Defensive Plays with Solid Fundamentals
BI’s pro-growth stance as short-term catalyst. During its January 2025 meeting, Bank Indonesia (BI) unexpectedly cut its benchmark interest rate, also known as BI Rate, by 25 bps to 5.75%, mainly to stimulate domestic economic growth. The move has generated positive sentiment, as reflected in the stock market uptick following the announcement. However, the rate cut poses potential risks for Indonesia, including weaker IDR and capital outflows as BI Rate-FFR spread becomes smaller. We believe the recent foreign inflow will not be sustainable, as the risk premium will remain elevated amid rising tensions in the US 10-year Treasury yield—driven by strong US economic data and uncertainties over US policy rates under Trump. Concurrently, IDR may face additional pressure from stronger USD, driven by tax cuts and inflation-boosting tariffs, along with domestic challenges from the establishment of Danantara, MSME debt forgiveness program, and 3 million housing initiative.
2025 investment theme: stay defensive. The Fed has signaled a more cautious stance on monetary policy easing for 2025, projecting only two additional 25bps rate cuts, down from the four cuts anticipated in Sep-24. Despite BI’s recent rate cut, we remain neutral on rate-sensitive sectors, including banking, auto, and property, as our economist views BI’s move as ‘frontloading monetary policy’, with no further rate cuts expected in 2025. At this point, we continue to OW on defensive sectors with strong fundamentals, such as Consumer, Poultry, Telco, and Healthcare sectors, driven by gov’t stimulus (free meal program) and the 6.5% minimum wage hike, which should help increase purchasing power, particularly for low-income earners. However, we remain UW on Cement, Tech, and Digital Banking sectors, mainly due to lack of near-term catalysts.
Year-end 2025F JCI target at 7,700 with ICBP, TLKM, JPFA, HEAL, and BBRI as top picks. We are of the view that JCI is poised for a re-rating after 1Q25 as greater clarity emerges around Trump’s policies and the Indonesian government’s monetary strategies. Until then, the risk premium will likely stay elevated. We set our fundamental base case scenario for JCI’s 2025F target at 7,700, implying FY25 PE of 13x (Regional avg: 13.2x). We project 2025F JCI earnings growth to reach 7.0% YoY, far below regional avg. of 10.5% YoY. Our portfolio is a well-balanced mix, featuring defensive stocks that are expected to remain stable amid anticipated declines in purchasing power, as well as blue chip stocks that continue to offer high dividend yield. Our top picks are ICBP, TLKM, JPFA, HEAL, and BBRI.
Samuel Sekuritas Indonesia is a leading Indonesian securities brokerage firm. Established in 1997, the firm has grown to become one of the most respected and trusted financial services companies in the country. With a wide range of services and products, Samuel Sekuritas Indonesia has become a trusted partner to many investors, both institutional and individual.
The company offers a variety of financial services, including equity, debt and derivative securities brokerage services, research and portfolio management, asset management and capital market services, as well as a range of other investment solutions. Samuel Sekuritas Indonesia is also a leader in providing financial education and training, and has established itself as a leading provider of investor relations services.
The company has a strong research capability and is committed to providing its clients with up-to-date and reliable market analysis and recommendations. It also has a team of experienced and knowledgeable professionals who are dedicated to providing quality service to its clients. As a result, Samuel Sekuritas Indonesia has become a preferred partner for many investors in Indonesia.
In addition to its financial services, Samuel Sekuritas Indonesia also offers a range of other services, such as corporate finance and advisory services, mergers and acquisitions, and venture capital.
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