MNCS Morning Navigator 02 September 2020

Global Market Highlight

DJIA slipped by +0.76% on Tuesday (01/09) followed by the strengthening of S&P 500 (+0.75%) and Nasdaq (+1.39%). The strengthening of global exchanges is still dominated by technology stocks that have reported positive performance amid the pandemic. Optimism for the signal of economic recovery was also increasingly evident with the increase in crude oil prices towards USD43/barrel. Moreover, the market will look forward to several data releases today, such as: 1) US MBA Mortgage Application; 2) US ADP Employment Change; 3) US Factory Orders.

Domestic Updates

1.       Deflation occurred in August 2020 at 0.05% MoM, while the rate rose by 1.32% on a yearly basis, in which the highest deflation occurring in Kupang at 0.92%. As a result, Consumer Price Index is 104.90. Deflation occurred in the decrease in prices in mainly the food, beverage, and tobacco sectors, decreasing by 0.86%, followed by the transportation sector, falling by 0.14%. Meanwhile, the expenditure group that increased in the index the most was the education sector, rising by 0.57%.
2.       The IHS Market Indonesia Manufacturing PMI rose to 50.8 in August 2020, from 46.9 in the prior month. This was the first growth in the sector since February, as business operations continued to recover thanks to the easing of restrictions. However, export sales fell again, as global demand remained subdued. Also, firms continue to reduce purchasing activity and employment to control costs. On the price front, input cost inflation quickened due to higher prices for raw materials and an unfavorable exchange rate.

Company News

1. MEDC IJ eyes for an injection of funds through the issuance of rights or rights issues, totaling to a maximum of 7.5 billion common shares with a nominal value of IDR25, which is also equivalent to IDR1.87 trillion. Proceeds will be used for working capital for the company and its subsidiaries. Shareholders who do not exercise their rights in the LPO III will experience a decrease in dilution at a maximum of 29.50% (Market Bisnis). MNCS Comment: We see that the purpose of MEDC's rights issue is not only to maintain the company's working capital, but also to increase the company's liquidity. MEDC is currently traded at 0.52x PBV.
2. INKP IJ issued bonds worth of IDR1.8 trillion through phase II of sustainable public offering (PUB) I. 60% of the proceeds from the bond issuance will be used for debt repayment needs and the rest for the company’s working capital. The company will offer the bonds in three series, namely: 1) Series A, worth IDR925.6 billion with a fixed interest rate of 9.25% per year and a tenor of 370 days; 2) Series B valued at IDR597.85 billion with a fixed interest rate of 10.5% per year with a 3-year tenor; and 3) Series C valued at IDR276.55 billion, with interest rate at 11.5% per year and tenor of 5 years (Investor Daily). MNCS Comment: INKP still has room for raising fund as their current DER position is still at 0.98x, which is manageable. Moreover, we expect the remaining cash will be useful for working capital as INKP already running at full capacity despite Covid-19 outbreak. WSKT is currently traded at 0.59x PBV.
3. GEMA IJ plans to pay dividends of IDR8 billion, or 30.9% of total net income for the FY19 net profit. This is equivalent to a cash dividend of IDR5 per share. For FY19, GEMA has succeeded in boosting its revenue by 0.8% YoY to IDR1.18 trillion, and net profit by 19.5% YoY to IDR25.84 billion. As a result, the payout ratio is 30.96%, and the dividend yield is 1.45%  (Kontan). MNCS Comment: we think dividend distribution in the midst of a challenging business is extraordinary at this point. However, investors should pay attention to the company's cash flow in FY20E. GEMA is currently traded at 172x/3.06x PE/PBV.

IHSG Updates

JCI rose by +1.38% to 5,310.68 on Tuesday (01/09) followed by net foreign sell reaching IDR699.76 billion. JCI rebounded amid various index movement from Regional Asia Indices while the rise was backed by the PMI Markit manufacturing data release which indicates that Indonesia has return to expansion. Moreover, the monthly deflation that occurred did not seem to bring the market down.  Meanwhile, the Rupiah exchange rate was weakening at IDR14,572. We estimate JCI will move in the range of 5,220-5,350 while waiting for foreign exchange reserve data release. Today's recommendation: SIDO, BBRI, TINS, CPIN.

Corporate Action

Cum Dividend Date: ULTJ, TKIM, INKP

Disclaimer On

MEDC, GEMA, INKP, SIDO, BBRI, TINS, CPIN