Positive catalyst on the back of improved DSI clarity with supervisory status more likely. Commodity-related equity companies have begun to recover from their recent lows (Figure 1), helped by series of supportive government policy developments for Indonesia’s exporters. In this regard, one of the most important developments is improved clarity regarding the execution framework of Dananatara Sumberdaya Indonesia (DSI). Our recent discussions with DSI suggest that Indonesia’s centralized export framework is gradually evolving away from the market feared “state trading hub” model with DSI having explicitly denied operating as a full merchant trader. Instead, the plan for DSI is to act as a preferred market-friendly supervisory, data-driven platform. DSI’s core function is increasingly centered on app-based (SIMBARA) monitoring, anomaly detection, and enforcement of transparency standards, while existing contracts, commercial relationships, and export flows remain largely intact. More importantly, pricing is not being fixed but continues to follow benchmark-based mechanisms with defined tolerance bands.

 

Potential positive implications of coal DMO and RKAB revisions for Indonesian miners. Minister of Energy and Mineral Resources Bahlil Lahadalia is reportedly considering revisions on Domestic Market Obligation (DMO) coal pricing mechanism for PLN, alongside potential upward adjusted-RKAB production volume quotas. These developments suggest potential constructive policy shift for coal miners, with the government appearing to move away from export-centric intervention towards more balanced framework prioritizing domestic energy security while reassessing required allocation of thermal coal supply to PLN. Under the current framework, coal miners are required to allocate portions of their outputs toward the domestic market at capped PLN price of USD 70/ton. For mineral companies, we see this adjusted-RKAB production volumes to have mixed results for players within the sector. The players that benefit are the ones with inadequate supplies required for their smelter production. This, coupled with policy shifts including cancellations of planned 1) royalty increases and 2) gross-split scheme, will materially alleviate earlier concerns regarding forced disintermediation, export bottlenecks, or potential margin compression to be experienced by mineral players.

 

Stocks preference: Strong earnings growth, but previously penalized by policy concerns. At the current investment cycle, the fundamentals of commodities vary with our preference for Coal, CPO-Upstream, Metals (OVERWEIGHT). This is due to policy uncertainty overhangs gradually easing, while the sectors have been heavily penalized by regulatory concerns. In terms of stocks, we like ANTM, AMMN, BUMI, and TINS (Figure 12) given that government’s policy stance being broadly supportive. On the coal front, our key top pick is BUMI with significant local sales and PLN connection, although PTBA and INDY are the most sensitive caused by their structurally high domestic sales mix. Risk to our call within this space is potentially greater exposure towards under-invoicing crack-down (Figure 4) currently pursuit by the government since coal companies contribute approximately 48% of Indonesia’s total coal export volume (Figure 2). Likewise, we are also positive on the following mineral-based stocks: ANTM, AMMN, TINS on dissipating policy concerns as well as strong earnings growth momentum stemming from solid outlook of both gold and tin. For plantations, we are relatively more bullish on CPO-Upstream plays as they benefit from high prices while downstream counters have the propensity to be hurt by elevated raw material prices. Thus, we are NEUTRAL on CPO-Downstream – and we adopt the same view on Nickel since supply growth from Indonesia outpaces demand coming from stainless steel and EV batteries.