Photo by Finance Ministry

JAKARTA (TheInsiderStories) – Indonesian business prospect in the second semester (2H) of 2017 more promising forced by the government’s massive national development program . In the 1H of the year, profitability of publicly listed company rose 38.3 percent compared to same period in 2016.

Net profit of listed companies on the mining and coal sector recorded rose 744 percent, health 479 percent, basic industry and chemistry 341 percent, pulp & paper 188 percent, construction 83 percent, consumers staple 48.32 percent, home appliances 44.45 percent, securities firms 28.36 percent, automotive and components 27.61 percent, and banks 25.18 percent.

Based on the financial reports, there are five companies that booked biggest profit, namely state-owned lender PT Bank Rakyat Indonesia Tbk (IDX: BBRI) worth of Rp 13.4 trillion, followed by stated owned telecommunication operator PT Telekomunikasi Indonesia Tbk (IDX: TLKM) Rp 12.1 trillion, PT Bank Central Asia Tbk (IDX: BBCA) Rp 10.5 trillion, PT Bank Mandiri Tbk (IDX: BMRI) Rp 9.4 trillion and PT Astra International Tbk (IDX: ASII) Rp 9.3 trillion.

On the other side, there are five companies with the biggest loses including stated owned airlines PT Garuda Indonesia Tbk (IDX: GIAA) Rp 3.7 trillion, PT Holcim Indonesia Tbk (IDX: SMCB) Rp 436 billion, PT Indomobil Sukses International Tbk (IDX: IMAS) Rp 340 billion, PT Matahari Putra Prima Tbk (IDX: MPPA) Rp 169 billion and PT Eagle High Plantation Tbk (IDX: BWPT) Rp 124 billion.

Despite having a stagnant economic growth on the macro level, 5.01 percent relatively flat compared to previous quarter, Jakarta Composite Index has rose 10.42 percent with market capitalization rose 11.41 percent and price earning ratio reach 16.54 times, relatively above last four year average 16.03 times.

1H Sectoral Summary

Table of Profitability

In the 1H of 2017, almost all the bank gain profit with PT CIMB Niaga Tbk (IDX: BNGA) gained highest profit, growth by 87.5 percent from Rp 736 billion to Rp 1.38 trillion. Meanwhile, construction energy gain profit with the high growth compared to other sectors followed by information & telecommunication grew 10.9 percent and transportation & storage that grew 8.4 percent during the period. While in the energy sector, PT Tambang Batubara Bukit Asam Tbk (IDX: PTBA) gained the highest profit growth by 141.5 percent from Rp 712 bilion to Rp 1.72 trillion following the rose of commodity price.

In other hands, services sector become most suffer with state owned airlines suffering loss by 342 percent from minus Rp 827 milllion to minus Rp 3.6 trillion. Additionally, telecommunication, manufacture remains flat. Other sectors include agriculture & plantation, property, consumer staple & discretionary as well as infrastructure sectors notably has solid financial performance.

Sectoral Outlook on H2

We expect agriculture & plantation, consumer staple & discretionary sectors remain solid in the second half, as it will get beneficiary from rising commodity export.

On July, energy commodity price rose 3 percent year on year, while non-energy commodity price rose by 2 percent year on year. Food and beverage price rose by 0.7 percent and 1.7 percent respectively. Metals and minerals surged 5.1 percent while precious metal dipped 2.3 percent, World Bank data said.

More over, on April, World Bank projected natural gas and coal, price to jump 26 percent this year and 8 percent in 2018. In line with oil price forecasts, natural gas is anticipated to gain 15 percent this year, led by a jump in U.S. prices. Coal is seen climbing 6 percent in 2017, due to earlier supply restrictions in China, which consumes half the world’s coal output.

Metals prices are projected to jump 16 percent this year due to strong demand, especially from China, and supply constraints, including mine disruptions in Chile, Indonesia and Peru. Beverages, which include coffee, cocoa, and tea prices, are forecast to drop more than 6 percent in 2017 due to greater-than-expected supply. Agricultural raw materials are projected to rise 4 percent. The end of the El Niño/La Niña cycle limits upside price risk for the 2017-2018 agricultural commodity forecasts.

Despite there have been concerns about whether China’s credit tightening would derail Asia’s export recovery or the synchronous global recovery. Additionally, China’s growth still expected to continues its moderation. To this point, Morgan Stanley for examples note that the correlation between China’s credit impulse and EM export growth cycle does not appear to be obvious.

“We believe that although China’s growth will moderate, the repercussions on EM growth should be less pronounced as compared to 2013-15, since other parts of the global economy are on a better footing,” Chetan Ahya, global economics cohead and Chief Asia Economist at Morgan Stanley said on its research.

We expect construction sector also remind solid, followed by government spending spur in the H2. Indeed, if the recently revised 2017’s State Budget outlook is anything to go by, the government’s expectation for expenditure to grow 11.4 percent year on year for 2017 means that government expenditure will pick up to 19 percent YoY in 2H17.

With higher share of expenditure is allocated to infrastructure spending will generate better multiplier effects, crowd in private sector domestic demand, and underpin a mild growth recovery. As it is, central government capital expenditure, which is a subset of overall infrastructure spending, has risen 7 percent year on year, YTD as of June 2017,a faster pace compared to overall government expenditure 3.2 percent YoY.

On the banking sectors, recently central bank governor hint to ease policy whether in policy rate cut, or alternatively monetary stimulus by relaxing macro prudential policy. This will become positive sign for banking to increase their lending. Moreover, government targeting to burse spending on infrastructure spending in the second half, which will increase corporate lending for infrastructure projects.

We notice on the consumer staple & discretionary sectors, there is dip on the retail sale in the first half. Most public company in this sector including Indofood, Mayora and Sampoerna booked 0.35 percent slower profit compared to the previous year, this doesn’t mean the sector become no longer defensive in the second half. Despite there is massive shifting from offline store sale to e-commerce, stability on Indonesian currency volatility and moderate inflation rate should lift up people purchasing power in the second half.

We expect information and telecommunication sectors remain solid in the second half following positive development in technology. Currently government has launched e-commerce roadmap 2019 that should have positive impact on the sectors. Most public company in this sectors including Telkomsel, Exel Axiata and Indosat hopes their revenue can growth above the industry level in the second half, or about 15 percent or higher. They also expect to gain better earning before tax (EBITDA). We expect a neutral outlook at the sector because it will has limited rise on its current valuation position.

On the property sector, despite a slowing growth in the first half, we expect it will slowly recover in the second half. Market is expected to response single digit rate positively so that property sale on medium and lower segment will increase. In the first half, vacancy rate on the central business district (CBD) reach 18.4 percent or rose 2.7 percent compared to previous year due to oversupply. With better marketing officer approach, the situation is expected to get better.

On the mining sectors, we expect it will remain strong. Coal price is expected to stable at US$75 until US$80 per tones. Coal production is expected to increase at 400 million ton per year at next three years and will be prioritize to local market, due to lower rain season. This will not pursue oversupply despite 35 percent of global supply is fulfilled by Indonesia.

(Written by Linda Silaen, Yosi Winosa and CS, Email: linda.silaen@theinsiderstories.com)

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