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Danareksa Equity Snapshot - 20 September 2019
September 20, 2019 09:50 WIB

FROM EQUITY RESEARCH

 

Strategy: Opportune Mix of Macro Prudential Policies

Bank Indonesia’s third rate cut signals deeper stance into easing cycle as it seeks to promote domestic growth against the backdrop of global economic slowdown. We believe that accommodative monetary policy coupled with stronger fiscal policy will spur brisker economic activity in 2020 and greater confidence in the resilience of the domestic economy. As we believe there is one more rate cut to come this year, investor confidence has room to improve further. In the stock market, we continue to favour interest rate sensitive counters (Banks, Property and Autos), as well as highly capital intensive and highly leveraged sectors such as Telcos and Construction.

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Banking: More policies relaxation to boost growth

BI’s decision to cut its policy rate by 25bps to 5.25% had already been expected by our economist. Beside the rate cut, BI also issued four relaxation policies, ie RIM, LTV, payment system and market operation instruments.  Such aims to propel stronger economic growth going forward. We see that the medium and small-sized banks, especially BUKU III banks, will be the main beneficiaries given their tighter liquidity conditions compared to the big banks. In our banking universe, BBTN is the main beneficiary given its high dependency on TD, high LDR and sizeable mortgages exposure to the low-income segment. Maintain OVERWEIGHT, BBNI and BBTN as our top picks.

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MARKET NEWS

MACROECONOMY

Government: Parliament approves the budget for the Ministry of Housing and Transportation

Parliament (DPR) has approved a IDR120tn budget for the Ministry of Housing and a IDR43tn budget for the Ministry of Transportation in 2020. From the total budget allocated for the Ministry of Housing, IDR44tn will be used to build water infrastructure, IDR43tn to establish connectivities, IDR30tn for public housing and residential property, IDR525tn for human resources, and IDR725bn for construction development. Meanwhile, most of the budget for the Ministry of Transportation will be used to build tourism infrastructure. (Investor Daily)

 

SECTOR

Cigarette: HMSP calls on the government to combine the SKM and SPM excise categories

Troy J. Modlin, Director of HMSP, has called on the government to close the excise tax gap by combining the SKM and SPM excise tax categories. He said that many SPM producers utilize their position as 2nd tier producers to offer cigarettes at cheaper prices. Troy also said that the 23% excise tax/stick increase was above his expectations. (Bisnis Indonesia)

 

Property: Relaxation of LTV

Bank of Indonesia (BI) has further relaxed its policy on LTV/FTV by reducing the down payment requirement by 5% and by an additional 5% if the property is environmentally friendly certified. However, there is no standardization for environmentally friendly certification meaning that secondary regulations are needed. (Kontan)

 

Comment: BI’s policy relaxation will only affect second buyers and beyond as first home buyers (for property other than landed residential below 21sqm) has reached its maximum LTV of 100% as per previous regulations. For landed property below 21sqm there is no impact at all as the 100% LTV ratio already applies. This move could boost property demand for investors rather than end users.

 

CORPORATE

SCMA: In negotiation with Netflix

Screenplay Bumilangit Produksi (SBP: 47.5% owned by an SCMA subsidiary) is in talks with Netflix for the exclusive distribution of Gundala.  Previously, the company sold “The Night Comes for Us” for USD5.0mn. Gundala was well received in the Toronto International Film Festival with all 3 screenings sold out. The next step is Asian distribution and Gundala will be aired in Malaysia in the near future. Over the long term, the company will produce other movies in the Bumilangit Cinematic Universe (BCU) stretching up to 2023. This will encompass merchandising and the production of other movies. (Investor Daily)


Danareksa Equity Snapshot - Banking Sector (OVERWEIGHT) More policies relaxation to boost growth
September 20, 2019 09:48 WIB

Banking

More policies relaxation to boost growth

 

BI’s decision to cut its policy rate by 25bps to 5.25% had already been expected by our economist. Beside the rate cut, BI also issued four relaxation policies, ie RIM, LTV, payment system and market operation instruments.  Such aims to propel stronger economic growth going forward. We see that the medium and small-sized banks, especially BUKU III banks, will be the main beneficiaries given their tighter liquidity conditions compared to the big banks0. In our banking universe, BBTN is the main beneficiary given its high dependency on TD, high LDR and sizeable mortgages exposure to the low-income segment. Maintain OVERWEIGHT, BBNI and BBTN as our top picks.

 

25bps cut in the policy rate to 5.25%. The 25bps cut in the policy rate to 5.25% should benefit the banking system as banks would instantly adjust down their TD rate, thus meaning less pressure on their blended CoF going forward. Furthermore, the rate cut should also pave the way for stronger loans growth going forward although we expect the impact to be fully seen in 2020. There will be a time lag of six months for lending rate adjustments based on our observations. Hence, medium and small sized banks are the main beneficiaries given their sizeable TD exposure to total customer deposits.

 

Relaxation of four policies. BI also released four stimulus policies (RIM, LTV, market operation instrument on RRSBN and payment system), yet we believe only two policies have more major impact. Firstly, relaxation on Macroprudential Intermediary Ratio (RIM) by including borrowings into the funding calculation (Exhibit 1). Under the new policy, funding consists of customer deposits, securities issued and borrowings with a maturity of more than one year. BI argues there will be additional liquidity of IDR128tn from this policy relaxation. Secondly, BI relaxed the LTV to lower the down payment by 5% for mortgages and 5-10% for automotives (Exhibit 2 and 3). These two new policies will be effective starting on December 2, 2019. BI expects these policies to help propel stronger GDP growth going forward, though the impact will remain to be seen in our view.

Medium sized banks are the main beneficiaries. In our banking universe, Bank Tabungan Negara (BBTN IJ, BUY, TP IDR3,000) should benefit the most from both the lower policy rate cut and the relaxation of RIM and LTV. BBTN’s CASA deposits accounted for 43.8% of total customer deposits with a 113.3% LDR as of June 2019. At the same time, a higher LTV on mortgages should also benefit BBTN given its greater focus on the low-income segment. BTPN Syariah (BTPS IJ, HOLD, TP IDR3,100) is another beneficiary of the lower policy rate on the back of its 80% TD contribution to total customer deposits as of June 2019.

Maintain Overweight; BBNI and BBTN as our top picks. We maintain our Overweight call on banks. BBNI is our top pick among the large banks given its attractive valuation with decent ROAE. Among the mid cap banks, BBTN is our top pick given its strong focus on the housing-related lending segment.

… read more 2090920 Banking


Danareksa Equity Snapshot - Strategy: Opportune Mix of Macro Prudential Policies
September 20, 2019 09:42 WIB

Strategy

Opportune Mix of Macro Prudential Policies

 

Bank Indonesia’s third rate cut signals deeper stance into easing cycle as it seeks to promote domestic growth against the backdrop of global economic slowdown. We believe that accommodative monetary policy coupled with stronger fiscal policy will spur brisker economic activity in 2020 and greater confidence in the resilience of the domestic economy. As we believe there is one more rate cut to come this year, investor confidence has room to improve further. In the stock market, we continue to favour interest rate sensitive counters (Banks, Property and Autos), as well as highly capital intensive and highly leveraged sectors such as Telcos and Construction.

 

Astute mix of macro-prudential policies. Bank Indonesia (BI) cut its 7-day Reverse Repo Rate by 25 bps to 5.25%, the third cut this year, with, we believe, one more rate cut to materialise in 2019. Similar to its previous policies, BI also cut the deposit rate facility by 25 bps to 4.5% whilst also lowering the lending rate facility by 25 bps to 6.0%. BI reiterated that the benign inflation outlook as well as stable Balance of Payments as the basis for rate cut decision.

 

In addition to the rate cut, BI also announced several macro prudential policies in a bid to boost credit activity, namely: 1) relaxation of the Macroprudential Intermediary Ratio (RIM) by including borrowings in the funding calculation. Under the new RIM policy, funding consists of customer deposits, securities issued and borrowings with a maturity of more than one year. BI argues that there will be additional liquidity of IDR128tn from this move; 2)       Relaxation of the LTV to reduce the down payment by 5% for mortgages and 5-10% for automotives. These two new policies will be effective starting on December 2, 2019, and 3) the inclusion of all tenor from 7 day to 12 month of RRSBN (Reverse Repo Govt Bonds) as a monetary operations instrument starting from 4 October 2019. More importantly, to hasten the transmission of the lower benchmark rate, BI has urged all financial institutions to follow suit and cut their lending and deposit rates to support economic growth in 2019. So far this year, credit growth has slowed to 9.6%y-y in Jul from 9.9%y-y in Jun 19 on the back of low credit demand from corporations. All in all, BI still maintains credit growth targets of 10-12% in 2019 and 11-13%yoy in 2020.

 

Stable external outlook amid revised-down global economic targets. The protracted Sino-US trade war has become the main spectre to global economic growth, and, accordingly, BI has revised down its global economic growth forecast from 3.2% in 2019 and 3.3% in 2020 to 3.1% for both 2019 and 2020. BI’s third rate cut yesterday already takes into consideration the cut in the Fed Funds rate to 1.75% to 2% this month. While Bank Indonesia still expects economic growth to reach 5.1% in 2019 and 5.3% in 2020, we believe the latter is rather aggressive. To achieve this target, BI will further enhance its monetary and macro prudential policy mix with the ultimate goal of improving investor confidence and luring more foreign capital into Indonesia.

 

Maintaining our positive stance on rate sensitive, capital intensive and highly leveraged sectors. By adopting a more accommodative policy stance, BI is looking to promote economic growth. In turn, this should make Indonesia a more attractive destination for investment. Given this backdrop, interest rate sensitive counters stand to benefit such as Banks, Property and Autos. Also, lower interest rates and a lower CDS will benefit highly capital intensive and highly leveraged sectors, such as Telcos and Construction. Our top picks are TLKM, EXCL, ASII, ICBP, RALS, BBTN, CTRA, WIKA and BEST.

 

… read more 20190920 Strategy