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Danareksa Equity Snapshot - 21 Februari 2020
February 21, 2020 10:31 WIB



Strategy: Battling the slowdown

Bank Indonesia remains firm on its accommodative stance, with another 25bps rate cut to 4.75%. In our view, this move will continue to cement the Central Banks’s rapid pre-emptive response, especially with the recent inexorable impact from the worldwide coronavirus outbreak which has further restrained global growth. The outbreak will affect the domestic economy, especially the forex reserves, net exports, and investment, which will lead to sub 5% economic growth in 1Q20. Thereafter, economic growth is expected to recover, while the Omnibus Law would drive stronger investment flows.  

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Poultry: The Family Planning Program for Chickens

The government has instructed a PS culling program to limit the breeding age of PS at 60 weeks in the period from 17 February – 31 December 2020. If strictly implemented, this could reduce the mid-term supply of chickens by c. 18%, which, we believe, would be enough to address the current oversupply in the market. We maintain our Overweight stance on the sector given that this regulation will address the current oversupply conditions throughout 2020. Japfa will be the main beneficiary given its larger contribution from both the breeding and commercial farming segments. 

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FY2019 Results

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Consumer: DPR approves excise tax on plastic, targeting IDR1.6tn of revenues

The Minister of Finance has proposed the implementation of excise tax on plastic bags (up to 75mikron) and ready-to-drink sweetened beverages (including: RTD tea, carbonated drinks, juice, healthy drinks, milk, coffee, energy drinks and others). Post implementation, the government estimates that plastic consumption will decline to 53,532tons/year from 107,065tons/year. The House of Representatives (DPR) has approved the implementation of the excise tax on plastic with a target of IDR1.61tn. (Bisnis Indonesia)

Plantation: Omnibus law to allow foreign companies to enter the country directly

Under the proposed Omnibus Law revision on UU.39/2014 which previously stipulated that foreign plantation companies have to work with a local partner, they may now be able to enter the country directly. Gapki stated the proposed law will be further discussed with stakeholders and added that the current cost increment of c.8.5% for labor costs is weighing on the sector. (Kontan)

Kemkominfo claims success on blocking illegal phones

Kemkominfo claims that efforts to block illegal phones during 17-18th February have been successful. Two methods have been used to block illegal phones: Using the Blacklist – Normally-On allows all phones to operate, then the operator (in this case XL Axiata did the trial) would have to detect by crosschecking with the SIBINA System Basis Data IMEI National which is a centralized Equipment Identity Register (EIR). The whitelist method uses the Normally -Off mode where owners have already registered the IMEI. Users already know from the start whether their phone is illegal or not (Telkomsel tested for this method).

The SIBINA database which incorporates data from the Ministry of Industry was not employed in this phase but should be ready for following trials during March.

Other use cases are in force such as transferring the sim-card between illegal and legal phones. The user will receive SMS notifications to clarify the status with SIBINA. (Kontan)

Danareksa Equity Snapshot - INCO, 21 Februari 2020
February 21, 2020 10:06 WIB

Vale Indonesia

4Q19: Strong prices lifted profits

Vale Indonesia (INCO) reported net profits of USD57.2mn in 4Q19 (3Q19: USD26.3mn). In 2019, however, the net profits fell by 5.1% yoy to USD57.4mn. The result is above our expectation and consensus forecasts. While the recent soft nickel prices on the back of weak demand from stainless steel will impact earnings in 1H20, we expect solid demand from Electric Vehicles (EV) to boost the company’s earnings in the long run. Maintain BUY with a TP of IDR4,400 (based on DCF valuation).

4Q19: strong prices lifted the net profits. The 4Q19 net profits climbed to USD57.2mn (+117.3% qoq) supported by: a) higher sales volume (+6.1% qoq), which was in-line with 3.4% qoq higher nickel-in-matte production and b) higher ASP (+21.3% qoq) thanks to better nickel prices in the Sep – Nov 2019 period. The COGS per ton was relatively flattish amid lower energy costs on declines in HSFO and diesel prices by 15.2% qoq and 10.3% qoq, respectively. However, strong prices lifted the EBITDA margin to 46.9% in 4Q19 from 32.9% in 3Q19.

2019: higher corporate tax and lower production. INCO reported 5.1% yoy lower net profits of USD57.4mn mostly reflecting: a) a higher tax rate of 35.6% in 2019 (2018: 26.8%) and b) 4.7% yoy lower nickel-in-matte sales volume driven by maintenance activities at Larona Canal Elining and EF #4 in 1H19. The solid nickel price in 2H19 - which resulted in 5.7% yoy higher ASP - and prudent costs management with 3.3% yoy lower COGS per ton (from a lower HSFO and coal price and consumption) helped to maintain solid earnings in 2019.

Maintaining nickel-in-matte production for 2020. The company indicated it would maintain nickel-in-matte production at a similar level in 2020 vs. 2019’s 71,025 tons. We expect nickel-in-matte production of around 73,000 tons in 2020. However, given the current soft nickel price from weak stainless steel demand in addition to the impact from the coronavirus outbreak, we expect INCO to post soft earnings in 1Q19.

Maintain BUY with a TP of IDR4,400 (based on DCF valuation with WACC of 12.0%) given the expectation of: a) further cost efficiencies and b) slightly higher nickel-in-matte production and c) robust long-term earnings from development projects and solid prices over the long run. Our TP implies 34.5x 2020F PE. The downside risks include further softness in global nickel demand which may impact global nickel prices in 1H20, which fell 8.7% ytd in 2020.

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Danareksa Equity Snapshot - Media Sector (OVERWEIGHT) Attractive Regardless of Omnibus Law Conundrum
February 21, 2020 10:05 WIB


Attractive Regardless of Omnibus Law Conundrum

Given the depressed share prices of late, both MNCN and SCMA are trading at attractive valuations with EV/EBITDA currently standing at 6.5x and 10.0x, respectively. Recent regulatory policy in the form of the Omnibus Law may, however, pose a threat to earnings should the law go through as it is. Maintain OVERWEIGHT with a BUY call on SCMA and 2020 TP of IDR1,725 and a BUY call on MNCN with a 2020 TP of IDR1,900.

“USO”-esque cost to be added, odds might be low. Nestled in the Chapter 33 revision, point 2 on Legislation no.32 2002 within the Omnibus Law proposal, there is listed a license fee as a percentage of revenues for broadcasting companies. The proposal is consistent with the previously proposed law (RUU) which calls for the percentage of revenues to be at 1.75%, arguing the contribution from broadcasting has been very minimal. The proposed rate will increase the COGS by IDR128.0bn for MNCN and by IDR86.5bn for SCMA.

Media groups believe that the USO-like tariff should not be applied to them, as their programs are broadcast free-to-air. They also see that the new tariffs will not be passed by parliament. On digitization, which is touched on in Chapter 60A, analog switch off (ASO) is to be done 2 years post the legislation. In our rough calculations, we estimate additional capex for MNCN and SCMA of less than USD20mn each, and <USD10mn assuming no new tower sites. The government will not issue new broadcasting licenses, eliminating the threat of new entrants upon digitization as was the case in Thailand.

Pro-forma lower earnings by -4%. Plugging in the proposed increase of the cost structure of MNCN and SCMA, the additional costs would trim 2020 earnings by -4.2% for MNCN and -4.6% for SCMA. Core profits growth figures will still be double digits for MNCN at 10.9% yoy, while for SCMA the slim positive growth would turn to -2.9% yoy. All in all, assuming that this policy is applied, then our DCF based TP for MNCN would slip to IDR1,825 (now IDR1,900) while for SCMA it would edge lower to IDR1,650 (now IDR1,725).

Despite the lower potential earnings and TP, the 2020 EV/EBITDA multiples will remain attractive at 13.9x for SCMA and 7.7x for MNCN at the decreased TP. These valuations are still below their 4 year averages and proforma of the cost increases, the MNCN and SCMA valuations will still hover near -1STD, i.e. still attractive in our view.

Expecting 5.6% revenues growth for MNCN and SCMA collectively. Media Partners Asia has predicted 3% top-line growth for the TV industry, while MNCN is expecting 8-12% in FTA top line growth due to collaboration with SCMA. We believe that the figure for both media groups will be 5.6%, a more conservative figure considering the challenges that consumer companies are facing in 2020.

Price	Market
Cap.	P/E (x)	P/BV (x)	ROE (%)
Company	Ticker	Rec	(Rp)	 (RpBn)	2019F	2020F	2019F	2020F	2020F
Surya Citra Media	SCMA IJ	BUY	1,725	19,642.5	15.6	13.9	3.7	3.3	25.3
MNC	MNCN IJ	BUY	1,900	21,057.2	10.1	9.1	1.8	1.6	18.8

Maintain Overweight, BUY ratings all round. We maintain our OVERWEIGHT stance on the media sector with BUY calls on both SCMA and MNCN with 2020 TPs of IDR1,725 and IDR1,900, respectively. As the proposed Omnibus Law has not been approved by the House of Representatives yet, and the likelihood of the cost increases proposal being passed is reasonably low in our view, we thus maintain our 2020 estimates and TP.





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