R e g i o n a l M o r n i n g N o t e s Wednesday, 24 April 2019

STRATEGY – INDONESIA
Second Term: Construction, Telco And Manufacturing
With Jokowi likely to win his second term, we view continuous investment in TOP PICKS
infrastructure, technology and human resource as likely. Construction companies Price Target Potential
23 Apr 19 Price Upside
such as WIKA, WTON and PTPP, telco companies such as TLKM and EXCL, and Ticker Rec (Rp) (Rp) (%)
manufacturing companies such as ASII are beneficiaries. 2018 net income growth ASII BUY 7,650 8,200 7.19%
was below expectation, driven by hefty losses in the telco sector. With lower TLKM BUY 3,850 4,500 16.88%
HMSP BUY 3,460 4,600 32.95%
earnings growth, we lower our target price for the JCI to 6,700 (from 7,400). WIKA BUY 2,420 Under Review NA
WTON BUY 650 760 16.92%
• Quick count and real count point to second term for Jokowi. The quick count sample PTPP BUY 2,460 2,800 13.82%
votes have reached more than 95% at almost all the rating agencies with a median of EXCL HOLD 2,930 2,770 -5.46%
ADHI BUY 1,790 Under Review NA
54.55% of the votes. However, the real count will be finalised by 23 May 19. Currently, MAPI BUY 960 1,170 21.88%
the total votes count has reached 18.8% of the total and Jokowi is leading by 54.89% Source: Bloomberg, UOB Kay Hian
compared with Prabowo’s 45.11%. This points to Jokowi winning his second term
SECTOR RATING
• Infrastructure spending could remain high. We are of the view that infrastructure Sector UOBKH Rating
spending will continue to remain high during Jokowi’s second term. We could see further Automobile OVERWEIGHT
Cement OVERWEIGHT
development in Jakarta MRT, Patimban port, Java mid speed rail and Trans Sumatera toll
Construction OVERWEIGHT
road. The beneficiaries of this continued infrastructure programme will be construction Consumer OVER WEIGHT
companies such as WIKA, PTPP, WTON, etc. Finance& Banking MARKET WEIGHT
Oil & Gas MARKET WEIGHT
• Watch out for investment in technology and human resources. We are also of the Plantation OVER WEIGHT
view that Jokowi could focus on technology infrastructure development as the concept of Telco MARKETWEIGHT
Property UNDERWEIGHT
“unicorns” has been repeatedly discussed during the Presidential debate. With Palapa
Poultry UNDERWEIGHT
Ring fiber optic West and Central loops completed under Jokowi’s first term, we could see Retail OVERWEIGHT
land connections into cities and homes across Indonesia. In addition, we could see Source: UOB Kay Hian
increased spending in education and healthcare. Beneficiaries are telco and cable
companies such as TLKM, EXCL, and LINK.
• 2018 earnings below expectation, growing only 3.6%. 2018 net income is below
expectation, growing at 3.6% compared with our expectation of 12.8%. For 2019 and
2020 respectively, consensus is forecasting a 15.7% and 10.9% while we had originally
forecasted 12.5% and 12.5%. With the weak 2018 results, we lower our net income
forecasts for 2019 to 10% while keeping our 2020 JCI EPS at 12.5%. We still expect a
double-digit EPS growth as we expect EXCL and ISAT turn to profit in 2019, from their
heavy losses in 2018.
• Lowering JCI target to 6,700. With our earnings growth adjusted downward in 2018, we
also lower our growth rate for 2019 and lower our Dec 19 target price for the JCI to 6,700.
Our target price incorporates a 10% earnings growth assumption in 2019 and 12.5%
earnings growth in 2020. We use the multiple of 14.25x (-0.5 SD 5-year average); which
is near the 10-year average PE of 14x. ANALYST(S)

• We like construction, consumer and manufacturing. We prefer construction stocks Stevanus Juanda
+6221 2993 3845
WIKA, WTON and PTPP. We also like consumer plays (HMSP, MAPI), given their
stevanusjuanda@uobkayhian.com
positive earnings momentum, and manufacturing names such as ASII.

SELECTED COMPANIES – VALUATION

Price Target Potential Market 3M Avg -------- PE ------- ----- P/B ----- ROE Div. Yield Net
23 Apr 19 Price Upside Cap Turnover 2019F 2020F 2019F 2020F 2019F 2020F 2019F Gearing
Ticker Rec (Rp) (Rp) (%) (US$m) (US$m) (x) (x) (x) (x) (%) (%) (%) (%)
ASII BUY 7,650 8,200 7.19 21,946 22.6 13.8 12.6 2.0 1.9 16.0 16.3 3.2 34.5
TLKM BUY 3,850 4,500 16.88 27,026 21.3 15.8 14.5 3.6 3.5 24.0 24.0 4.1 7.3
HMSP BUY 3,460 4,600 32.95 28,519 5.7 25.5 23.3 10.7 10.1 43.2 44.9 3.5 (43.6)
WIKA BUY 2,420 Under Review NA 1,538 4.2 10.3 7.6 1.3 1.1 14.5 15.8 2.1 (2.2)
WTON BUY 650 760 16.92 401 1.9 9.6 7.5 1.6 1.4 15.3 16.7 2.6 32.4
PTPP BUY 2,460 2,800 13.82 1,081 4.4 7.0 5.0 1.0 0.9 13.1 13.3 2.5 18.6
EXCL HOLD 2,930 2,770 -5.46 2,219 4.2 50.2 26.6 1.5 1.4 1.4 3.1 0.8 120.1
ADHI BUY 1,790 Under Review NA 452 1.3 4.9 4.3 0.9 0.8 19.0 20.0 2.8 84.2
MAPI BUY 960 1,170 21.88 1,129 1.4 18.5 15.6 2.8 2.5 15.0 15.7 0.9 16.7
Source: UOB Kay Hian

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R e g i o n a l M o r n i n g N o t e s Wednesday, 24 April 2019

PRESIDENTIAL ELECTION 2018 EARNINGS BREAKDOWN BY MARKET CAP

REAL COUNT as 23 April 7:25AM Jokowi Prabowo Row Labels BELOW US$1BN BETWEEN US$1BN TO US$3BN OVER US$ 3 BN Grand Total

ABOVE 6 14 8 28
Total Votes   15,972,166   13,128,408
BELOW 19 14 6 39
Percentage 54.89% 45.11% IN‐LINE 11 8 10 29
QUICK COUNT >99% SAMPLE Jokowi Prabowo Grand Total 36 36 24 96
Kompas 54.45 45.55 Row Labels BELOW US$1BN BETWEEN US$1BN TO US$3BN OVER US$ 3 BN Grand Total
ABOVE 16.7% 38.9% 33.3% 29.2%
Indo Barometer 54.35 45.65
BELOW 52.8% 38.9% 25.0% 40.6%
Denny LSI 55.71 44.29 IN‐LINE 30.6% 22.2% 41.7% 30.2%
Median 54.55 45.45 Grand Total 100.0% 100.0% 100.0% 100.0%
Source: Kompas. Detik, UOB Kay Hian Source: Bloomberg, UOB Kay Hian

LEGISLATIVE ELECTION 2018 SECTORAL EARNINGS BREAKDOWN

Political Real Count Quick Count LSI Indo Litbank Populi Row Labels ABOVE IN-LINE BELOW Grand Total ABOVE IN-LINE BELOW
Automobile 2 2 0.0% 100.0% 0.0%
No Party  @ 5.45% Charta Politika Indikator Denny  Barometer Kompas Center Cement 3 1 4 75.0% 25.0% 0.0%
1 PDI ‐ Perjuangan           19.71                   19.83       19.12   19.79           19.49    20.19 19.70 Chemical 1 1 0.0% 0.0% 100.0%
2 Golkar           13.97                   12.74       12.92   12.51           13.37    11.76 12.30 Coal 2 2 4 8 25.0% 25.0% 50.0%
Conglomerate 1 1 0.0% 0.0% 100.0%
3 Gerindra           11.34                   11.06       12.10   12.24           11.64    12.81 12.40
Construction 2 2 2 6 33.3% 33.3% 33.3%
4 Nas Dem             9.64                     7.79          9.06      8.51             7.84      8.18    7.80 Consumer 5 3 2 10 50.0% 30.0% 20.0%
5 PKS             8.21                     8.90          8.22      8.04             8.79      8.54    8.20 Financial 3 7 2 12 25.0% 58.3% 16.7%
6 PKB             8.14                     9.65       10.14      9.76             9.66      9.34 10.20 Healthcare 1 2 3 0.0% 33.3% 66.7%
Infrastructure 1 1 2 0.0% 50.0% 50.0%
7 Demokrat             7.72                     7.77          7.51      6.80             7.63      8.06    7.30 Manufacturing 2 2 0.0% 100.0% 0.0%
8 PAN             6.91                     6.96          6.49      6.16             6.83      6.57    6.30 Media 1 1 1 3 33.3% 33.3% 33.3%
9 PPP             4.15                     4.82          4.45      4.34             4.44      4.65    4.60 Metal 1 2 3 33.3% 0.0% 66.7%
Oil & Gas 2 1 3 66.7% 0.0% 33.3%
10 Perindo             2.68                     2.77          2.63      2.96             2.67      2.86    2.80
Paper 2 2 0.0% 0.0% 100.0%
11 PSI             2.08                     2.11          2.05      2.41             2.07      2.06    2.00 Plantation 3 5 8 37.5% 0.0% 62.5%
12 Berkarya             2.08                     2.04          1.90      2.35             2.12      2.11    2.30 Poultry 1 1 2 0.0% 50.0% 50.0%
Property 2 2 5 9 22.2% 22.2% 55.6%
13 Hanura             1.52                     1.76          1.59      1.85             1.64      1.35    1.60
Retail 2 3 2 7 28.6% 42.9% 28.6%
14 PBB             0.98                     1.02          0.90      0.91             1.84      0.76    0.99 Telco 2 3 5 40.0% 0.0% 60.0%
15 Garuda             0.52                     0.53          0.51      0.99             0.57      0.53    0.70 Transportation 1 2 3 0.0% 33.3% 66.7%
16 PKPI             0.34                     0.27          0.24      0.39             0.27      0.23    0.40 Grand Total 28 29 39 96 29.2% 30.2% 40.6%

Source: Kompas. Detik, UOB Kay Hian Source: Bloomberg, UOB Kay Hian

TOP 10 GAINERS IN THE 6 MONTHS POST 2014 ELECTIONS JCI VALUATION

Return
----% Change----
‐2SD ‐1SD Average +1SD +2SD
Ticker mom 3 Months 6 Months 9 Months 12 Months EPS 12.8 13.7 14.8 15.9 17.1
ADHI IJ 9.8 (4.6) 113.6 68.8 26.9
CTRS IJ (7.4) (10.8) 86.6 14.3 (22.1) EPS +10%  528   6,752    7,227       7,807   8,387   9,020
WSKT IJ 16.1 (3.2) 82.6 34.8 16.1
PTPP IJ 17.7 6.3 76.1 84.0 94.8
EPS +5%  504   6,445    6,898       7,452   8,006   8,610
INCO IJ (4.8) 17.4 70.7 46.8 97.3 EPS Base  480   6,138    6,570       7,097   7,625   8,200
MEDC IJ 12.0 35.4 63.0 38.1 118.5
BBRI IJ 13.2 9.8 52.6 41.5 54.1 EPS ‐5%  456   5,831    6,241       6,742   7,244   7,790
TINS IJ 4.0 6.6 51.2 29.2 120.4
TOTL IJ 2.6 (12.6) 47.2 7.4 (17.2)
EPS  ‐10%  432   5,524    5,913       6,388   6,862   7,380
WIKA IJ 10.4 (0.2) 47.1 32.3 44.1
JCI IND 2.9 2.1 19.6 12.7 14.1
Source: Bloomberg Source: Bloomberg, UOB Kay Hian

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