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IDR best regional performing currency MTD on steeper-than-expected Fed rate cut. The release of the US Jul-24 CPI inflation data (2.9% YoY), which came slightly below Jun-24 data and market consensus of 3% YoY, supported the case for Fed rate cut at the central bank’s September meeting. Moreover, the jump in unemployment rate to 4.3% in July, signaling a weakening US job market, may motivate The Fed in September to cut its benchmark interest rate even higher (>25 bps) than previously expected. As a result, Fed rate cut expectations have shifted to a faster pace, with the majority of market players now forecasting 75bps cut in 2H24, and some economists even predicting total cut of 100bps throughout the rest of 2024. Consequently, USD lost some of its ground, leading to appreciation of global currencies against the DXY of up to ~1.1% MTD in Aug-24. For IDR, as of 15 August 2024, it had appreciated to IDR 15,700/USD, +3.5% MTD, the best performing currency in the region (Table 2).
Foreign investors may return to finance and telco sectors. Despite the huge MTD foreign capital inflow into JCI of IDR 3.9tn, foreign ownership in Indonesian equities remains relatively low, standing at 40% in Jul-24 vs 5-year average of 45%. However, we believe the figure could change in the near future as foreign investors may return to sectors that have been oversold YTD, particularly finance and telcos, with BBRI (which booked weak 1H24 results amid higher CoC) and TLKM (which introduced Telkomsel Lite in Feb-24) as stock candidates for bottom-fishing.
Consumer sector as the main beneficiary of USD/IDR appreciation. Among all sectors under our coverage, we expect consumer to be the main beneficiary of USD/IDR appreciation as most consumer companies’ cost structure is heavily tied to USD; the majority of our consumer coverage has significant USD exposure in COGS (~60-70%). However, we believe the positive impact will be most pronounced for ICBP, considering that 97% (USD 2.8bn) of its debt structure consists of USD-denominated bonds, which resulted in large 1H24 FX losses (IDR 2.75tn) amounting to 50% of pre-tax profit. Note that INDF also benefits given that ICBP’s USD debt are fully consolidated onto the parent company’s balance sheet.
Retain end-2024 JCI target at 7,400; with ICBP, SIDO, BMRI, BBCA, & ISAT as top picks. While the recent strong performance of the IDR is positive for Indonesia’s growth, the local currency’s strength might also be utilized as a profit taking mechanism by foreign investors. That said, we retain our fundamental base case scenario for JCI’s 2024F target at 7,400, implying FY24 PE of 13x (Regional avg: 11.7x). Post-2Q24 results, we project 2024F JCI earnings growth only to reach 2.5% YoY (Regional avg: 11.6% YoY), requiring focus on companies with strong fundamentals that have the potential to generate above-average and sustainable earnings growth in the short-to-medium term. In this regard, our top picks are ICBP, SIDO, BMRI, BBCA, and ISAT which are beneficiaries of foreign inflows and USD/IDR appreciation.
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.
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