Sideways Bound

2Q24 results: 4% YoY NP Growth; 47% below (Cement), 34% in-line (Banks), 19% above (Staples). The majority of companies under our coverage have released their 2Q24 results, with aggregate net profit growth of 4.0% YoY and 1.4% QoQ. Out of the 53 companies that have reported, 34% booked in-line 2Q24 results, 19% exceeded expectations, and 47% fell short of estimates. Most of the growth came from banks (+5.9% YoY), with BMRI and BBCA booking the highest 2Q24 earnings growth among the Big 4 banks. Overall, banks’ results met our expectations, driven primarily by improved cost of funds and assets quality. These banks booked solid 1H24 loan growth, thanks in part to BI's conditional lower reserve requirement stimulus. It is worth noting that consumer staples companies reported strong 2Q24 core profit, despite slow QoQ growth due to election-driven high base in 1Q24. Companies with larger exposure to low-income consumers, such as ICBP and SIDO, saw solid topline growth in 1H24 thanks to changes in spending behavior (downtrading). Telco sector’s 2Q24 results were relatively in line with estimates, bolstered by higher data traffic growth, with ISAT posting the highest ARPU growth (+2.4% QoQ, +7.3% YoY). Meanwhile, cement companies’ results fell short of expectations, mainly due to soft domestic volumes. Additionally, the auto sector performed worse than expected mostly due to weak 4W demand despite positive contribution from UNTR’s Martabe gold mine.

JCI to remain sideways in the near term: Held back by global economic uncertainties. Due to concerns over potential global economic downturn amid slowing expansion in the US labor market and various adverse outcomes on key US macroeconomic indicators, we anticipate that the JCI will remain sideways in the near term. Nevertheless, we expect the JCI to see positive momentum in the lead up to the inauguration of the new government and cabinet in October 2024, which may encourage foreign funds flow into the equity market. The JCI reported foreign inflow of IDR 1.2tn MTD (YTD JCI outflow: IDR 14tn), with BMRI recording IDR1.5tn net foreign inflow alone. It is worth highlighting that foreign ownership in equities reached 40% as of July-24, whereas domestic institutional ownership stood at 14%.

Maintain our end-2024 JCI target at 7,400. Post-2Q24 results, we project 2024F JCI earnings growth to reach 2.5% YoY (Regional Average: 11.6% YoY). Our fundamental base case scenario for JCI’s 2024F target remains at 7,400, implying FY24 PE of 13x (Regional Average: 11.7x). However, given the potential global economic slowdown, we will focus on companies with strong fundamentals that have the potential to generate sustainable earnings in the short and medium term. Our top picks include ICBP, SIDO, BMRI, BBCA, and ISAT. At the moment, we prefer banks with high CASA ratio: BMRI (BUY, IDR 8,000) and BBCA (BUY, IDR 11,500), as they will continue to benefit from lower cost of funds amidst tightening liquidity conditions. We decided to add SIDO (BUY, IDR 830) with 27.0% EPS growth in FY24 as a top pick in anticipation of the upcoming La Niña, the rainy season, and the consumers’ tendency to self-medicate due to weak purchasing power. These factors are expected to boost herbal sales, benefitting SIDO in 2H24.