐚𝐝𝐢𝐧𝐠 𝐫𝐚𝐧𝐠𝐞: 𝟓,𝟐𝟎𝟎𝐩𝐭 – 𝟓,𝟑𝟐𝟓𝐩𝐭 ( 𝐅𝐫𝐢𝐝𝐚𝐲 𝐜𝐥𝐨𝐬𝐞 𝟓,𝟐𝟒𝟖𝐩𝐭 )

* 𝐖𝐚𝐥𝐥 𝐒𝐭𝐫𝐞𝐞𝐭 𝐞𝐧𝐝𝐞𝐝 𝐦𝐢𝐱𝐞𝐝 𝐨𝐧 𝐜𝐚𝐮𝐭𝐢𝐨𝐮𝐬 𝐬𝐭𝐚𝐧𝐜𝐞 𝐰𝐢𝐭𝐡 𝐛𝐨𝐭𝐡 𝐭𝐡𝐞 𝐒&𝐏𝟓𝟎𝟎 𝐚𝐧𝐝 𝐭𝐡𝐞 𝐍𝐚𝐬𝐝𝐚𝐪 𝐢𝐧𝐜𝐡𝐞𝐝 𝐡𝐢𝐠𝐡𝐞𝐫

* 𝐓𝐡𝐞 𝐉𝐂𝐈 𝐢𝐬 𝐞𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐭𝐨 𝐟𝐥𝐮𝐜𝐭𝐮𝐚𝐭𝐞 𝐚𝐧𝐝 𝐬𝐮𝐩𝐩𝐨𝐫𝐭𝐞𝐝 𝐛𝐲 𝐡𝐢𝐠𝐡𝐞𝐫 𝐨𝐢𝐥 𝐜𝐥𝐨𝐬𝐞 𝐚𝐧𝐝 𝐫𝐞𝐥𝐞𝐚𝐬𝐞 𝐨𝐟 𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐭𝐫𝐚𝐝𝐞 𝐝𝐚𝐭𝐚

Morning,

The Jakarta Composite Index (JCI) today (18/8) is expected to hover between  5,200pt – 5,325pt to fluctuate on support of higher oil close and July’s trade data release. Meanwhile yesterday (17/8) in Wall Street  the  DJIA  ended lower by  86 points or 0.3%  at 27,845pt , while the S&P500 and the Nasdaq both closed higher by 0.3% and 1.0%, respectively. Investors in the United States (US) stock market were cautious on  such as 1) Covid-19 bill’s finalization, 2) US –China trade tension especially on Huawei, and 3) 2Q20 earnings of consumers’ heavy-weight Home Depot, Walmart, and Kohl’s. Consumers’ financial performance gives tool to assess how deep the COVID-19 spread hit each specific consumer’s market. Indonesia comparison, in our view, is those of ACES, GGRM, ICBP, UNVR, MAPI, to name a few.

𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐜𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐬𝐞𝐜𝐭𝐨𝐫

𝐁𝐞𝐧𝐞𝐟𝐢𝐭𝐬 𝐟𝐫𝐨𝐦 𝐡𝐢𝐠𝐡𝐞𝐫 𝐚𝐧𝐝 𝐚𝐥𝐬𝐨 𝐟𝐫𝐨𝐦 𝐥𝐨𝐰𝐞𝐫 𝐂𝐫𝐮𝐝𝐞 𝐎𝐢𝐥 𝐏𝐫𝐢𝐜𝐞

A holding of one of  Indonesia Crude Palm Oil counters can provide an overall leverage to that of consumer sector, either from the following condition. 1) higher CPO price increase CPO’s company earnings and eventually consumer’s purchasing power, or2) lower CPO price find its way to lower Cost of Goods Sold consumer companies, such as that of instant noodle, soaps that will affect bottom line positively.  Each of those 2 (two) process lead to higher consumer-companies’  earnings and later to higher equity valuations and to the companies’ stock prices.

We have chosen Astra Agro Lestari (AALI) as one of our choice of CPO blue chips that investors may comfortably  invest to during this relatively distressed pandemic time.

𝐀𝐀𝐋𝐈, 𝐦𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐭𝐡𝐞 𝐁𝐔𝐘 𝐜𝐚𝐥𝐥 𝐰𝐢𝐭𝐡 𝟏𝟐-𝐌 𝐭𝐚𝐫𝐠𝐞𝐭 𝐩𝐫𝐢𝐜𝐞 𝐨𝐟 𝐈𝐃𝐑𝟏𝟑,𝟎𝟎𝟎 𝐩𝐞𝐫 𝐬𝐡𝐚𝐫𝐞

During the first semester this year (1H20) AALI recorded net revenue of IDR9.1tr, an increase of 6.5%YoY  vs. 1H19, with gross margin in 1H20 at 14/4% (1H19:8.6%).  The company reported net profit of IDR391.9bn in 1H20, or an increase of 797% vs. that of in 1H19 of IDR43.7b.

The jump in the company’s performance mainly due to the mandatory use of biodiesel fuel of B30, effective January this year.  The B30 mandatory program is part of the government effort to reduce oil import. As at June this year, AALI recorded 12.5% YoY decrease in sales volume. Nevertheless, CPO average selling price during the 1H20 increase by 25.9% YoY.

Mandatory B30 selling price is regulated through the Energy and Mineral Resources Ministry, being revised monthly.  The selling price formula is structured to include monthly average CPO price plus conversion price from CPO to biodiesel multiplied by (conversation unit of 870 kg /m3 plus transportation cost).

AALI benefitted through the mandatory B30 program from higher global CPO price as lower supply from major producer Indonesia  led to higher price as witnessed since May. More important, domestic pricing formula is structured relatively in favor for producers, we reckon, as the CPO secure is of an important national interest to substantially reduce imports.

Our 12-M target price is derived  using the annualized book value for current market weighted-average PBV of 1.6 times, with a 20% discounts.

At the other end, yesterday  the WTI price closed higher by 2.1% at USD42.9/barrel on news that China would increase import from the US. Meanwhile the  USDIDR  closed  at IDR14.917  vs. IDR14.877 the previous one.

We advise the following recommendations, for both trading and longer-time investment purpose. 𝐀𝐀𝐋𝐈, 𝐋𝐒𝐈𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘨𝘳𝘪, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘜𝘯𝘥𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐔𝐍𝐓𝐑, 𝐈𝐓𝐌𝐆, 𝐀𝐃𝐑𝐎, 𝐏𝐓𝐁𝐀 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘢𝘭 𝘔𝘪𝘯𝘪𝘯𝘨, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐆𝐆𝐑𝐌, 𝐔𝐍𝐕𝐑, 𝐈𝐂𝐁𝐏 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘊𝘰𝘯𝘴𝘶𝘮𝘦𝘳, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵 ), 𝐀𝐒𝐈𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘈𝘶𝘵𝘰𝘮𝘢𝘵𝘪𝘷𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵), 𝐚𝐧𝐝 𝐀𝐂𝐄𝐒, 𝐒𝐂𝐌𝐀, 𝐌𝐀𝐏𝐈 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘛𝘳𝘢𝘥𝘦, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘖𝘷𝘦𝘳𝘸𝘦𝘪𝘨𝘩𝘵),𝐚𝐧𝐝 𝐓𝐊𝐈𝐌 (𝐬𝐞𝐜𝐭𝐨𝐫 𝐨𝐟 𝘉𝘢𝘴𝘪𝘤 𝘐𝘯𝘥𝘶𝘴𝘵𝘳𝘺, 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐬𝐮𝐠𝐠𝐞𝐬𝐭𝐢𝐨𝐧 𝘔𝘢𝘳𝘬𝘦𝘵-𝘸𝘦𝘪𝘨𝘩𝘵).

Cheers,