The JCI August 3, 2020

Aᴜɢᴜsᴛ 3, 2020

–

* Tʜᴇ JCI ᴛʀᴀᴅɪɴɢ ʀᴀɴɢᴇ: 5,125ᴘᴛ – 5,210ᴘᴛ (Tʜᴜʀsᴅᴀʏ ᴄʟᴏsᴇ: 5,150ᴘᴛ )

* Wᴀʟʟ Sᴛʀᴇᴇᴛ ᴇɴᴅᴇᴅ ʜɪɢʜᴇʀ ᴏɴ ʙᴇᴛᴛᴇʀ-ᴛʜᴀɴ-ᴇxᴘᴇᴄᴛᴇᴅ 2Q20 ᴇᴀʀɴɪɴɢs ᴏɴ Aᴘᴘʟᴇ, Aᴍᴀᴢᴏɴ, ᴀɴᴅ Fᴀᴄᴇʙᴏᴏᴋ

* Tʜᴇ JCI ɪs ᴇxᴘᴇᴄᴛᴇᴅ ᴛᴏ ᴄᴏɴsᴏʟɪᴅᴀᴛᴇ ʙᴜᴛ sᴜᴘᴘᴏʀᴛᴇᴅ ʙʏ sᴛᴀʙʟᴇ USDIDR ᴀɴᴅ ᴏɪʟ ᴄʟᴏsᴇ

Morning,

The Jakarta Composite Index (JCI) today (3/8) is expected to be in the range of 5,125pt – 5,215pt to be in cautious stance on 2Q20 data releases,  but supported by stable USDIDR and oil close.   Meanwhile, Friday last week (31/7) in Wall Street  the  DJIA  ended higher by  115 points or 0.4%  at 26,428pt , while the S&P500 and the Nasdaq both gained by  0.8% and 1.5%, respectively.  Wall Street’s higher close mainly due to earnings release of  Apple, Amazon, and Facebook which each of them posted strong 2Q20 results with sales increase by an annual rates of 11%, 40%, and 11%, respectively.

𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝐂𝐨𝐧𝐬𝐮𝐦𝐞𝐫 𝐒𝐞𝐜𝐭𝐨𝐫

𝐀𝐂𝐄 𝐇𝐚𝐫𝐝𝐰𝐚𝐫𝐞 𝐈𝐧𝐝𝐨𝐧𝐞𝐬𝐢𝐚 𝟐𝐐𝟐𝟎 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐫𝐞𝐟𝐥𝐞𝐜𝐭 𝐭𝐡𝐞 𝐜𝐨𝐮𝐧𝐭𝐫𝐲’𝐬 𝐬𝐥𝐨𝐰𝐞𝐝 – 𝐝𝐨𝐰𝐧 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐢𝐞𝐬

* 𝐖𝐞 𝐦𝐚𝐢𝐧𝐭𝐚𝐢𝐧 𝐨𝐮𝐫 𝐁𝐔𝐘 𝐜𝐚𝐥𝐥 𝐰𝐢𝐭𝐡 𝟏𝟐-𝐌 𝐓𝐚𝐫𝐠𝐞𝐭 𝐏𝐫𝐢𝐜𝐞 𝐨𝐟 𝐈𝐃𝐑𝟏,𝟖𝟓𝟎/𝐬𝐡𝐚𝐫𝐞

* 𝐖𝐞 𝐦𝐚𝐢𝐧𝐭𝐚𝐢𝐧 F𝐘𝟐𝟎𝐬𝐚𝐥𝐞𝐬 𝐞𝐬𝐭𝐢𝐦𝐚𝐭𝐞𝐬

* 𝐑𝐞𝐯𝐢𝐬𝐞𝐝 𝐝𝐨𝐰𝐧 𝐨𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐚𝐧𝐝 𝐧𝐞𝐭 𝐩𝐫𝐨𝐟𝐢𝐭 𝐭𝐨 𝐫𝐞𝐟𝐥𝐞𝐜𝐭 𝐭𝐡𝐞 𝐬𝐥𝐨𝐰𝐞𝐫 𝐬𝐩𝐞𝐞𝐝 𝐨𝐟 𝐞𝐚𝐫𝐧𝐢𝐧𝐠 𝐜𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧𝐬 𝐨𝐟 𝐧𝐞𝐰 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭𝐬

* 𝐑𝐞𝐯𝐢𝐬𝐞𝐝 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐦𝐮𝐥𝐭𝐢𝐩𝐥𝐞 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 𝐭𝐨 𝟒𝟎% 𝐯𝐬.  𝐡𝐢𝐬𝐭𝐨𝐫𝐢𝐜𝐚𝐥 𝟐𝟗%  𝐭𝐨 𝐫𝐞𝐟𝐥𝐞𝐜𝐭 𝐭𝐡𝐞 𝐜𝐨𝐦𝐩𝐚𝐧𝐲’𝐬 𝐬𝐞𝐧𝐬𝐢𝐭𝐢𝐯𝐢𝐭𝐲 𝐭𝐨 𝐬𝐭𝐚𝐛𝐥𝐞 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐬𝐲𝐬𝐭𝐞𝐦 𝐚𝐧𝐝 𝐢𝐦𝐩𝐫𝐨𝐯𝐞𝐝 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐢𝐞𝐬

𝟐𝐐𝟐𝟎 𝐞𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐰𝐢𝐭𝐡 𝐩𝐫𝐨𝐟𝐢𝐭𝐚𝐛𝐢𝐥𝐢𝐭𝐲 𝐢𝐧-𝐭𝐚𝐜𝐭

Ace Hardware Indonesia (ACES) reported financial performances during the first semester this year (1H20) with sales amounted to IDR3.7tr , a decline of 8% compared to the same period last year.  For the 2Q20, ACES’s sales reached IDR1.7tr or a decline of 19% compared to 2Q19, and a decline of 14% as compared to that of the 1Q20.  Nevertheless, the company manage to maintain profitability with 1H20 gross margins at 49.4% (1H19:47.1%, 2Q20:49.2%, 2Q19: 46.9%), and 1H20 operating margins at 12.8% (1H19:16.0%, 2Q20:9.1%, 2Q19: 15.3%), and 1H20 net profit margins at 9.9% (1H19:11.9%, 2Q20:6.8%, 2Q19: 11.4%).

ACES imported around 75% of all merchandise sold and has so for benefitted from stable USDIDR and middle-income class consumers. This was reflected in the company’s 1H20 cost of goods sold (COGS) which amounted to IDR2.1tr, a decline of 12% YoY.  The company has been able to increase selling price for selected products while COGS were kept stable, we suspect. Favorable product mix in 1H20 permitted higher gross margins, also during 2Q20.

At the other end, during 1H20 ACES did not slow down its openings of new stores (please see our report dated July 13) which is an expense to the current period, while sales has not catch-up as yet due to the limited lock-down of the country. This we related to the lower of both operating and net margins of ACES during the 1H20.

ACES is currently a debt free company the fact that not only give less burden to the company’s profit and loss but also flexibility to use the cash on hand.  The company pays for advance payments in Rupiah for all merchandise being imported.

We maintain our BUY of the counter for several points 1) dominance in the sector in terms of size has enabled ACES to have strong control over profitability, 2) the counter is expected to be impacted positively from stable financial system, mainly indicated by USDIDR trend, 3) the counter is benefitted from relatively increasing income in-equality distribution in the country that made up middle-middle and middle-upper class income group. Data from central Statistics office stated that the latest (March 2020) Gini Ratio of Indonesia was at 0.381. This level has been in a down-trend recently, but Indonesia was once in the level of 0.315 in March 2010.

The company’s 1H20 results reflects 43%, 38%, and 37% of our full this year estimates.  We have assumed moderate recovery especially in the last quarter this year.

At the other end, Friday last week  the WTI price closed higher by 30 cents to USD40.3/barrel on supply worry. Meanwhile the  USDIDR  closed  at IDR14.570  vs. IDR14.543  the previous one.

We advise the following recommendation , 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,