MNCS Morning Navigator 04 September 2020

Global Market Highlight

DJIA dropped by -2.78% on Thursday (03/09) followed by the weakening of S&P 500 (-3.51%) and Nasdaq (-4.96%). The fall was driven by technology stocks namely: 1) Apple (- 8%), followed by Microsoft (-6.2%), Facebook (-3.8%), Amazon (-4%), Alphabet (-5.1%) and Netflix (-4%). The Department of Labor released an update on the number of US citizens filing for unemployment benefits for the first time reaching of 881,000 in the last week of August which is better than market expectation. Economists polled estimated the number of new claims to reach 950,000 last week, or a decrease compared to the previous week's position which exceeded 1 million people. Moreover, the market will look forward to several data releases today, such as: 1) US Non Farm Payroll; 2) US Unemployment Rate; 3) Canada Unemployment Rate.

Domestic Updates

1.       The Minister of Finance announced that the income tax incentive (Pph) articles 21, 22, and 25 will no longer be given next year. The only ensured tax incentive for the 2021 National Economic Recovery Program is the return or refund of value-added tax (VAT). Meanwhile, the total tax incentive budget for the 2020 National Economic Recovery Program will have a ceiling of IDR20.4 trillion. This ceiling is only 16.9% of last year’s ceiling, which is IDR120.61 trillion. For the record, this year’s tax incentives are provided in the form of VAT refunds, reduced installments (article 25), imports (article 22), and DPT (article 21), along with decreased corporate income tax rates from 25% to 22%.
2.       Indonesia has a lackluster tax revenue this year due to the Covid-19 pandemic, reaching only 50% of the target so far. Thus, the estimated tax revenue in 2020 is only around IDR1,239 trillion, and this will cause a swelling budget deficit. To mitigate, the government will cut expenditure budget rather than new debt so that the year-end deficit remains at the level of 6.34% of GDP.

Company News

1. WSKT IJ is releasing 30% of its share ownership in PT Kresna Kusuma Dyandra Marga, and this is worth IDR550 billion. The shares released will be absorbed by investors who have gathered in the limited placement mutual fund collective investment contract. Management also added that the Becakayu toll road segment is one of the several projects that are included in the company’s divestment plan this year, along with Kanci-Pejagan and Pejagan-Pemalang toll roads (Market Bisnis). MNCS Comment: This corporate action is an effort by WSKT to maintain the company's cash flow, this is because at this time WSKT really needs additional cash so that it can improve and stabilize cash flow and reduce the DER. WSKT is currently traded at 0.58x PBV.
2. GOOD IJ will buy back its shares with a maximum limit of 2% of the company’s shares, allocating IDR100 billion. The company’s internal cash will be the primary source of funding, and management said that this will not have a significant impact on the overall financial and operational aspects. The shares that they will buy back will be treasury shares, meaning that one day they will release it back to the public. The reason for the buyback is to reduce the impact of current market fluctuations (Market Bisnis). MNCS Comment: We believe that buyback strategy will help to maintain its liquidity as GOOD already grew by 20.37% from the lowest level this year. GOOD is currently traded at 17.11x/3.54x PE/PBV.
3. MDLN IJ once again failed to pay its debt, which worth USD8 million, so the rating agency Fitch lowered the debt rating. The downgrade went from C to CC. The debt was in the form of a 2021 bond coupon and was supposed to mature on August 31, 2020. MDLN is currently entering a grace period. With this failure, Fitch believes that the company does not have sufficient funds to pay off the next coupon payment set on October 13, 2020, that worth USD8 million. As a result, MDLN will extend the deadline with lower interest rates from 12.5% to 10% (Market Bisnis). MNCS Comment: Management must be able to find a way out in paying these bonds, this has the potential to raise investors' concerns about MDLN. MDLN is currently traded at 0.10x PBV.

IHSG Updates

JCI decreased by -0.59% to 5,280.81 on Thursday (03/09) followed by net foreign sell reaching IDR839.43 billion. JCI was dragged by all sectors except Trade while negative sentiments came from the Government as Ministry of Finance stated that there will be an elimination of employee tax incentives followed by the decline on tax revenue this year. Investors seems to be profit taking as there's no more positive catalyst within the market. Meanwhile, the Rupiah exchange rate was weakening at IDR14,778. We estimate JCI will move in the range of 5,220-5,350 while waiting for foreign exchange reserve data release. Today's recommendation: RALS, BSDE, ADRO, GGRM.

Corporate Action

Cum Dividend Date: SMSM, JAYA

Disclaimer On

RALS, BSDE, ADRO, GGRM, WSKT, MDLN, GOOD